<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 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:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
NU HORIZONS ELECTRONICS CORP.
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 23, 1999
----------------------------------------
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 23, 1999 at the
de Seversky Conference Center, Northern Blvd., Old Westbury, New York at 10:00
a.m. (the "Annual Meeting"), for the following purposes:
1.) To elect two directors comprising the Class III Directors to serve until
the 2002 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 2, 1999
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 12, 1999
<PAGE>
NU HORIZONS ELECTRONICS CORP.
70 Maxess Road
Melville, New York 11747
---------------------------------
ANNUAL MEETING OF STOCKHOLDERS
September 23, 1999
---------------------------------
PROXY STATEMENT
The Annual Meeting of Stockholders of NU HORIZONS ELECTRONICS CORP. (the
"Company") will be held on Thursday, September 23, 1999 at the de Seversky
Conference Center, Northern Blvd., Old Westbury, 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 13, 1999 to all
stockholders as of the Record Date.
VOTING RIGHTS
On August 2, 1999 (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.
<TABLE>
<CAPTION>
Name Shares Percent
---- ------ -------
<S> <C> <C>
Paul Durando 46,502 (1)(2) *
Herbert M. Gardner 72,612 (3) *
Harvey R. Blau 57,075 (3) *
Dominic Polimeni 16,667 (3) *
Irving Lubman 320,321 (4)(5) 3.6%
Arthur Nadata 591,481 (4)(5)(6) 6.5%
Richard S. Schuster 584,884 (4)(5) 6.5%
Dimensional Fund Advisors 497,642 (7) 5.7%
Heartland Advisors 700,000 (8) 8.0%
All Directors and Officers
as a Group (7 Persons) 1,689,542 17.1%
</TABLE>
- ----------
NOTES:
(*) Less than 1% of the Company's outstanding stock.
(1) Includes options exercisable within 60 days for 41,250 shares of common
stock under the Company's Key Employees Stock Option Plan and the 1994
Stock Option Plan.
(2) Includes 5,252 shares of fully vested common stock owned through the
Employee's Stock Ownership Plan, which include voting power.
(3) Includes options exercisable within 60 days for 56,667 shares of common
stock for Messrs. Gardner and Blau and 16,667 shares for Mr. Polimeni under
the Company's Outside Director Stock Option Plan.
(4) Includes options exercisable within 60 days for 273,650 shares of common
stock for Messrs. Lubman and Schuster and 286,150 shares for Mr. Nadata
under the Company's Key Employees Stock Option Plan and the 1994 Stock
Option Plan.
(5) Includes 15,133 shares of fully vested common stock owned through the
Employees Stock Ownership Plan, which include voting power. These officers
are also Trustees of the Plan.
(6) Includes 45,398 shares held by his children as to which Mr. Nadata
disclaims beneficial ownership.
(7) 1299 Ocean Avenue, Santa Monica, CA 90401
(8) 790 Milwaukee St., Milwaukee, WI 53202
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 2001) 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 III are to be elected to hold office until the
Annual Meeting of Stockholders in 2002 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 my 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:
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
- ---- --- -------------------- -----
<S> <C> <C> <C>
Irving Lubman 60 Chairman of the Board and 1982
Chief Operating Officer
of the Company
Arthur Nadata 53 President and
Chief Executive Officer
of the Company 1982
</TABLE>
The following information is submitted with respect to the five directors
who are not nominees at the Annual Meeting:
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
- ---- --- -------------------- -----
<S> <C> <C> <C>
Paul Durando 55 Vice President, Finance 1994
of the Company
Herbert M. Gardner 59 Senior Vice President 1984
Janney Montgomery Scott Inc.
and Chairman of the Board
of Supreme Industries, Inc.
Harvey R. Blau 63 Chairman of the Board 1984
of Griffon Corporation and
Aeroflex Incorporated
Dominic Polimeni 52 Chairman and Chief 1997
Executive Officer-Questron
Technology; Managing
Director-Gulfstream Financial
Group, Inc.
