<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Nu Horizons Electronics Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
NU HORIZONS ELECTRONICS CORP.
--------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 24, 1998
--------------------------------
To the Stockholders of
NU HORIZONS ELECTRONICS CORP.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of NU
HORIZONS ELECTRONICS CORP. will be held on Thursday, September 24, 1998 at the
Company's Corporate Headquarters, 70 Maxess Road, Melville, New York at 10:00
a.m. (the "Annual Meeting"), for the following purposes:
1.) To elect three directors comprising the Class II Directors to serve until
the 2001 Annual Meeting of Stockholders or until their respective
successors have been duly elected and qualified;
2.) To consider and act upon such other business as may properly come before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on August 3, 1998
shall be entitled to vote at the Annual Meeting.
IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN
THE ENCLOSED PROXY IN ORDER THAT YOUR SHARES MAY BE VOTED FOR YOU AS SPECIFIED.
By Order of the Board of Directors,
Richard S. Schuster
Secretary
Dated: Melville, New York
August 10, 1998
<PAGE>
NU HORIZONS ELECTRONICS CORP.
70 Maxess Road
Melville, New York 11747
--------------------------------
ANNUAL MEETING OF STOCKHOLDERS
September 24 1998
--------------------------------
PROXY STATEMENT
The Annual Meeting of Stockholders of NU HORIZONS ELECTRONICS CORP. (the
"Company") will be held on Thursday, September 24, 1998 at the Company's
Corporate Headquarters, 70 Maxess Road, Melville, New York at 10:00 a.m. for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
This statement is furnished in connection with the solicitation by the Board of
Directors of proxies to be used at the Annual Meeting and at any and all
adjournments of such meetings.
If a proxy in the accompanying form is duly executed and returned, the
shares represented by such proxy will be voted as specified. Any person
executing the proxy may revoke it prior to its exercise either by letter
directed to the Company or in person at the Annual Meeting.
This Proxy Statement has been mailed on or about August 10, 1998 to all
stockholders as of the Record Date.
VOTING RIGHTS
On August 3, 1998 (the "Record Date"), the Company had outstanding
8,753,076 shares of one class of voting securities, namely shares of Common
Stock, $.0066 par value. Stockholders are entitled to one vote for each share
registered in their names at the closed of business on the Record Date. The
affirmative vote of a majority of the votes cast at the meeting is required for
approval of each matter to be submitted to a vote of the shareholders. For
purposes of determining whether proposals have received a majority vote,
abstentions will not be included in the vote totals and, in instances where
brokers are prohibited from exercising discretionary authority for beneficial
owners who have not returned a proxy (so called "broker non-votes"), those votes
will not be included in the vote totals. Therefore, abstentions and broker
non-votes will have no effect on the vote, but will be counted in the
determination of a quorum.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the record date, certain information
with regard to the record and beneficial ownership of the Company's Common Stock
by (i) all persons known to the Company to be beneficial owners of more than 5%
of the company's outstanding Common Stock, based on filings with the Commission;
(ii) each Director, (iii) the Company's Chief Executive Officer and the three
other most highly compensated executive officers of the Company; and (iv) all
executive officers and Directors as a group.
Name Shares Percent
---- ------ -------
Paul Durando 38,268 (1)(2) *
Herbert M. Gardner 49,945 (3) *
Harvey R. Blau 40,408 (3) *
Irving Lubman 282,087 (4)(5) 3.2%
Arthur Nadata 522,247 (4)(5)(6) 5.8%
Richard S. Schuster 541,650 (4)(5) 6.0%
Dominic Polimeni 3,333 (7) *
All Directors and Officers
as a Group (7 Persons) 1,477,938 15.9%
- ----------
NOTES:
(*) Less than 1% of the Company's outstanding stock.
(1) Includes options exercisable within 60 days for 33,750 shares of common
stock under the Company's Key Employees Stock Option Plan and the 1994
Stock Option Plan.
(2) Includes 4,518 shares of fully vested common stock owned through the
Employee's Stock Ownership Plan, which include voting power.
(3) Includes options exercisable within 60 days for 40,000 shares of common
stock under the Company's Outside Director Stock Option Plan.
(4) Includes options exercisable within 60 days for 236,150 shares of common
stock under the Company's Key Employees Stock Option Plan and the 1994
Stock Option Plan.
(5) Includes 14,399 shares of fully vested common stock owned through the
Employees Stock Ownership Plan, which include voting power. These Officers
are also Trustees of the Plan.
(6) Includes 45,398 shares held by his children as to which Mr. Nadata
disclaims beneficial ownership.
(7) Represents options exerciseable within 60 days for 3333 shares of common
stock under the Company's Outside Director Stock Option Plan.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a Board of
Directors consisting of not less than three nor more than eleven directors,
classified into three classes as nearly equal in number as possible, whose terms
of office expire in successive years. The following table sets forth the
directors of the Company.
Class I Class II Class III
(To Serve Until the (To Serve Until the (To Serve Until the
Annual Meeting of Annual Meeting of Annual Meeting of
Stockholders in 2000) Stockholders in 1998) Stockholders in 1999)
- --------------------- --------------------- ---------------------
Paul Durando Harvey Blau (1) Irving Lubman
Herbert Gardner (1) Dominic Polimeni (1) Arthur Nadata
Richard S. Schuster
(1) Member of Compensation and Audit Committees.
2
<PAGE>
The two directors in Class II are to be elected to hold office until the
Annual Meeting of Stockholders in 2001 or until their successors are chosen and
qualified. Shares represented by executed proxies in the form enclosed will be
voted, unless otherwise indicated, for the election as directors of the
aforesaid nominees, unless any such nominee shall be unavailable, in which event
such shares may be voted for a substitute nominee designated by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees will be unavailable or, if elected, will decline to serve.
The following information is submitted with respect to the nominees for
election at the Annual Meeting:
Director
Name Age Principal Occupation Since
- ---- --- -------------------- -----
Harvey R. Blau 62 Chairman of the Board 1984
of Griffon Corporation and
Aeroflex Incorporated
Dominic Polimeni 51 Chairman and Chief 1997
Executive Officer-Questron
Technology; Managing
Director-Gulfstream Financial
Group, Inc.
Richard S. Schuster 49 Vice President and Secretary 1982
of the Company; President of NIC
Components Corp.
The following information is submitted with respect to the four directors
who are not nominees at the Annual Meeting:
Director
Name Age Principal Occupation Since
- ---- --- -------------------- -----
Irving Lubman 59 Chairman of the Board and 1982
Chief Operating Officer
of the Company
Arthur Nadata 52 President and 1982
Chief Executive Officer
of the Company
Paul Durando 54 Vice President, Finance 1994
of the Company
Herbert M. Gardner 58 Senior Vice President 1984
Janney Montgomery Scott Inc.
and Chairman of the Board
of Supreme Industries, Inc.
Present Occupations of Directors
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.
3
<PAGE>
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.
RICHARD S. SCHUSTER has been Vice President, Secretary and a Director
since October 1982. For the seven years prior to joining the Company in November
1982, Mr. Schuster served as manager of Capar Components Corp., an importer and
distributor of passive components, and a wholly-owned subsidiary of Diplomat
Electronics Corp. For the six years prior to 1975, Mr. Schuster was employed by
International Components Corp., responsible for production, engineering and
sales of imported semiconductor and passive components.
PAUL DURANDO has been Vice President, Finance since joining the Company in
March 1991, Treasurer since September 1996 and has been a Director since
September 1994. Prior to joining the Company in March 1991, Mr. Durando served
for six years as Executive Vice President of Sigma Quality Foods, Inc. From 1977
to 1984, he was Vice President, Operations of the Wechsler Coffee Corp. Mr.
Durando was also associated with Deloitte Haskins & Sells for seven years.
HARVEY R. BLAU has been a director of the Company since May 1984. Mr. Blau
has been a practicing attorney in the State of New York since 1961, and is a
member of the law firm of Blau, Kramer, Wactlar & Lieberman, P.C., Jericho, New
York, counsel to the Company. Mr. Blau is Chairman of the Board of Griffon
Corporation and Aeroflex Incorporated and is a Director of Reckson Associates
Realty Corp.
HERBERT M. GARDNER has been a Director of the Company since May 1984. For
more than the past five years, Mr. Gardner has been Senior Vice President of
Janney Montgomery Scott Inc., investment bankers and Underwriter of the
Company's May 1984 public offering. Mr. Gardner is Chairman of the Board of
Supreme Industries Inc. and a director of Transmedia Network, Inc., TGC
Industries Inc., Hirsch International Corp., American Country Holdings Company
and Inmark Enterprises, Inc.
DOMINIC A. POLIMENI has been a Director of the Company since September
1997. Mr. Polimeni has been President, Chief Operating Officer and a Director of
Questron Technology, Inc. since March 1995, and Chairman and Chief Executive
Officer of Questron Technology, Inc. since February 1996. Mr. Polimeni has been
a Managing Director of Gulfstream Financial Group, Inc., a privately held
financial consulting and investment banking firm since August 1990. Prior to
that he held the position of Chief Financial Officer of Arrow Electronics, Inc.
for four (4) years. Mr. Polimeni also practiced as a Certified Public Accountant
for more than 12 years and was a Partner in the New York office of Arthur Young
and Company.
MANAGEMENT
Officers of the Company
The Company's executive officers are as follows:
Name Position held with the Company
- ---- ------------------------------
Irving Lubman....................... Chief Operating Officer and Chairman of
the Board
Arthur Nadata....................... President and Chief Executive Officer
Richard S. Schuster................. Vice President and Secretary
Paul Durando........................ Vice President, Finance and Treasurer
4
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and each of the three other executive officers for the
years ended February 28, 1998, February 28, 1997 and February 29, 1996.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation (1) Compensation
Securities
Name of Principal Fiscal Underlying All Other (2)
and Position Year Salary Bonus Options Compensation
------------ ---- ------ ----- ------- ------------
Irving Lubman 1998 $236,789 $344,370 -- $ 16,781
COO, Chairman 1997 229,893 446,843 100,000 14,945
of the Board 1996 226,545 586,608 50,000 16,660
Arthur Nadata 1998 $236,789 $344,370 -- $ 31,374
President and 1997 229,893 446,843 100,000 18,457
CEO 1996 226,545 586,608 50,000 22,357
Richard Schuster 1998 $236,789 $344,370 -- $ 18,922
Vice President, 1997 229,893 446,843 100,000 16,222
Secretary and 1996 226,545 586,608 50,000 17,663
President, NIC
Components Corp.
Paul Durando 1998 $138,942 $ 25,827 15,000 $ 1,389
Vice President, 1997 130,000 33,514 20,000 1,500
Finance and Treasurer 1996 125,000 45,000 20,000 1,250
- ----------
(1) No Other Annual Compensation is shown because the amounts of
perquisites and other non-cash benefits provided by the Company do not
exceed the lesser of $50,000 or 10% of the total annual base salary and
bonus disclosed in this table for the respective officer.
(2) The amounts disclosed in this column include the Company's
contributions on behalf of the named executive officer to the Company's
401(k)-retirement plan in amounts equal to a maximum of 1% of the
executive officer's annual salary and, for Messrs. Lubman, Nadata and
Schuster contributions to life insurance policies where the Company is not
the beneficiary, and the cost to the Company of the non-business use of
Company automobiles used by executive officers.
- ----------
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 $226,545 for
each officer in 1997, which shall be increased each year by the change in the
consumer price index, and also entitle two of the three officers to an annual
bonus equal to 3.33%, and the third officer to 2.33%, (9% in the aggregate) of
the Company's consolidated earnings before income taxes. Benefits are also
payable upon the occurrence of either a change in control of the Company, as
defined, or the termination of the officer's employment, as defined. In the
event the employee terminates his employment within six months after a change in
control of the Company, he will receive a lump sum payment equal to three-
quarters of the remaining compensation under his employment agreement. Each
Contract also provides for certain payments of the executive salary, performance
bonuses and other benefits in the event of death or disability of the officer
for the balance of the period covered by the agreement.
5
<PAGE>
The following table sets forth certain information with respect to stock
options granted to the officers named in the Summary Compensation Table during
the fiscal year ended February 28, 1998.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
% of at Assumed
Total Annual Rates
Options Exercise of Stock Price
Options Granted to Price Expiration Appreciation for
Granted(1) Employees ($ per share) Date Entire Term (2)(3)
---------- --------- ------------- ---- ------------------
5% 10%
----- -------
<S> <C> <C> <C> <C> <C> <C>
P. Durando 15,000 15.2% 8.56 9/18/02 $35,400 $78,450
</TABLE>
- ----------
(1) Options were granted for a term of five years, subject to earlier
termination on termination of employment. Options become exercisable in
four equal annual installments commencing one year from the date of grant.
(2) These amounts represent assumed rates of appreciation, which may not
necessarily be achieved. The actual gains, if any, are dependent on the
market value of the Company's stock at a future date as well as the option
holder's continued employment throughout the vesting period. Appreciation
reported is net of exercise price.
(3) Potential Realizable Value is based on the assumed annual growth rates for
the five-year option term. Annual growth of 5% results in a stock price of
$10.92 per share and 10% results in a price of $13.79 per share for Mr.
Durando on the shares granted at $8.56. Actual gains, if any, on stock
option exercises are dependent on the future performance of the stock as
well as the option holder's continued employment throughout the vesting
period. There can be no assurance that the amounts reflected in this table
will be achieved. Appreciation reported is net of exercise price.
6
<PAGE>
The following table sets forth certain information as to each exercise of
stock options during the fiscal year ended February 28, 1998 by the persons
named in the Summary Compensation Table and the fiscal year end value of
unexercised options:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR-END OPTIONS/SAR VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY End at FY End
Acquired on Value Exercisable/ Exercisable/
Exercise Realized(1) Unexercisable Unexercisable
-------- ----------- ------------- -------------
Irving Lubman -- -- 161,488 --
137,162 --
Arthur Nadata -- -- 161,488 --
137,162 --
Richard Schuster -- -- 161,488 --
137,162 --
Paul Durando -- -- 24,375 $ 3,412
41,875 --
- ----------
(1) Market value less exercise price, before payment of applicable federal or
state taxes.
Directors who are not employees of the Company receive an annual fee of
$2,000 for Board Membership and $500 for each Board of Directors or Committee
meeting attended. There were three meetings of each of the Board of Directors
and the Compensation Committee during the fiscal year ended February 28, 1998.
Each director attended or participated in all of the meetings of the Board of
Directors and the committees thereof on which he served, except for one
director, who attended two of three board meetings.
For the fiscal year ended February 28, 1998, there was one meeting of the
Audit Committee. The Company's Audit Committee is involved in discussions with
the Company's independent public accountants with respect to the scope and
results of the Company's year-end audit, the Company's internal accounting
controls and the professional services furnished by the independent auditors to
the Company. During fiscal 1998, the Company had no standing Nominating
Committee or any committee performing similar functions.
Key Employees Stock Incentive Plan:
The Company has a Key Employees Stock Incentive Plan ("Plan"), approved by
the stockholders in 1984, as amended in September 1987, which presently covers
712,765 shares of Common Stock. Options are currently outstanding for 197,450
shares and no shares are currently available for grant. The Plan is intended to
provide an additional means of inducing executives and other "key salaried
employees" of the Company (which is defined under Section 422A of the Internal
Revenue Code) to join and remain with the Company by offering them a greater
share of the Company's stock and a greater identification with the Company.
7
<PAGE>
The Board of Directors or a Committee, which may be appointed and
maintained by the Board, shall have the power to administer the Plan. The Board
or Committee has full power and authority: (i) to designate participants; (ii)
to designate options or any portion thereof as Incentive Stock Options ("ISO");
(iii) to determine the terms and provisions of respective option agreements
(which need not be identical) including, but not limited to, provisions
concerning the time or times when and the extent to which the stock options
("Options") and Stock Appreciation Rights ("SARs") may be exercised and the
nature and duration of restrictions as to transferability or constituting
substantial risk forfeiture; (iv) to accelerate the right to an optionee to
exercise in whole or in part any previously granted ISO including any options
modified to qualify as ISOs; and (v) to interpret the provisions and supervise
the administration of the Plan. The Board has appointed the Compensation
Committee to administer the Plan.
The purchase price of each share subject to an Option or any portion
thereof, which has been designated by the Board or the Committee as an ISO,
shall not be less than 100% (or 110%, if at the time of grant the optionee owns
more than 10% of the voting stock of the Company) in the case of options
designated as ISOs or 85% in case of options not designated as incentive stock
options, of the fair market value of such shares on the date the option is
granted. In no event shall the option price be less than the par value of the
stock.
1994 Stock Option Plan:
In September 1994, the Company's stockholders approved the 1994 Stock
Option Plan (the "1994 Plan"), as amended in September 1996, under which key
employees and officers of the Company, its subsidiaries and affiliates may be
granted options to purchase an aggregate of 1,100,000 shares of the Company's
Common Stock. The 1994 Plan is administered by the Compensation Committee,
consisting of at least two members of the Board of Directors. The Compensation
Committee, subject to provisions in the 1994 Plan, has the authority to
designate, in its discretion, which persons are to be granted options, the
number of shares subject to each option, and the period of each option. Each
recipient must be an employee of the Company at the time of grant and throughout
the period ending on the day three months before the date of exercise. Under the
terms of the 1994 Plan, the exercise price of the shares subject to each option
granted will be not less than 85% nor more than 100% of the fair market value at
the date of grant or 110% of such fair market value for options granted to any
employee to or director who owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company.
Adjustments will be made to the purchase price in the event of stock dividends,
corporate reorganizations, or similar events. During fiscal 1998, 98,500 options
were granted under the 1994 Plan with exercise prices of $8.56 and $5.88.
Options are currently outstanding for 1,084,000 shares and 16,000 options are
currently available for grant. No options to purchase shares granted under the
1994 Plan have been exercised.
The Compensation Committee of the Board of Directors has the
responsibility and authority to administer and interpret the provisions of the
1994 Plan. The Compensation Committee shall appropriately adjust the number of
shares for which awards may be granted pursuant to the 1994 Plan in the event of
reorganization, recapitalization, stock split, reverse stock split, stock
dividend, exchange or combination of shares, merger, consolidation, rights
offering or any change in capitalization. The Board may, from time to time,
amend, suspend or terminate any or all of the provisions of the 1994 Plan,
provided that, without the participant's approval, no change may be made which
would prevent an ISO granted under the 1994 Plan from qualifying as an ISO under
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code") or
results in a modification of the ISO under Section 425(h) of the Code or
otherwise alter or impair any right theretofore granted to any participant; and
further provided that, without the consent and approval of the holders of a
majority of the outstanding shares of Common Stock of the Company present at
that meeting at which a quorum exists, neither the Board not the Committee may
make any amendment which (i) changes the class of persons eligible for options;
(ii) increases (except as provided under Section 1.6 of the 1994 Plan) the total
number of shares or other securities reserved for issuance under the 1994 Plan;
(iii) decreases the minimum option prices stated in Section 2.2 of the 1994 Plan
(other than to change the manner of determining Fair
8
<PAGE>
Market Value to conform to any then applicable provision of the Code or any
regulation thereunder); (iv) extends the expiration date of the 1994 Plan, or
the limit on the maximum term of options; or (v) withdraws the administration of
the 1994 Plan from a committee consisting of two or more members, each of whom
is a Disinterested Person. With the consent of the Participant affected thereby,
the Committee may amend or modify any outstanding option in any manner not
inconsistent with the terms of the 1994 Plan.
1998 Stock Option Plan
In May 1998, the Board of Directors adopted the Nu Horizons Electronics
Corp. 1998 Stock Option Plan (the "1998 Option Plan"), under which any director,
officer, employee or consultant of the Company, a subsiary or an affiliate may
be granted options to purchase an aggregate 350,000 shares of the Company's
Common Stock. The 1998 Option Plan is to be administered by the Board of
Directors of the Company; provided, however, that the Board may, in the exercise
of its discretion, designate from among its members a Compensation Committee or
a Stock Option Committee (the "Committee") consisting of no fewer than two
Non-Employee Directors, as defined by Rule 16b-3 under the Securities Exchange
Act of 1934. The Board intends that its Compensation Committee will administer
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 or the Committee shall also, subject to the express
provisions of the 1998 Option Plan, have the authority to interpret the 1998
Option Plan and to prescribe, amend and rescind the rules and regulations
relating to the 1998 Option Plan. Only non-qualified stock options may be
granted under the terms of the 1998 Option Plan. The exercise price for the
options granted under the 1998 Option Plan will be not less than such fair
market value. 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.
Outside Director Stock Option Plan:
In September 1994, the Company's stockholders approved the Outside
Directors Stock Option Plan (the "Director Plan") which covers 150,000 shares of
the Company's Common Stock. The primary purposes of the Director Plan are to
attract and retain well-qualified persons for service as directors of the
Company and to provide such outside directors with the opportunity to increase
their proprietary interest in the Company's continued success and further align
their interests with the interests of the stockholders of the Company through
the grant of options to purchase shares of the Company's Common Stock.
All directors of the Company who are not employees of the Company,
of which there are presently three, are eligible to participate in the Director
Plan. None of the non-employee directors are eligible to participate in any of
the other compensation plans of the Company.
The Board of Directors of the Company may amend the Director Plan
from time to time in such manner as it may deem advisable. The provisions of the
Director Plan relating to (i) which directors shall be granted options; (ii) the
amount of Shares subject to options granted; (iii) the price at which shares
subject to options may be purchased; and (iv) the timing of grants of options
shall not be amended more than once every six (6) months, other than to comport
with changes in the Code or the Employee Retirement Income Security Act of 1974,
as amended. No amendment to the Director Plan shall adversely affect any
outstanding option, however, without the consent of the optionee that holds such
option.
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.
9
<PAGE>
Under the Director Plan, each non-employee Director ("Outside Director")
in office on June 1, 1994 received options to purchase 10,000 shares of Common
Stock at a price of $8.25 per share (the price of shares of Common Stock on June
1, 1994) and on the June 1 of each subsequent year each non-employee director
has or will be granted options to purchase 10,000 shares of Common Stock at a
price equal to the closing price of the Common Stock on a national securities
exchange upon which the Company's stock is listed or the average of the mean
between the last reported "bid" and "asked" prices if the Common Stock is not so
listed for the five business days immediately preceding the date of grant.
Options awarded to each outside director vest in three equal installments over a
period of two years, subject to forfeiture under certain conditions and shall be
exercisable by the Outside Director upon vesting.
Summary of Fiscal 1998 Stock Option Grants:
During fiscal 1998, the Company granted options to purchase 15,000 shares
to Mr. Durando at a price of $8.56 per share and options to purchase 10,000
shares to each of Messrs. Blau, Gardner and Polimeni at a price of $8.99 per
share.
Employee Stock Ownership Plan:
In January 1987, the Company adopted an Employee Stock Ownership Plan
("ESOP" or "Plan") which covers substantially all of the Company's employees.
The ESOP is managed by three Trustees, Messrs. Lubman, Nadata and Schuster (the
"Trustees"), who vote the securities held by the Plan (other than securities of
the Company which have been allocated to employees' accounts).
The annual contributions to the Plan are to be in such amounts, as the
Board of Directors in its sole discretion shall determine. Each employee who
participates in the Plan has a separate account and the annual contribution by
the Company to an employee's account is not permitted to exceed the lesser of
$30,000 (or such other limit as may be the maximum permissible pursuant to the
provisions of Section 415 of the Internal Revenue Code and Regulations issued
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
with respect to the Company's securities held in the Plan, 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, employees generally becoming fully vested after six years.
Benefits are payable to employees at retirement or upon death, disability
or termination of employment, with payments commencing no later than sixty days
following the last day of the Plan year in which such event occurred. Subject to
the right of the employee to demand payment in the form of the Company's Common
Stock, all benefits are payable in cash or in Common Stock, at the discretion of
the Trustees.
The Trustees are empowered to borrow funds for the purpose of purchasing
the Company's securities. The securities so purchased are required to be held in
an acquisition indebtedness account, to be released and made available for
reallocation as principal is repaid. In May, 1997 the Company, on behalf of the
ESOP, entered into a revolving credit agreement with its bank which provides for
a $3,000,000 revolving line of credit at the bank's prime rate until May 22,
2001. Direct borrowings under this line of credit are payable in forty-eight
equal monthly installments commencing with the fiscal period subsequent to such
borrowings. At February 28, 1998, the ESOP owned 446,487 shares at an average
price of approximately $3.79 per share.