Richard S. Schuster 50 Vice President and Secretary 1982
of the Company; President of NIC
Components Corp.
</TABLE>
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
3
<PAGE>
Corp., holding the position of sales manager until 1968. From 1968 through
October 1982, when he joined the Company, Mr. Lubman was corporate vice
president of Diplomat Electronics Corp., also a distributor of electronic
components.
ARTHUR NADATA has been President and a Director since October 1982 and
Chief Executive Officer since September 1996. Mr. Nadata was also the Treasurer
of the Company from October 1982 to September 1996. Prior to joining the Company
in October 1982, Mr. Nadata worked for eighteen years for Diplomat Electronics
Corp. in various operational and sales positions of increasing responsibility,
eventually becoming corporate vice president of sales and marketing.
RICHARD S. SCHUSTER has been Vice President, Secretary and a Director since
October 1982. For the seven years prior to joining the Company in November 1982,
Mr. Schuster served as manager of Capar Components Corp., an importer and
distributor of passive components, and a wholly-owned subsidiary of Diplomat
Electronics Corp. For the six years prior to 1975, Mr. Schuster was employed by
International Components Corp., responsible for production, engineering and
sales of imported semiconductor and passive components.
PAUL DURANDO has been Vice President, Finance since joining the Company in
March 1991, Treasurer since September 1996 and has been a Director since
September 1994. Prior to joining the Company in March 1991, Mr. Durando served
for six years as Executive Vice President of Sigma Quality Foods, Inc. From 1977
to 1984, he was Vice President, Operations of the Wechsler Coffee Corp. Mr.
Durando was also associated with Deloitte Haskins & Sells for seven years.
HARVEY R. BLAU has been a Director of the Company since May 1984. Mr. Blau
has been a practicing attorney in the State of New York since 1961, and is a
member of the law firm of Blau, Kramer, Wactlar & Lieberman, P.C., Jericho, New
York, counsel to the Company. Mr. Blau is Chairman of the Board of Griffon
Corporation and Aeroflex Incorporated and is a director of Reckson Associates
Realty Corp.
HERBERT M. GARDNER has been a Director of the Company since May 1984. For
more than the past five years, Mr. Gardner has been Senior Vice President of
Janney Montgomery Scott Inc., investment bankers and Underwriter of the
Company's May 1984 public offering. Mr. Gardner is Chairman of the Board of
Supreme Industries Inc. and a director of Transmedia Network, Inc., TGC
Industries Inc., Hirsch International Corp. and Inmark Enterprises, Inc.
DOMINIC A. POLIMENI has been a Director of the Company since September
1997. Mr. Polimeni has been President, Chief Operating Officer and a Director of
Questron Technology, Inc. since March 1995, and Chairman and Chief Executive
Officer of Questron Technology, Inc. since February 1996. Mr. Polimeni has been
a Managing Director of Gulfstream Financial Group, Inc., a privately held
financial consulting and investment banking firm since August 1990. Prior to
that he held the position of Chief Financial Officer of Arrow Electronics, Inc.
("Arrow") 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, 1999, February 28, 1998 and February 29, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation (1) Compensation
Securities
Name of Principal Fiscal Underlying All Other (2)
and Position Year Salary Bonus Options Compensation
------------ ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Irving Lubman 1999 $243,893 $196,102 75,000 $ 21,552
COO, Chairman 1998 236,789 344,370 -- 16,781
of the Board 1997 229,893 446,843 100,000 14,945
Arthur Nadata 1999 $243,893 $280,146 100,000 $ 20,514
President and 1998 236,789 344,370 -- 31,374
CEO 1997 229,893 446,843 100,000 18,457
Richard Schuster 1999 $243,893 $280,146 75,000 $ 18,330
Vice President, 1998 236,789 344,370 -- 18,922
Secretary and 1997 229,893 446,843 100,000 16,222
President, NIC
Components