10
<PAGE>
401(k) Savings Plan
The Company sponsors a retirement plan intended to be qualified under
Section 401(k) of the Code. All non-union employees over age 21 who have been
employed by the Company for at least six months are eligible to participate in
the plan. Employees may contribute to the plan on a tax-deferred basis up to 15%
of their total annual salary, but in no event more than the maximum permitted by
the Code ($9,500 in calendar 1997). Company contributions are discretionary.
Effective with the plan year ended February 28, 1998, the Company has elected to
make matching contributions at the rate of $ .25 per dollar contributed by each
employee up to a maximum of 1% of an employee's salary vesting at the cumulative
rate of 20% per year of service starting one year after commencement of service
and, accordingly, after five years of any employee's service with the Company,
matching contributions by the Company are fully vested. As of February 28, 1998
approximately 250 employees had elected to participate in the plan. For the
fiscal year ended February 28, 1998, the Company contributed approximately
$220,404 to the plan, of which $8,457 was a matching contribution of $2,356 for
each of Mr. Lubman, Mr. Nadata, Mr. Schuster and $1,389 for Mr. Durando.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee consisted during fiscal 1998 of
Messrs. Gardner (Chairman), Blau and since September 1997, Polimeni. Mr. Gardner
is Senior Vice President of Janney Montgomery Scott, Inc., investment bankers,
which acted as placement agent in connection with the Company's $15 million
private placement of convertible subordinated notes in August 1994. Mr. Blau is
a partner in the law firm of Blau, Kramer, Wactlar & Lieberman, P.C. The Company
has utilized, and anticipates that it will continue to utilize, the services of
Blau, Kramer, Wactlar & Lieberman, P.C. as its general counsel.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation Committee
Report on Executive Compensation" and "Company Stock Performance" will not be
deemed to be filed or to be proxy soliciting material or incorporated by
reference in any prior or future filings by the Company under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers generally is
determined by the Compensation Committee of the Board of Directors. Each member
of the Compensation Committee is a Director who is not an employee of the
Company or any of its affiliates. The following report with respect to certain
compensation paid or awarded to the Company's executive officers during fiscal
1997 is furnished by the Compensation Committee.
General Policies
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain management talent required to achieve
aggressive corporate objectives in a rapidly changing industry, and thereby
increase stockholder value. It is the Company's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives and to
reward exceptional performance and contributions to the development of the
Company's business. To attain these objectives, the Company's executive
compensation program includes a competitive base salary, coupled with, with
respect to certain executives, a substantial cash bonus which is "at risk" based
on the Company's earnings.
Many of the Company's employees, including its executive officers, also
are eligible to be granted stock options periodically in order to more directly
align their interests with the long-term financial interest of the Company's
stockholders.
11
<PAGE>
Relationship of Compensation to Performance
The Compensation Committee annually establishes, subject to any applicable
employment agreements, the salaries, which will be paid to the Company's
executive officers, during the coming year. In setting salaries, the Board of
Directors takes into account several factors, including competitive compensation
data, the extent to which an individual may participate in the stock option plan
maintained by the Company and its affiliates, and qualitative factors bearing on
an individual's experience, responsibilities, management and leadership
abilities, and job performance.
Stock options are granted to key employees, including the Company's
executive officers, by the Compensation Committee of the Board of Directors
under the Plans. Among the Company's executive officers, the number of shares
subject to options granted to each individual generally depends upon his or her
base salary and the level of that officer's management responsibility.
During fiscal 1998, 10,000 options were granted to each outside director
under the Company's Outside Director Stock Option Plan. Options to purchase
15,000 shares were granted to Mr. Durando under the Company's Stock Option Plan.
Bonuses were paid to three executive officers, as set forth in the Summary
Compensation Table, pursuant to the terms of their employment agreements with
the Company and on a discretionary basis to Paul Durando, the Company's Vice
President, Finance and Director. This latter bonus was determined to be
appropriate by the Compensation Committee in light of Mr. Durando's
contributions to the Company's performance, his base salary level and the level
of his management responsibilities.
Compensation of Chief Executive Officer
The Company has entered into an employment agreement with Arthur Nadata,
the Company's President and Chief Executive Officer, pursuant to which Mr.
Nadata receives a base salary of $226,545, adjusted for CPI index increases, and
an incentive bonus equal to three and thirty-three one-hundredths percent
(3.33%) of the Company's consolidated pre-tax earnings. In this way, Mr.
Nadata's cash compensation is tied directly to the Company's profitability.
The Compensation Committee
Herbert Gardner
Harvey Blau
Dominic Polimeni
Compliance with Section 16 (a) of the Securities Exchange Act
Section 16 (a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities ("Reporting Persons") to file report of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "SEC") and the National Association of Securities
Dealers (the "NASD"). These Reporting Persons are required by SEC regulation to
furnish the Company with copies of all Forms 3, 4 and 5 they file with the SEC
and NASD.
Based solely on the Company's review of the copies of the forms it has
received, the Company believes that all Reporting Persons complied on a timely
basis with all filing requirements applicable to them with respect to
transactions during fiscal year 1998 except that Mr. Polimeni filed his form 3
late.
Certain Relationships and Related Transactions
Harvey R. Blau, a Director of the Company, is a member of Blau, Kramer,
Wactlar & Lieberman, P.C., general counsels to the Company. For the fiscal year
ended February 28, 1998, the Company paid $71,614 in legal fees to Blau, Kramer,
Wactlar & Lieberman, P.C.
12
<PAGE>
For the fiscal year ended February 28, 1998, the Company received an
aggregate $740,514 in respect of various electronic components sold to
Procomponents, Inc. and PCI Manufacturing, two corporations in which Mitchell
Lubman, Mr. Lubman's brother, is an officer and owns greater than ten percent
equity interest.
For the fiscal year ended February 28, 1998, the Company received an
aggregate $589,676 in respect of various electronic components sold to Brevan
Electronics, a corporation in which Stuart Schuster, Mr. Schuster's brother, is
an officer and owns a greater than ten percent equity interest.
COMPANY STOCK PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for a five year period (February 28, 1993
to February 28, 1998) with the cumulative total return of the NASDAQ Market
Index (which includes the Company) and a peer group of companies selected by the
Company for purposes of the comparison. Dividend reinvestment has been assumed
and, with respect to companies in the Peer Group, the returns of each such
company have been weighted to reflect relative stock market capitalization.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG NU-HORIZONS ELECTRONICS CORP., NASDAQ MARKET INDEX
AND PEER GROUP INDEX
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Nu Horizons
Electronics NASDAQ Peer
Corp. Market Index Group
----------- ------------ -------
100 100 100
219.28 127.41 139.16
185.3 121.65 133.55
386.05 167.97 176.67
228.54 201.61 199.14
155.96 274.2 204.72
Assumes $100 Invested on March 1, 1993
Assumes Dividend Reinvested
Fiscal Year Ending February 28, 1998
Peer group includes All American Semiconductor, Arrow Electronics Inc., Avnet
Inc., Bell Industries Inc., Bell Microproducts, Inc., Jaco Electronics Inc.,
Kent Electronics Corp., Marshall Industries, Pioneer Standard Electronics,
Repron Electronics, Inc.
13
<PAGE>
INDEPENDENT AUDITORS
Lazar, Levine & Felix LLP acted as the Company's independent auditors for
the fiscal year ended February 28, 1998 and has been selected by the Board of
Directors, upon the recommendation of the Audit Committee, to continue to act as
the Company's independent auditors in the Company's 1999 fiscal year.
A representative of Lazar Levine & Company LLP plans to be present at the
Annual Meeting with the opportunity to make a statement if he desires to do so,
and will be available to respond to appropriate questions.
FINANCIAL STATEMENTS
A copy of the Company's Annual Report of Stockholders for the fiscal year
ended February 28, 1998 has been provided to all stockholders as of the Record
Date. Stockholders are referred to the report for financial and other
information about the Company, but such report is not incorporated in this proxy
statement and is not a part of the proxy soliciting material.
ADDITIONAL INFORMATION
The Board of Directors does not have a standing nominating committee. The
Board of Directors does not intend to present to the meeting any matters not
referred to in the form of proxy. If any proposal not set forth in this Proxy
Statement should be presented for action at the meeting, and is a matter which
should come before the meeting, it is intended that the shares represented by
proxies will be voted with respect to such matters in accordance with the
judgment of the persons voting them.
The cost of soliciting proxies in the accompanying form has been or will
be paid by the Company. In addition to solicitations by mail, arrangements may
be made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to their principals, and the Company may reimburse them for
their expenses in so doing. To the extent necessary in order to assure
sufficient representation, officers and regular employees of the Company may
request the return of proxies personally, by telephone or telegram. The extent
to which this will be necessary depends entirely upon how promptly proxies are
received, and stockholders are urged to send in their proxies without delay.
Stockholder proposals with respect to the Company's next Annual Meeting of
Stockholders must be received by the Company no later than May 27, 1999 to be
considered for inclusion in the Company's next Proxy Statement.
A copy of the Annual Report has been mailed to every stockholder of
record. The Annual Report is not considered proxy soliciting material.
By Order of the Board of Directors,
Richard S. Schuster
Secretary
Dated: Melville, New York
August 10, 1998
14
<PAGE>
NU HORIZONS ELECTRONICS CORP.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING - September 24, 1998
The undersigned hereby appoints Arthur Nadata and Richard S. Schuster or
either of them, attorneys and Proxies with full power of substitution in each of
them, in the name and stead of the undersigned to vote as Proxy all the stock of
the undersigned in NU HORIZONS ELECTRONICS CORP., a Delaware corporation, at the
Annual Meeting of Stockholders scheduled to be held September 24, 1998 and any
adjournments thereof.
The Board of Directors recommends a vote FOR the following proposal:
1. Election of the following nominees, as set forth in the proxy statement:
|_| FOR all nominees listed below (except as marked to the contrary
below)
|_| WITHHOLD AUTHORITY to vote for all nominees listed below
HARVEY BLAU DOMINIC POLIMENI RICHARD SCHUSTER
(INSTRUCTION: To withhold authority to vote for any individual nominee, print
that nominee's name on the line provided below.)
-----------------------------------------
2. To consider and act upon such other business as may properly come before
the meeting or any adjournment thereof.
(Continued and to be signed on reverse side)
<PAGE>
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING, SHAREHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE
NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE
REVERSE HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
PROPOSAL SET FORTH ON THE REVERSE HEREOF.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
Dated: , 1998 _________________________________ [L.S.]
_________________________________ [L.S.]
(Note: Please sign exactly as your name
appears hereon. Executors,
administrators, trustees, etc. should so
indicate when signing, giving full title
as such. If signer is a corporation,
execute in full corporate name by
authorized officer. If shares are held
in the name of two or more persons, all
should sign.)
<PAGE>
Nu Horizons Electronics Corp.
[GRAPHIC OMITTED]
Component solutions for
technological innovations
1998 Annual Report
<PAGE>
Corporate Profile
Nu Horizons Electronics Corp., listed on the Nasdaq National Market (NUHC),
together with its wholly-owned subsidiary Nu Horizons/Merit Electronics Corp.,
is a leading distributor of high technology active components, including memory
chips, microprocessors, digital and linear circuits, diodes and transistors, to
a wide variety of commercial original equipment manufacturers OEMs. Nu Horizons
is a franchised distributor of components manufactured by many major
semiconductor manufacturers.
NIC Components Corp. is a wholly-owned subsidiary of Nu Horizons and is the
exclusive North American sales and marketing outlet for the extensive line of
passive components manufactured by Nippon Industries Co., Ltd., a leading
Japanese component manufacturer. NIC has also established several other
manufacturing associations as well as a nationwide network of distributors and
is "designed-in" as a qualified source of passive components by over seven
thousand original equipment manufacturers.
Nu Horizons International Corp., another wholly-owned subsidiary, is a worldwide
export distributor of electronic components.
Nu Visions Manufacturing, Inc., a wholly-owned subsidiary of the Company,
located in Springfield, Massachusetts, is a contract assembler of circuit
boards, and related electromechanical devices for various OEMs.
Markets Served
Appliances
Audio
Automotive
Avionics
Cable TV
Computer Peripherals
Consumer Products
Contract Manufacturing
Datacommunications
Debit Card Systems
Entertainment
Environmental Measurement & Control
Factory Automation
Games
Global Positioning
Graphics
Hand Held Computing
Imaging
Instrumentation
Industrial Control
Medical Electronics
Microwave Communications
Military
Multi Media
Networking
Office Automation
Personal Computing
Power Supplies
Robotics
Super Computers
Systems Integration
Telecommunications
Test and Measurement
Value Added Resellers
Video
Wireless & Cellular
<PAGE>
- --------------------------------------------------------------------------------
Selected Financial Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Year Ended
February February February February February
28, 1998 28, 1997 29, 1996 28, 1995 28, 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $233,325,408 $216,612,707 $202,803,184 $130,251,554 $ 92,418,038
Gross profit on sales 50,794,325 48,488,124 48,201,148 30,913,305 24,950,478
Gross profit percentage 21.8% 22.4% 23.8% 23.7% 27.0%
Income before provision for income taxes 8,947,537 11,921,256 15,799,592 7,444,147 8,549,534
Net income 5,297,991 7,073,560 9,396,301 4,421,823 5,044,225
Earnings per common share:
Basic $ .61 $ .81 $ 1.19 $ .57 $ .65
Diluted $ .52 $ .69 $ .97 $ .52 $ .65
<CAPTION>
February February February February February
28, 1998 28, 1997 29, 1996 28, 1995 28, 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 75,217,607 $ 51,941,472 $ 57,954,434 $ 36,328,941 $ 23,792,512
Total assets 99,641,428 74,783,314 75,459,586 51,972,606 37,448,040
Long-term debt 32,790,395 15,523,483 27,094,030 20,580,613 9,339,195
Shareholders' equity 51,542,045 46,950,735 37,617,703 22,541,916 18,051,985
</TABLE>
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
TAM* for Active Components (Americas)
- --------------------------------------------------------------------------------
in billions
- --------------------------------------------------------------------------------
Microprocessor $ 10.6
Dynamic RAM 8.2
Analog 5.5
Microperipheral 3.9
Discrete 3.1
Microcontroller 2.2
Static RAM 1.8
Non-volatile Memory 1.5
Optical Semiconductor 1.0
Source: Dataquest 1997
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
TAM* for Passive Components (N. America)
- --------------------------------------------------------------------------------
in billions
- --------------------------------------------------------------------------------
Capacitors $ 2.2
Fixed Resistors 0.7
Inductors (Magnetics) 0.3
Source: Paumanok Publications 1997
* Total Available Market
1
<PAGE>
- --------------------------------------
Letter to Shareholders
- --------------------------------------
[GRAPHIC OMITTED]
Specialization, strategic marketing
and value driven service are the components
key to our long term growth.
Nu Horizons made significant progress in an industry that continues to
experience severe price erosion and weak demand from the Asian markets. Further
exacerbating market conditions, many U.S. manufacturers, especially personal
computer makers, overreacted to the strong domestic economy, building up excess
inventory of raw materials and finished goods. As a result, our record sales for
fiscal 1998 did not translate into higher earnings. Nu Horizons, however,
initiated many new strategies and continued to make investments in people,
systems and product. While the challenges in our industry will continue, our
company is on a charted course designed to grow in step with our mandate for
giving value to our customers and shareholders.
Performance For Fiscal 1998
Nu Horizons achieved record sales of $233,325,000, up 7.7% from
$216,613,000 in fiscal 1997. As mentioned above, earnings continued to be
impacted by falling component prices and weaker demand from several market
sectors. A strong U.S. dollar and devastated Asian economies have opened up a
floodgate of low-priced component imports. In fact, Nu Horizons is shipping
more units to an expanding customer roster, which should result in increased
earnings when the market stabilizes. The fiscal 1998 earnings of $5,298,000
compared with $7,074,000 for fiscal 1997 must be examined within the context of
our price-depressed business environment. It must be noted that our balance
sheet remains strong, with a working capital ratio of 5.9:1 and working capital
of $75,218,000. All operations were profitable.
Strengthening Our Business
The distribution of semiconductor components is still our core business.
We believe that we differ from our competition because we add value to
distribution which in turn sets us apart in the eyes of our customers and
suppliers.
Nu Horizons has achieved a leadership position in the electronics industry
by combining a unique supplier line-card with a sales and engineering
organization trained and motivated to go way beyond basic customer service. A
high ratio of application engineers to sales people enables us to bring the
latest technologies to a broad range of customers as well as to provide our
suppliers with a conduit for their newly developed and specialized products.
Taking this approach a step further, we have developed and implemented intensive
training programs for all personnel. This training encompasses technical
understanding, building
2
<PAGE>
customer relationships, time management, systems, and sales strategies. The
company has recently fine-tuned its line card in an effort to concentrate on
technologies that have the greatest opportunities for new markets and increased
revenues. The higher costs associated with doing business in a more advanced
technology "niche" mode has generated higher profit margins. Our NIC Components
subsidiary also had a record sales year by increasing shipments to large OEMs
and expanding into the Asian and European markets. NIC supplies a broad line of
passive components and a specialized line of capacitors that is being designed-
in by many of the leading manufacturers of electronic equipment. A new level of
brand recognition has increased NIC's value to its distribution customer base.
Recently, NIC launched its first venture into Europe by opening a sales and
stocking facility in the United Kingdom. It has become necessary to have a
physical presence in key worldwide locations to support global manufacturers.
NIC is also focusing on expanding its sales of magnetic and circuit protection
devices.
Our Nu Visions Manufacturing subsidiary also experienced record sales and
profitability. This contract manufacturing company has recently attracted
several large customers who have gained confidence in our quality and production
capabilities. We have an experienced and talented team in place to take
advantage of the increasing demand for outsourcing. We recently authorized the
expansion of the Springfield, Massachusetts plant and the addition of a new,
higher speed production line. Nu Visions is well positioned to contribute
significantly to the sales and profitability of the entire Nu Horizons
organization.
Building Our Management Team
Our company is constantly searching out the best talent in our industry;
people who can add dimension with new ideas and execute those ideas utilizing
real life experiences. The electronics industry has untapped potential growth as
new developments occur almost daily. There is an unquenchable thirst for
research, innovation and new applications. Nu Horizons continues to attract
highly motivated individuals drawn to our open-minded culture.
David Bowers, our new Vice-President of Semiconductor Marketing brings
over 20 years of experience from both manufacturing and distribution
environments. Most recently David was marketing director of semiconductors for a
large-scale distributor of semiconductors. David has refined our strategies and
is working with suppliers and product managers to focus on new technologies.
3
<PAGE>
[GRAPHIC OMITTED]
New developments occurring
almost daily give the electronic
industry untapped potential
Another important addition to our team is Elaine Givner, who took the
newly-created position of Vice President of Human Resources, Training and
Development. Elaine has 25 years of Personnel Relations and training experience
primarily in electronics distribution. Setting up in-depth training programs is
vital to our strategy and Elaine has already shown that the ongoing education of
our sales personnel brings returns to our company.
Teresa Shatsoff joined Nu Horizons after 24 years with the world's largest
electronic component distributor. Teresa oversees inventory and allocation of
product resources. Steve Mussmacher, also joined us from the same distributor.
Steve is working to expand our value-added business by focusing on programmable
products; (making this a significant profit center for our semiconductor
distribtion segment).
Operations
Our in-house computer system is vital to the successful growth of our
company. Quick, accurate access to information is the highest priority for both
our employees and customers. Our in-house team of programmers works closely with
our own personnel and many of our customers to upgrade systems to be user
friendly and to maximize our product offering. Nu Horizons was among the first
distributors in its size category to utilize the Internet with user-friendly
data access that provides customers with the most current technology and
application information. Recently we have instituted "intranet" software
designed to provide safe and efficient information sharing and communication
among our own employees. While today we enjoy full "EDI" (Electronic Data
Interchange) with many of our larger customers, we believe we have anticipated
the next technology, the "extranet", which we expect to facilitate an economical
and simple means of communication between Nu Horizons and its customers. Using
the Internet as the basic format for transmissions, customers will be able to
access predetermined information to help them make quick business decisions
regarding purchases, deliveries, inventory access, pricing, technical data,
customer service and much more.
We are proud to announce that we are already "Year 2000 Compliant", a feat
accomplished with hard work and a pool of talented programmers.
Our new automated warehouse, in combination with our own inventory
maintenance software, has developed beyond our expectations.
4
<PAGE>
[GRAPHIC OMITTED]
[PHOTO OMITTED]
From left to right:
Arthur Nadata, Richard Schuster and Irving Lubman
Our ability to customize inventory management programs has enabled us to build
on our strong customer relationships. We encourage visits to our facility and
many positive reactions have turned into new business. The efficiencies and
accuracy in shipping many more units is a direct result of our investments in
state-of-the-art warehousing and distribution systems. Our new headquarters and
distribution center will take us into the new millennium.
In its 16 years of business, Nu Horizons has faced many challenges and
taken advantage of opportunities as they presented themselves. The electronics
industry today is still relatively young with a tremendous upside for those who
can be agile, creative and motivated. We believe that we have built a strong and
farsighted company. Nu Horizons' true value will be realized by implementing our
strategies and taking advantage of the long-term growth in our industry.
/s/ Irving Lubman
Irving Lubman
Chairman of the Board
/s/ Arthur Nadata
Arthur Nadata
President and CEO and Director
/s/ Richard Schuster
Richard Schuster
Vice President, Secretary and Director
5
<PAGE>
- --------------------------------------------------------------------------------
Nu Horizons Electronics Corp.
- --------------------------------------------------------------------------------
Semiconductor Solutions
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
6
<PAGE>
From left to right:
Our specialized Field Applications Engineers consult with customers on their
system designs.
Programming of Flash Memories to customers' specifications.
Tape and reeling of integrated circuits to support our customers volume surface
mount assembly needs.
[GRAPHIC OMITTED]
Defining service by the
value that we add
At Nu Horizons, we focus on our customers and on making them more
successful in today's competitive environment. We also provide value to our
suppliers, who look to Nu Horizons as a "Specialist Distributor" willing to
invest in the resources needed to design and sell leading edge technologies. We
focus on engineering solutions by understanding the strengths of our suppliers
and the product development criteria of our customers. Our strategy is to
provide the best-in-class service and support through:
o Specialized knowledge of semiconductor products.
o A broad range of both high technology and commodity products from
leading suppliers such as Cirrus Logic, Maxim Integrated Products,
STMicroelectronics, Sun Microsystems, Toshiba and Xilinx.
o Sales specialists in the field and on the phone to provide total
semiconductor solutions to meet the customers needs.
o Field Application Engineers (FAE's) who are college graduate engineers
with a minimum of five years design experience.
o Industry leading Value Added Services, including programming of logic,
memory and voice components, tape and reeling for surface mount assembly, vacuum
heat sealing and custom bar coding.
o Customized Materials Management Programs including electronic commerce,
bonded inventories automated replenishment and consignment.
o World Class Quality. We provide the right product, the right quantity,
the right packaging, on time and with zero failures to all of our customers. We
have invested in a 50,000 square foot automated warehouse in our corporate
facility in Melville, New York and a 15,000 square foot automated facility in
Northern California. We are ISO 9002 registered and Year 2000 Compliant.
Nu Horizons has a lot to offer; stability in the marketplaces served, a
strong line card focused on providing semiconductor solutions for a wide range
of market segments, flexibility in servicing our customers, the communication
tools that make it easier to do business with us, and the speed to react to the
demands in our dynamic industry.
6 & 7
<PAGE>
- --------------------------------------------------------------------------------
NIC Components Corp.
- --------------------------------------------------------------------------------
Passive Components Solutions
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Value driven and the most
extensive product offering
NIC Components Corp. has become a leading supplier of passive components
under its own brand name. Products are produced for NIC by the highest quality,
specialized manufacturers in their field. Nippon Industries Co., Ltd. of Japan
remains a primary supplier for NIC and a close partner for technical
collaborations. Other supplier relationships continue to be strong and our
intensive monitoring of both quality and performance is designed to insure our
customers' satisfaction.
Passive components are an expanding and vital building block for
electronic equipment. Capacitors, resistors, magnetics and circuit protection
devices are widely used in computers, test and measurement instrumentation,
appliances, telecomm and datacomm, industrial controls, security and alarm,
automotive electronics and much more.
In the past several years a new customer base of larger OEMs and contract
manufacturers have chosen NIC as one of their core suppliers. Similar to Nu
Horizons' semiconductor distribution, NIC is
[GRAPHIC OMITTED]
NIC's new advertising campaign in trade publications is designed to build higher
brand recognition. Emphasis is on our wide variety of products, technical
support and inventory management programs.
8
<PAGE>
promoting more specialized products with a strong emphasis on technical support
and training. NIC's own in-house sales team is augmented by sixteen contracted
sales representative organizations. In addition, a very impressive line-up of
distributors provides local service and inventory to thousands of customers
nationwide.
In March 1998, NIC opened a sales and stocking facility in Buckingham,
England. NIC Eurotech, LTD., our wholly owned subsidiary, is expected to enable
us to participate in an expanding European market. To date we are selling
products to several U.S. multi-national corporations in the United Kingdom and
Ireland, and have appointed a major distributor for the entire European
continent. NIC has also appointed a stocking agent in Singapore to support Asian
manufacturing facilities for certain U.S. multi-national corporations. NIC's
global presence has added significant credibility to customers who demand
worldwide logistical support.
NIC is making extensive use of the Internet and EDI (electronic data
interchange). Our web site, containing volumes of technical information, is
attracting thousands of engineers and buyers. Customers can do all their
business transactions electronically with NIC's user friendly software.
[GRAPHIC OMITTED]
9
<PAGE>
- --------------------------------------------------------------------------------
NU Visions Manufacturing, Inc.
- --------------------------------------------------------------------------------
Circuit Board Assembly
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
10
<PAGE>
From left to right:
Higher levels of quality control and manufacturing excellence have gained Nu
Visions many new customers.
A skilled and motivated production team works closely with their customers,
sharing technical expertise which provides the customer with better design
solutions.
Nu Visions specializes in high density circuit board assemblies and exacting
specifications.
[GRAPHIC OMITTED]
Developing effective
solutions for
diverse situations
Nu Visions is an electronics manufacturing service company that provides
assembly and testing of printed circuit boards. "Outsourcing" has become a major
trend in the electronics industry. Many OEMs see the economic and technical
benefits of utilizing a contract manufacturer for all or part of their product
assembly. The market for these services is expected to exceed 20 billion dollars
in the U.S. this year. A projected growth of 20% a year, through 2002, is a
reflection of electronics companies reliance on contract manufacturing.
The industry is highly concentrated, with the top 20 contract
manufacturers controlling two-thirds of the contract market. This segment of the
market is dominated by large OEMs (ie. PC Makers) with high volume requirements;
these customers are extremely price sensitive and typically this type of
business generates low margins.
Nu Visions participates in the market segment dominated by smaller OEMs
and for the lower volume products of larger OEMs. Many of Nu Visions' customers
require higher quality and more technically complicated assemblies.
Consequently, this more specialized manufacturing service is expected to warrant
higher margins for Nu Visions. Recently we completed a major expansion of the Nu
Visions facility in Springfield, Massachusetts and the addition of a higher
speed production line providing Nu Visions with the capacity to increase its
sales of manufacturing services by up to 300%
11
<PAGE>
[GRAPHIC OMITTED]
Faster more accurate
order fulfillment
Customers today demand on-time, zero-defect and cost-effective inventory
management programs. In such a highly competitive market, OEMs cannot afford to
carry inventory or have extensive handling costs. Nu Horizons invested in
state-of-the-art warehousing systems encompassing both automated handling
apparatus and sophisticated software. Our two warehouse facilities, in New York
and California, can handle the highest standards of inventory management that
the electronics industry demands. Our ISO 9002 certification gives us the
procedures for the highest levels of quality control. All shipments are
inspected at multiple stations and packaged for safety and economy. We can
deliver to an exacting schedule, bond or consign inventory, replenish on demand
and ship same day up to 5:00PM coast to coast.
Materials Management Solutions
o Electronic Commerce System (EDI)
o Auto-Replenishment
o Bonded Inventory
o Consignment Inventory
o In-Plant Stores
o "JIT" (Just In Time)
o KAN BAN
o Bar Coding
From left to right:
All inventories are bar coded for warehouse location, accuracy of order picking
and traceability of product quality.
Warehouse automation allows for higher unit shipments, same day shipping and
cost-effective inventory management.
Multiple inspections and highly trained personnel contribute to accurate and
efficient shipping.
12
<PAGE>
[GRAPHIC OMITTED]
13
<PAGE>
[GRAPHIC OMITTED]
14
<PAGE>
From left to right:
Our 30,000 square foot sales, marketing, finance and executive office facilities
significantly enhance the Company's distribution support capabilities.
Quick and easy access to information allows our sales and customer service
professionals to satisfy customer needs. Customer satisfaction with both the
timeliness and array of information available is our priority.
Nu Horizons multi-media training center is the nucleus of our program for having
the most knowledgeable sales people and engineers.
[GRAPHIC OMITTED]
Greater access, commitment
to service and investment
in training, support a broad
technical product line.
Reliable and easily accessible information is vital to properly service
today's sophisticated customer. Many years ago, Nu Horizons made the commitment
to develop an extensive and user-friendly computer system. Our in-house team of
programmers worked closely with all departments, including sales, product,
engineering, accounting and management, as well as our customers and suppliers.
The result is a software package that allows access to an extensive bank of
information. Today we continue to enhance our programs with an emphasis towards
future reliance on the Internet. Our website is utilized by thousands of
engineers' worldwide and our intranet software is in the final stages of
development.
Our industry demands a high level of technical expertise. The customer
wants to be confident that they are getting the right components and that they
have access to new innovations. Nu Horizons has made a commitment to building a
team of experts in products, technology and getting the job done! Our local
field application engineers are an extension of the customers' engineering
departments. They are recommending leading edge semiconductors to make their
products faster, smaller and more cost effective. Continuous training and
education is vital to keeping pace with rapidly changing technology. Our product
managers and engineers make regular factory visits to get the most current
information. We are constantly bringing supplier representatives and industry
experts to our facilities for seminars and product classes. Our Human Resources
Department has set up an in-house library and regular training sessions
encompassing sales, customer service, motivation and management awareness
programs. Customer loyalty and the extensive support given by our suppliers
measure the effectiveness of these programs.
15
<PAGE>
[GRAPHIC OMITTED]
Financial Contents
17 Management's Discussion and Analysis of Financial
Condition and Results of Operations
20 Consolidated Balance Sheets
21 Consolidated Statements Of Income
21 Consolidated Statements of Changes in
Shareholders' Equity
22 Consolidated Statements Of Cash Flows
23 Notes to Consolidated Financial Statements
28 Independent Auditors' Report
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Introduction:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, Nu Horizons/Merit Electronics Corp. ("NUM"), NIC Components Corp.
("NIC") and Nu Horizons International Electronics Corp. ("International"), are
engaged in the distribution of high technology active and passive electronic
components to a wide variety of original equipment manufacturers ("OEMs") of
electronic products. Active components distributed by the Company include
semiconductor products such as memory chips, microprocessors, digital and linear
circuits, microwave/RF and fiberoptic components, transistors and diodes.
Passive components distributed by NIC, principally to OEMs and other
distributors nationally, consist of a high technology line of chip and leaded
components, including capacitors, resistors and related networks.
Nu Visions Manufacturing, Inc. ("NUV" or "Nu Visions") located in
Springfield, Massachusetts, another wholly-owned subsidiary of the Company, is a
contract assembler of circuit boards, and related electromechanical devices for
various OEMs.
In March 1998, subsequent to the fiscal year end, the Company formed
another wholly-owned subsidiary, NIC Eurotech, Ltd., which then began foreign
operations in the United Kingdom.
The financial information presented herein includes: (i) Balance sheets as
of February 28, 1998, and February 28, 1997; (ii) Statements of income for the
twelve month periods ended February 28, 1998, February 28, 1997 and February 29,
1996; (iii) Statements of cash flows for the twelve month periods ended February
28, 1998, February 28, 1997 and February 29, 1996; and (iv) Consolidated changes
in shareholders' equity for the twelve month periods ended February 28, 1998,
February 28, 1997 and February 29, 1996.
Fiscal Year 1998 versus 1997
Results of Operations:
Net sales for the year ended February 28, 1998 aggregated $233,325,408 as
compared to $216,612,707 for the year ended February 28, 1997, an increase of
7.7%. Management attributes this moderate increase in sales for the period
entirely to the core semiconductor distribution business which experienced
excess inventory levels at the semiconductor manufacturing (supplier) level
evidenced by reduced unit pricing in spite of substantial increases in unit
demand resulting in only moderate increases in sales dollar volume. Management
believes that this situation is temporary and is now in the process of
correction; however, no assurance can be given in this regard.
Gross profit margin as a percentage of net sales was approximately 21.8%
for the year ended February 28, 1998 as compared to 22.4% for the year ended
February 28, 1997. Management attributes this lower profit margin primarily to a
general downward correction of selling prices in the marketplace, for both
semiconductors and passive components, during the period and a greater volume of
larger orders at lower gross profit margins. Although the Company expects that
these conditions will not continue, as long as current market trends prevail, no
assurances can be given in this regard.
Operating expenses increased by $5,259,512 to $40,133,422 for the year
ended February 28, 1998 from $34,873,910 for the year ended February 28, 1997,
an increase of approximately 15.1%. The dollar increase in operating expenses
was due to increases in the following expense categories: Approximately
$3,328,000 or approximately 63.3% of the increases were for personnel related
costs -- commissions, salaries, travel and fringe benefits. During fiscal 1998
the Company decided to continue to pursue a policy of upgrading and enlarging
its sales and sales support staff to support anticipated future growth in the
near as well as more distant future. Increased sales levels in the second, third
and fourth quarters of fiscal 1998 did not meet expectations. The Company
continues to believe in this strategy for long-term growth and expects market
conditions to undergo a correction in the near future although no assurances can
be given in this regard. The remaining increase of approximately $1,931,000 or
approximately 36.7% of the total increment is a result of increases in various
other operating expenses primarily due to increased overhead from the Company's
new corporate headquarters and distribution facility.
Interest expense increased by $22,071 from $1,701,092 for the year ended
February 28, 1997 to $1,723,163 for the year ended February 28, 1998. This
relative stability was primarily due to the interest on higher average levels of
bank debt being offset by more favorable interest rates.
Interest Costs For The Fiscal Year Ended
February 28, 1998 February 28, 1997
- --------------------------------------------------------------------------------
Revolving Bank Credit $1,140,796 $1,116,340
Sub. Convert. Notes 582,367 584,752
- --------------------------------------------------------------------------------
Total Interest Expense $1,723,163 $1,701,092
================================================================================
Net income for the year ended February 28, 1998, was $5,297,991 or $.52
per share, diluted, as compared to $7,073,560 or $.69 per share diluted, for the
year ended February 28, 1997. The decrease in earnings is primarily due to
increased operating expenses and the lack of commensurate increased sales
volume.
17
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Results of Operations:
Fiscal Year 1997 versus 1996
Net sales for the year ended February 28, 1997 aggregated $216,612,707 as
compared to $202,803,184 for the year ended February 29, 1996, an increase of
6.8%. Management attributes this moderate increase in sales for the period
entirely to the core semiconductor distribution business which experienced
excess inventory levels at the semiconductor manufacturing (supplier) level
which resulted in reduced unit pricing and lower overall sales volume.
Gross profit margin as a percentage of net sales was approximately 22.4%
for the year ended February 28, 1997 as compared to 23.8% for the year ended
February 29, 1996. Management attributes this lower profit margin primarily to a
general downward correction of selling prices in the marketplace, for both
semiconductors and passive components, during the period and a greater volume of
larger orders at lower gross profit margins.
Operating expenses increased by $4,496,530 to $34,873,910 for the year
ended February 28, 1997 from $30,377,380 for the year ended February 29, 1996,
an increase of approximately 14.8%. The dollar increase in operating expenses
was due to increases in the following expense categories: Approximately
$3,740,000 or approximately 83.2% of the increases were for personnel related
costs -- commissions, salaries, travel and fringe benefits. The remaining
increase of approximately $756,000 or approximately 16.8% of the total increment
is a result of increases in various other operating expenses. Toward the latter
part of fiscal 1996 and early in fiscal 1997, the Company decided to pursue a
policy of upgrading and enlarging its sales and sales support staff to support
anticipated future growth in the near as well as more distant future.
Interest expense decreased by $325,625 from $2,026,717 for the year ended
February 29, 1996 to $1,701,092 for the year ended February 28, 1997. This
decrease was primarily due to the interest on higher average levels of bank debt
being more than offset by the lower amount of outstanding subordinated
convertible debt (see Note 7 to the Consolidated Financial Statements).
Interest Costs For The Fiscal Year Ended
February 28, 1997 February 29, 1996
- --------------------------------------------------------------------------------
Revolving Bank Credit $1,116,340 $ 916,226
Sub. Convert. Notes 584,752 1,110,491
- --------------------------------------------------------------------------------
Total Interest Expense $1,701,092 $2,026,717
================================================================================
Net income for the year ended February 28, 1997 was $7,073,560 or $.69 per
share, diluted, as compared to $9,396,301 or $.97 per share diluted, for the
year ended February 29, 1996. The decrease in earnings is primarily due to
increased operating expenses and the lack of commensurate increased sales
volume.
Liquidity and Capital Resources:
Fiscal Year 1998 versus 1997
The Company ended its 1998 fiscal year with working capital and cash
aggregating approximately $75,218,000 and $4,334,000, respectively at February
28, 1998 as compared to approximately $51,941,000 and $946,000 respectively, at
February 28, 1997. The Company's current ratio at February 28, 1998, was 5.9:1.
The Company believes that its financial position at February 28, 1998, will
enable it to take advantage of any new opportunities that may arise.
On May 23, 1997, the Company entered into a new unsecured revolving line
of credit, which currently provides for maximum borrowings of $35,000,000
through May 23, 2001 with two banks. At February 28, 1998, $25,300,000 was
outstanding under this line of credit as compared to $8,000,000 at February 28,
1997.
In a private placement completed on August 31, 1994, the Company issued
$15 million principal amount of Subordinated Convertible Notes, which are due in
$5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are
subordinate in right of payment to all existing and future senior indebtedness
of the Company. The notes bear interest at 8.25%, payable quarterly on November
15, February 15, May 15 and August 15. The notes are convertible into shares of
common stock at a conversion price of $9.00 per share. The cost of issuing these
notes was $521,565 and was amortized over three years. As of February 28, 1998,
$7,941,000 of the notes have been converted into 882,333 shares of common stock
and $7,059,000 principal amount of subordinated convertible notes remained
outstanding and are due in increments of $2,353,000 on August 31, 2000, 2001 and
2002. No assurance can be given that the notes will be converted or that the
shares of common stock underlying the notes will be sold by the holders thereof.
The Company anticipates that its resources provided by its cash flow from
operations and its bank lines of credit will be sufficient to meet its financing
requirements for at least the next twelve-month period.
18
<PAGE>
Impact of Year 2000 Issue:
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could potentially result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in other similar normal business activities. The
Company has ensured that its software is already year 2000 compliant, and as
such this issue is not expected to have a material effect on the operations of
the Company. Nevertheless, the Company cannot predict the effect of the year
2000 problem on the vendors, customers and other entities with which the Company
transacts business, or with whose products the Company's products interact and
there can be no assurance that the effect of the year 2000 issue on such
entities will not adversely affect the Company's operations.
Inflationary Impact:
Since the inception of operations, inflation has not significantly
affected the operating results of the Company. However, inflation and changing
interest rates have had a significant effect on the economy in general and
therefore could affect the operating results of the Company in the future.
Other:
Except for historical information contained herein, the matters set forth
above are forward-looking statements that involve certain risks and
uncertainties that could 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.
Report of Management
The management of Nu Horizons Electronics Corp. is responsible for the
preparation of the consolidated financial statements in accordance with
generally accepted accounting principles and for the integrity and objectivity
of all the financial data included in this annual report. In preparing the
financial statements, management makes informed judgments and estimates as to
the expected effects of events and transactions currently being reported.
To meet this responsibility, the Company maintains a system of internal
accounting controls to provide reasonable assurance that assets are safeguarded,
and that transactions are properly executed and recorded. The system includes
policies and procedures, and reviews by officers of the Company.
The Board of Directors, through its Audit Committee, is responsible for
determining that management fulfills its responsibility with respect to the
Company's financial statements and the system of internal accounting controls.
The Audit Committee is composed solely of outside directors. The Committee
meets periodically and, when appropriate, separately with representatives of the
independent accountants and officers of the Company to monitor the activities of
each.
Lazar Levine & Felix LLP, the independent accountants, have been selected
by the Board of Directors to examine the Company's financial statements. Their
report appears herein.
/s/ Paul Durando /s/ Arthur Nadata
Paul Durando Arthur Nadata
Vice President, Finance and Treasurer President and Chief Executive Officer
19
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28, 1998 February, 28 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 4,333,669 $ 946,084
Accounts receivable-net of allowance
for doubtful accounts of $2,362,722
and $2,192,079 for 1998 and 1997,
respectively 37,351,029 30,636,645
Inventories 44,004,890 29,764,570
Prepaid expenses and other current assets 4,837,007 2,903,269
- ------------------------------------------------------------------------------------
Total Current Assets 90,526,595 64,250,568
Property, Plant And Equipment - Net
(Notes 3 and 6) 6,359,775 7,550,356
Other Assets:
Costs in excess of net assets acquired-net 1,752,332 1,909,256
Other assets (Note 4) 1,002,726 1,073,134
- ------------------------------------------------------------------------------------
Total Assets $99,641,428 $74,783,314
====================================================================================
Liabilities And Shareholders' Equity
Current Liabilities:
Accounts payable $12,112,365 $ 7,931,500
Accrued expenses 3,196,623 4,186,802
Current portion of long-term debt (Note 6) -- 190,794
- ------------------------------------------------------------------------------------
Total Current Liabilities 15,308,988 12,309,096
- ------------------------------------------------------------------------------------
Long-Term Liabilities:
Deferred income taxes (Note 9) 431,395 222,148
Revolving credit line (Notes 5) 25,300,000 8,000,000
Long-term debt (Note 6) -- 242,335
Subordinated convertible notes (Note 7) 7,059,000 7,059,000
- ------------------------------------------------------------------------------------
Total Long-Term Liabilities 32,790,395 15,523,483
- ------------------------------------------------------------------------------------
Commitments And Contingencies
(Notes 5, 10, 11 and 12)
Shareholders' Equity (Note 8):
Preferred stock, $1 par value, 1,000,000
shares authorized; none issued or
outstanding
Common stock, $.0066 par value, 20,000,000
shares authorized; 8,753,076 and
8,732,299 shares issued and outstanding
for 1998 and 1997, respectively 57,770 57,633
Additional paid-in capital 19,042,230 18,938,984
Retained earnings 33,532,009 28,234,018
- ------------------------------------------------------------------------------------
52,632,009 47,230,635
Less: loan to ESOP (Note 10) 1,089,964 279,900
- ------------------------------------------------------------------------------------
Total Shareholders' Equity 51,542,045 46,950,735
- ------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $99,641,428 $74,783,314
====================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements Of Income
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended February 28, 1998 February 28, 1997 February 29, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 233,325,408 $ 216,612,707 $ 202,803,184
- -------------------------------------------------------------------------------------------------------
Costs And Expenses:
Cost of sales (Note 12) 182,531,083 168,124,583 154,602,036
Operating expenses 40,133,422 34,873,910 30,377,380
Interest expense 1,723,163 1,701,092 2,026,717
Interest income (9,797) (8,134) (2,541)
- -------------------------------------------------------------------------------------------------------
Total Costs and Expenses 224,377,871 204,691,451 187,003,592
- -------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 8,947,537 11,921,256 15,799,592
Provision for income taxes (Note 9) 3,649,546 4,847,696 6,403,291
- -------------------------------------------------------------------------------------------------------
Net Income $ 5,297,991 $ 7,073,560 $ 9,396,301
=======================================================================================================
Earnings Per Share (Note 2i):
Basic $ .61 $ .81 $ 1.19
=======================================================================================================
Diluted $ .52 $ .69 $ .97
=======================================================================================================
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
Consolidated Statements of Changes in Shareholders' Equity
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Loan to Shareholders'
Shares Stock Capital Earnings ESOP Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1995 7,732,051 $ 51,032 $ 10,726,727 $ 11,764,157 $ -- $ 22,541,916
Exercise of stock options 24,420 161 99,175 -- -- 99,336
Conversion of subordinated
convertible notes 666,666 4,400 5,995,600 -- -- 6,000,000
Loan to ESOP -- -- -- -- (559,800) (559,800)
Repayment from ESOP -- -- -- -- 139,950 139,950
Net income -- -- -- 9,396,301 -- 9,396,301
- --------------------------------------------------------------------------------------------------------------------------------
Balance at February 29, 1996 8,423,137 55,593 16,821,502 21,160,458 (419,850) 37,617,703
Exercise of stock options 93,495 617 177,905 -- -- 178,522
Conversion of subordinated
convertible notes 215,667 1,423 1,939,577 -- -- 1,941,000
Repayment from ESOP -- -- -- -- 139,950 139,950
Net income -- -- -- 7,073,560 -- 7,073,560
- --------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1997 8,732,299 57,633 18,938,984 28,234,018 (279,900) 46,950,735
Exercise of stock options 20,777 137 103,246 -- -- 103,383
Loan to ESOP -- -- -- -- (950,014) (950,014)
Repayment from ESOP -- -- -- -- 139,950 139,950
Net income -- -- -- 5,297,991 -- 5,297,991
- --------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1998 8,753,076 $ 57,770 $ 19,042,230 $ 33,532,009 $ (1,089,964) $ 51,542,045
================================================================================================================================
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended February 28, 1998 February 28, 1997 February 29, 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (Decrease) In Cash And Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 226,296,024 $ 215,279,744 $ 192,949,945
Cash paid to suppliers and employees (232,653,486) (197,159,875) (196,045,525)
Interest received 9,797 8,134 2,541
Interest paid (1,723,163) (1,701,092) (2,026,717)
Income taxes paid (4,511,763) (1,677,850) (6,034,790)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (12,582,591) 14,749,061 (11,154,546)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,176,904) (4,936,512) (1,055,558)
Purchase of stock for ESOP (950,014) -- (559,800)
Proceeds from sale of building 1,126,840 -- --
- --------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (1,000,078) (4,936,512) (1,615,358)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under revolving credit line 51,650,000 21,150,000 65,000,000
Repayments under revolving credit line (34,350,000) (30,450,000) (52,100,000)
Principal payments of long-term debt (433,129) (619,254) (413,884)
Proceeds from exercise of employee stock options 103,383 178,522 99,336
Proceeds from long-term debt -- -- 559,800
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 16,970,254 (9,740,732) 13,145,252
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,387,585 71,817 375,348
Cash and cash equivalents, beginning of year 946,084 874,267 498,919
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 4,333,669 $ 946,084 $ 874,267
====================================================================================================================
Reconciliation Of Net Income To Net Cash
From Operating Activities:
Net income $ 5,297,991 $ 7,073,560 $ 9,396,301
- --------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 1,488,057 1,238,967 1,169,816
Bad debts 315,000 701,500 635,000
Contribution to ESOP (compensation) 139,950 139,950 139,950
Loss on sale of building 60,871 -- --
Changes in assets and liabilities:
(Increase) in accounts receivable (7,029,384) (1,332,963) (9,853,239)
(Increase) decrease in inventories (14,240,320) 7,044,345 (14,553,370)
(Increase) decrease in prepaid expenses and
other current assets (1,933,738) (1,889,346) 623,688
(Increase) in other assets (80,951) (77,902) (77,969)
Increase in accounts payable and accrued expenses 3,190,686 1,964,667 1,666,050
Increase (decrease) in income taxes -- (220,288) 212,545
(Decrease) in other current liabilities -- -- (43,686)
(Decrease) increase in deferred taxes 209,247 106,571 (469,632)
- --------------------------------------------------------------------------------------------------------------------
Total adjustments (17,880,582) 7,675,501 (20,550,847)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities $ (12,582,591) $ 14,749,061 $ (11,154,546)
====================================================================================================================
</TABLE>
Non-cash Financing Activities:
During the year ended February 29, 1996, the subordinated debt-holder (see
Note 7) converted $6,000,000 of debt into 666,666 shares of the Company's common
stock.
During the year ended February 28, 1997, the subordinated debt-holder (see
Note 7) converted $1,941,000 of debt into 215,667 shares of the Company's common
stock.
See notes to consolidated financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements Three Years Ended February 28, 1998
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Organization:
Nu Horizons Electronics Corp. and its subsidiaries, NIC Components Corp.,
and Nu Horizons International Corp., were incorporated in the State of New York
on October 22, 1982, November 8, 1982, and December 8, 1986, respectively. Nu
Visions Manufacturing, Inc. was incorporated in the State of Massachusetts on
August 9, 1991. On April 15, 1987, Nu Horizons Electronics Corp. was
reincorporated in the State of Delaware. On April 18, 1994, Nu Horizons/Merit
Electronics Corp. was incorporated in the State of Delaware, for the express
purpose of acquiring the business of Merit Electronics Corp. All companies are
wholesale distributors throughout the United States or export distributors of
electronic components, except for Nu Visions Manufacturing, which is a contract
assembler of circuit boards and various electromechanical devices.
- --------------------------------------------------------------------------------
2. Summary Of Significant Accounting Policies
a. Principles of Consolidation:
The consolidated financial statements include the accounts of Nu Horizons
Electronics Corp., (the "Company") and its wholly-owned subsidiaries, NIC
Components Corp. ("NIC"), Nu Horizons/Merit Electronics Corp. ("NUM"), Nu
Visions Manufacturing, Inc. ("NUV") and Nu Horizons International Corp.
("International"). All material intercompany balances and transactions have been
eliminated.
b. Use of Estimates:
In preparing financial statements, in accordance with generally accepted
accounting principles, management makes certain estimates and assumptions, where
applicable, that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as reported amounts of revenues and expenses during the
reporting period. While actual results could differ from those estimates,
management does not expect such variances, if any, to have a material effect on
the financial statements.
c. Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consists principally of cash and accounts
receivable.
The Company maintains, at times, deposits in federally insured financial
institutions in excess of federally insured limits. Management attempts to
monitor the soundness of the financial institution and believes the Company's
risk is negligible.
Concentrations with regard to accounts receivable are limited due to the
Company's large customer base.
The carrying amounts of cash, accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short-term nature of these
items. The carrying amount of long-term debt also approximates fair value since
the interest rates on these instruments approximate market interest rates.
d. Inventories:
Inventories, which consist primarily of goods held for resale, are stated
at the lower of cost (first-in, first-out method) or market.
e. Depreciation:
Depreciation is provided using the straight-line method as follows:
- --------------------------------------------------------------------------------
Office equipment 5 years
Furniture and fixtures 5 - 12 years
Computer equipment 5 years
- --------------------------------------------------------------------------------
Leasehold improvements are amortized over the term of the lease.
Maintenance and repairs are charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition, the associated cost and
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is included in operations.
f. Income Taxes:
The Company has elected to file a consolidated federal income tax return
with its subsidiaries. The Company utilizes Financial Accounting Standards Board
Statement No. 109 (SFAS 109) "Accounting for Income Taxes". SFAS 109 requires
use of the asset and liability approach of providing for income taxes. Deferred
income taxes are provided for on the timing differences for certain items which
are treated differently for tax and financial reporting purposes. These items
include depreciation of fixed assets, inventory capitalization valuations and
the recognition of bad debt expense.
International has elected under Section 995 of the Internal Revenue Code
to be taxed as an "Interest Charge Disc". Based upon these rules, income taxes
are paid when International distributes its income to the parent company. Until
distributions are made, the parent company pays interest only on the deferred
tax liabilities. International's untaxed income at February 28, 1998
approximates $3,000,000.
g. Goodwill:
Costs in excess of net assets acquired are being amortized on a
straight-line basis over fifteen years. As of February 28, 1998 and 1997,
accumulated amortization of goodwill aggregated $601,542 and $444,618,
respectively.
The Company periodically reviews the valuation and amortization of
goodwill to determine possible impairment by comparing the carrying value to the
undiscounted future cash flows of the related assets, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of.
h. Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a remaining maturity of three months or
less to be cash equivalents.
23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements Three Years Ended February 28, 1998
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
i. Earnings Per Common Share:
Basic and diluted earnings per share have been computed in accordance with
the adoption of SFAS No. 128. In addition, prior period per share data has been
restated in accordance with SFAS No. 128.
The following average shares were used for the computation of basic and
diluted earnings per share:
1998 1997 1996
- --------------------------------------------------------------------------------
Basic 8,753,076 8,732,299 7,903,839
Diluted 10,898,859 10,818,859 10,410,699
j. Reclassifications:
Certain prior year information has been reclassified to conform to the
current year's reporting presentation.
k. Stock-Based Compensation:
SFAS No. 123 "Accounting for Stock Based Compensation", effective January
1, 1996, requires the Company to either record compensation expense or to
provide additional disclosures with respect to stock awards and stock option
grants made after December 31, 1994. The accompanying Notes to Consolidated
Financial Statements include the disclosures required by SFAS No. 123. No
compensation expense is recognized pursuant to the Company's stock option plans
under SFAS No. 123 which is consistent with prior treatment under APB No. 25.
l. Advertising and Promotion Costs:
Advertising and promotion costs, which are included in general and
administrative expenses, are expensed as incurred. For the three years ended
February 28, 1998, such costs aggregated $774,000, $616,000 and $615,000,
respectively.
m. New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for years beginning
after December 15, 1997 and early adoption is permitted. This statement
prescribes standards for reporting comprehensive income and its components.
Since the Company currently does not have any items of other comprehensive
income, a statement of comprehensive income is not required.
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information", is effective for years beginning after December 15, 1997 and early
adoption is encouraged. The Company will adopt this standard in the next fiscal
year.
See also Earnings Per Share, above.
n. Impact of the Year 2000 Issue:
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that has date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could potentially result
in a system failure or miscalculations causing disruptions of operations
including among other things, a temporary inability to process transactions,
send invoices, or engage in other similar normal business activities. The
Company has ensured that its software is already year 2000 compliant, and as
such this issue is not expected to have a material effect on the operations of
the Company.
- --------------------------------------------------------------------------------
3. Property, Plant and Equipment:
Property, plant and equipment, which is reflected at cost, consists of the
following:
1998 1997
- --------------------------------------------------------------------------------
Land $ -- $ 266,301
Building and improvements -- 1,747,930
Furniture, fixtures and office equipment 6,290,449 5,791,946
Computer equipment 3,016,739 2,476,185
Assets held under capitalized leases 919,834 919,834
Leasehold improvements 1,254,364 984,146
- --------------------------------------------------------------------------------
11,481,386 12,186,342
Less: accumulated depreciation and amortization 5,121,611 4,635,986
- --------------------------------------------------------------------------------
Property, Plant and Equipment - Net $ 6,359,775 $ 7,550,356
================================================================================
Depreciation expense including depreciation of capitalized leases for the
years ended February 28, 1998, February 28, 1997 and February 29, 1996
aggregated $1,331,133, $825,960 and $756,808, respectively.
During the current fiscal year the Company completed the sale of the land
and building that served as its prior corporate headquarters.
- --------------------------------------------------------------------------------
4. Other Assets:
Other assets as of February 28, 1998 and February 28, 1997 consists of the
following:
1998 1997
- --------------------------------------------------------------------------------
Net cash surrender value - life insurance $ 937,878 $ 869,473
Debt issue costs - net (Note 7) -- 151,359
Other 64,848 52,302
- --------------------------------------------------------------------------------
$1,002,726 $1,073,134
================================================================================
24
<PAGE>
- --------------------------------------------------------------------------------
5. Revolving Credit Line:
On May 23, 1997 the Company entered into a new unsecured revolving line of
credit with two banks, which currently provides for maximum borrowings of
$35,000,000 at either (i) the lead bank's prime rate or (ii) LIBOR plus 57.5 to
112.5 basis points depending on the ratio of the Company's debt to its earnings
before interest, taxes, depreciation and amortization, at the option of the
Company through May 23, 2001. Direct borrowings under lines of credit were
$25,300,000 and $8,000,000 at February 28, 1998 and February 28, 1997,
respectively. The credit agreement contains various covenants including certain
restrictions on the payment of cash dividends without the bank's consent. As of
the end of the fiscal year, the Company met all of the required covenants.
- --------------------------------------------------------------------------------
6. Long-term Debt:
Long-term debt consists of the following:
1998 1997
- --------------------------------------------------------------------------------
Term loan payable to bank, due in
monthly installments of $9,321
plus interest at the bank's prime rate
to March 31, 2000 $ -- $354,182
Various capitalized equipment leases, interest rates
ranging from 6.78% to 8.38%, maturing in 1997 and 1998. -- 78,947
- --------------------------------------------------------------------------------
433,129
Less: current portion -- 190,794
- --------------------------------------------------------------------------------
$ -- $242,335
================================================================================
The term loan payable was secured by a pledge of the shares of the common stock
of the Company purchased with the proceeds of the loans (See Note 10). Other
equipment loans were secured by the specific equipment acquired.
- --------------------------------------------------------------------------------
7. Subordinated Convertible Notes:
In a private placement completed on August 31, 1994, the Company issued
$15 million principal amount of Subordinated Convertible Notes, which are due in
$5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are
subordinate in right of payment to all existing and future senior indebtedness
of the Company. The notes bear interest at 8.25%, payable quarterly on November
15, February 15, May 15, and August 15. The notes are convertible into shares of
common stock at a conversion price of $9.00 per share. The cost of issuing these
notes was $521,565 and was amortized over three years.
As of February 28, 1998, $7,941,000 of the notes had been converted into
882,333 shares of common stock and $7,059,000 principal amount of subordinated
convertible notes remained outstanding which are due in increments of $2,353,000
on August 31, 2000, 2001 and 2002.
- --------------------------------------------------------------------------------
8. Stock Options:
Stock options granted to date under the Company's Key Employees Stock
Incentive Plan and the 1994 Stock Option Plan generally expire five years after
date of grant and become exercisable in four equal annual installments
commencing one year from date of grant. Stock options granted under the
Company's Outside Director Stock Option Plan expire ten years after the date of
grant and become exercisable in three equal annual installments on the date of
grant and the succeeding two anniversaries thereof.
A summary of options granted and related information for the three years
ended February 28, 1998 is as follows:
Weighted Average
Options Exercise Price
- --------------------------------------------------------------------------------
Outstanding, February 28, 1995 717,415 $ 6.46
Granted 323,000 9.33
Exercised (24,420) 4.07
Cancelled (23,023) 2.86
- -------------------------------------------------------------
Outstanding, February 29, 1996 992,972 7.54
Weighted average fair value of options
granted during the year $ 4.50
======
Granted 471,500 8.56
Exercised (93,495) 1.91
Canceled (68,750) 10.36
- -------------------------------------------------------------
Outstanding, February 28, 1997 1,302,227 8.16
Weighted average fair value of options
granted during the year $ 4.39
======
Granted 118,500 8.30
Exercised (20,777) 4.98
Canceled (38,500) 10.14
- -------------------------------------------------------------
Outstanding, February 28, 1998 1,361,450 8.20
=============================================================
Weighted average fair value of
options granted during the year $ 3.13
======
Options exercisable:
February 29, 1996 159,945 $ 7.35
February 28, 1997 381,377 7.86
February 28, 1998 673,825 7.52
Exercise prices for options outstanding as of February 28, 1998 ranged from
$5.41 to $14.83. The weighted-average remaining contractual life of these
options is approximately 5 years. Outstanding options at February 28, 1998 are
held by 44 individuals.
25
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements Three Years Ended February 28, 1998
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
The Company applies APB 25 and related Interpretations in accounting for
the Option Plans. Accordingly, no compensation cost has been recognized for its
Option Plans. Had compensation cost for the Option Plans been determined using
the fair value based method, as defined in SFAS 123, the Company's net earnings
and earnings per share would have been adjusted to the pro forma amounts
indicated below:
1998 1997 1996
- --------------------------------------------------------------------------------
Net earnings:
As reported $ 5,297,991 $ 7,073,560 $ 9,396,301
Pro forma 4,827,590 7,051,451 7,996,865
Basic earnings per share:
As reported $ .61 $ .81 $ 1.19
Pro forma .55 .81 1.01
Diluted earnings per share:
As reported $ .52 $ .69 $ .97
Pro forma .47 .68 .83
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for 1998, 1997 and 1996, respectively: expected volatility of 45.8%,
48.3% and 39.8%, respectively; risk free interest rate of 6.1%, 6.5% and 6.5%
for 1998, 1997 and 1996, respectively; and expected lives of 1 to 5 years.
The effects of applying SFAS 123 in the above pro forma disclosures are
not indicative of future amounts, as they do not include the effects of awards
granted prior to 1995. Additionally, future amounts are likely to be affected by
the number of grants awarded since additional awards are generally expected to
be made at varying amounts.
- --------------------------------------------------------------------------------
9. Income Taxes:
The provision for income taxes is comprised of the following:
February 28, 1998 February 28, 1997 February 29, 1996
- --------------------------------------------------------------------------------
Current:
Federal $ 3,103,097 $ 4,213,767 $ 5,082,876
State and Local 655,559 900,193 1,107,016
Deferred:
Federal (74,103) (221,867) 178,923
State (35,007) (44,397) 34,476
- --------------------------------------------------------------------------------
$ 3,649,546 $ 4,847,696 $ 6,403,291
================================================================================
The components of the net deferred income tax liability, pursuant to SFAS
109, as of February 28, 1998 and February 28, 1997 are as follows:
1998 1997
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Accounts Receivable $ 708,610 $ 679,600
Inventory 100,300 162,400
- --------------------------------------------------------------------------------
Total Deferred Tax Assets 808,910 842,000
- --------------------------------------------------------------------------------
Deferred Tax Liabilities
Fixed Assets (184,500) (112,148)
Income of Interest Charge DISC (1,055,805) (952,000)
- --------------------------------------------------------------------------------
Total Deferred Tax Liabilities (1,240,305) (1,064,148)
- --------------------------------------------------------------------------------
Net Deferred Tax Liabilities $ (431,395) $ (222,148)
================================================================================
The following is a reconciliation of the maximum statutory federal tax rate to
the Company's effective tax rate:
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State and local taxes 7.1 7.0 6.5
Other (1.3) (1.3) (1.0)
- --------------------------------------------------------------------------------
Effective tax rate 40.8% 40.7% 40.5%
================================================================================
- --------------------------------------------------------------------------------
10. Employee Benefit Plans:
On January 13, 1987, the Company's Board of Directors approved the
termination of the Company's pension plan and approved the adoption of an
employee stock ownership plan (ESOP) to replace the terminated pension plan. The
ESOP covers all eligible employees and contributions are determined by the Board
of Directors. The ESOP purchases shares of the Company's common stock using loan
proceeds. As the loan is repaid, a pro rata amount of common stock is released
for allocation to eligible employees. The Company makes cash contributions to
the ESOP to meet its obligations. Contributions to the ESOP for the three years
ended February 28, 1998 aggregated $139,950 for each year.
On October 31, 1997, the Company, on behalf of the ESOP, entered into an
additional credit agreement with a bank which provides for a $3,000,000
revolving line of credit at the bank's prime rate until October 31, 2001. Direct
borrowings under this line of credit are payable in forty-eight equal monthly
installments commencing with the fiscal period subsequent to such borrowings. At
February 28, 1998, there were no direct borrowings outstanding under the ESOP
line of credit.
In January 1991, the Company also established a 401-K profit sharing plan
to cover all eligible employees. The Company's contributions to the plan are
discretionary, but may not exceed 1% of compensation. Contributions to the plan
for the three years ended February 28, 1998 were $220,403, $111,585 and $90,243,
respectively.
26
<PAGE>
- --------------------------------------------------------------------------------
11. Commitments:
(a) On September 13, 1996, the Company signed employment contracts (the
"Contracts"), as amended, with three of its senior executives for a continually
renewing five year term. The Contracts specify a base salary of $226,545 for
each officer, which shall be increased each year by the change in the consumer
price index, and also entitle each of the officers to an annual bonus equal to
3.33% (10% in the aggregate) of the Company's consolidated earnings before
income taxes. Benefits are also payable upon the occurrence of either a change
in control of the Company, as defined, or the termination of the officer's
employment, as defined. The Contracts also provide for certain payments of the
executives' salaries, performance bonuses and other benefits in event of death
or disability of the officer for the balance of the period covered by the
agreement.
(b) In December 1996, the Company leased an approximately 80,000 square
foot facility in Melville, Long Island, New York to serve as its executive
offices and main distribution center. In mid- 1997, the Company moved its
executive offices and distribution operation to the facility. The lease term is
from December 17, 1996 to December 16, 2008 at an annual base rental of $601,290
and provision for a 4% annual escalation in each of the last ten years of the
term. The Company also leases certain other office, warehouse and other
properties which leases include various escalation clauses, renewal options,
etc. Aggregate minimum rental commitments under noncancelable operating leases
are as follows:
- --------------------------------------------------------------------------------
Fiscal 1999 $1,601,614
Fiscal 2000 1,502,220
Fiscal 2001 1,342,167
Fiscal 2002 935,134
Fiscal 2003 683,296
Thereafter 4,243,090
- --------------------------------------------------------------------------------
Rent expense was $1,459,325, $712,548, and $587,079 for each of the prior three
years in the period ending February 28, 1998.
(c) The Company has signed a four-year consulting agreement with the
former owner of Merit Electronics that commenced on April 29, 1994 and
terminates on April 28, 1998. The agreement provides for the consultant to
perform advisory services to Nu Horizons/Merit and to receive consulting fees of
approximately $665,000 per annum.
- --------------------------------------------------------------------------------
12. Major Suppliers:
For the year ended February 28, 1998, the Company purchased inventory from
one supplier that was in excess of 10% of the Company's total purchases.
Purchases from this supplier aggregated approximately $18,872,000.
For the year ended February 28, 1997, the Company purchased inventory from
one supplier that was in excess of 10% of the Company's total purchases.
Purchases from this supplier aggregated approximately $21,385,000.
For the year ended February 29, 1996, the Company purchased inventory from
two suppliers that were in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $33,505,000.
- --------------------------------------------------------------------------------
13. Business Segment Information:
The Company's operations have been classified into two business segments:
Electronic component distribution and industrial contract manufacturing. The
component distribution segment includes the resale of active and passive
components to various original equipment manufacturers and distributors. The
industrial contract-manufacturing segment consists of a subsidiary, which
provides electronic circuit board and harness assembly services to original
equipment manufacturers. This segment began operations in September 1991.
Summarized financial information by business segment for fiscal 1998 and 1997 is
as follows:
1998 1997
- --------------------------------------------------------------------------------
Net sales:
Electronic Component Distribution $221,217,251 $206,417,667
Industrial Contract Manufacturing 12,108,157 10,195,040
- --------------------------------------------------------------------------------
$233,325,408 $216,612,707
- --------------------------------------------------------------------------------
Operating income:
Electronic Component Distribution $ 9,430,055 $ 13,019,791
Industrial Contract Manufacturing 1,230,848 594,423
- --------------------------------------------------------------------------------
$ 10,660,903 $ 13,614,214
- --------------------------------------------------------------------------------
Total assets:
Electronic Component Distribution $ 95,519,254 $ 70,577,102
Industrial Contract Manufacturing 4,122,174 4,206,212
- --------------------------------------------------------------------------------
$ 99,641,428 $ 74,783,314
- --------------------------------------------------------------------------------
Depreciation and amortization:
Electronic Component Distribution $ 1,201,732 $ 978,684
Industrial Contract Manufacturing 286,325 260,283
- --------------------------------------------------------------------------------
$ 1,488,057 $ 1,238,967
- --------------------------------------------------------------------------------
Capital expenditures:
Electronic Component Distribution $ 983,419 $ 4,566,196
Industrial Contract Manufacturing 193,485 370,316
- --------------------------------------------------------------------------------
$ 1,176,904 $ 4,936,512
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements Three Years Ended February 28, 1998
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14. Selected Quarterly Financial Data (unaudited):
<TABLE>
<CAPTION>
Three Month Period Ended
February 28, 1998 November 30, 1997 August 31, 1997 May 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $62,347,646 $60,013,458 $56,798,598 $54,165,706
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 48,671,746 47,065,156 44,570,929 42,223,252
- ------------------------------------------------------------------------------------------------------------------------------------
Operating and Interest Expenses 11,284,786 10,754,379 10,382,809 9,424,814
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes 972,310 888,540 773,444 1,015,252
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,418,804 $ 1,305,383 $ 1,071,416 $ 1,502,388
====================================================================================================================================
Basic Earnings Per share $ .16 $ .15 $ .12 $ .17
====================================================================================================================================
Weighted Average Number of Common
and Common Equivalent Shares Outstanding 8,753,076 8,753,076 8,746,826 8,739,326
====================================================================================================================================
<CAPTION>
Three Month Period Ended
February 28, 1997 November 30, 1996 August 31, 1996 May 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $54,198,484 $53,958,639 $50,783,044 $57,672,540
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 42,071,313 41,894,971 39,411,875 44,746,424
- ------------------------------------------------------------------------------------------------------------------------------------
Operating and Interest Expenses 9,517,539 9,138,969 9,103,283 8,807,077
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes 1,084,131 1,182,805 916,658 1,664,102
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,525,501 $ 1,741,894 $ 1,351,228 $ 2,454,937
====================================================================================================================================
Basic Earnings Per share $ .17 $ .20 $ .15 $ .29
====================================================================================================================================
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 8,732,299 8,732,299 8,732,299 8,423,137
====================================================================================================================================
</TABLE>
Independent Auditors' Report
To The Board of Directors
Nu Horizons Electronics Corp.
Melville, New York
We have audited the accompanying consolidated financial statements of Nu
Horizons Electronics Corp. and subsidiaries as of February 28, 1998 and 1997,
and the consolidated statements of income, changes in shareholders' equity and
cash flows for the three years in the period ended February 28, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred to the
above, present fairly in all material respects, the financial position of Nu
Horizons Electronics Corp. and subsidiaries at February 28, 1998 and February
28, 1997, and the results of their operations and their cash flows for each of
the three years in the period ended February 28, 1998 in conformity with
generally accepted accounting principles.
/s/ Lazar Levine & Felix LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
May 18, 1998
28
<PAGE>
Market for the Company's Common Equity and
Related Stockholder Matters
(a) The Company's common stock is traded on the Nasdaq National Market
System under the symbol "NUHC". The following table sets forth, for the periods
indicated, the high and low closing prices for the Company's common stock, as
reported by the Nasdaq National Market System.
High Low
Fiscal Year 1997:
First Quarter $ 17.25 $ 12.63
Second Quarter 14.75 7.25
Third Quarter 11.13 7.88
Fourth Quarter 10.00 7.88
Fiscal Year 1998:
First Quarter 9.50 6.75
Second Quarter 9.00 7.25
Third Quarter 9.25 6.75
Fourth Quarter 7.17 5.50
Fiscal Year 1999:
First Quarter (Through May 1, 1998) 7.09 6.12
(b) As of May 1, 1998, the Company's common stock was owned by
approximately 4,500 holders of record.
(c) The Company has never paid a cash dividend on its common stock. In
addition, the Company's prior revolving credit line agreement prohibited,
without the bank's consent, the payment of cash dividends. The Company's
existing revolving credit line agreement only permits dividends of up to 25% of
the Company's consolidated net income.
Annual Meeting
The Annual Meeting of Shareholders will be held on September 24, 1998 at 10:00
AM at the Company's Corporate Headquarters, 70 Maxess Rd., Melville, New York
Form 10-K
The Company's report on Form 10-K as filed with the Securities and Exchange
Commission is available upon written request to: Office of the Secretary, Nu
Horizons Electronics Corp., 70 Maxess Rd., Melville, New York, 11747
Stock Traded:
Nasdaq National Market (NUHC)
Design: Brady & Honaski Associates, Inc.
Corporate Information
Officers & Directors
Irving Lubman
Chairman of the Board of Directors and Chief Operating Officer
Arthur Nadata
President, Chief Executive Officer and Director
Richard S. Schuster
Vice President, Secretary, Director and President - NIC Components Corp.
Paul Durando
Vice President, Finance, Treasurer and Director
Harvey R. Blau
Director
Attorney at Law - Blau, Kramer, Wactlar & Lieberman P.C.
Chairman of the Board - Griffon Corporation and Aeroflex Incorporated
Herbert M. Gardner
Director
Senior Vice President - Janney Montgomery Scott Inc.
Chairman of the Board - Supreme Industries, Inc.
Dominic A. Polimeni
Director
Chairman and Chief Executive Officer - Questron Technology
Managing Director - Gulfstream Financial Group, Inc.
David Bowers
Vice President - Marketing
Elaine Givner
Vice President - Human Resources
Jan Sanchez
Vice President - Operations
Robert Valone
Vice President - Sales
Martin Drucker
Vice President - Sales - Nu Horizons International Corp.
Transfer Agent and Registrar
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005
Corporate Counsel
Blau, Kramer, Wactlar & Lieberman, P.C., 100 Jericho Turnpike, Jericho, New York
11753
Independent Auditors
Lazar Levine & Felix LLP, 350 Fifth Avenue, New York, New York 10118
<PAGE>
- -----------------------------
Nu Horizons Electronics Corp.
- -----------------------------
70 Maxess Road
Melville, New York 11747
(516) 396-5000
Web: http//www.nuhorizons.com/
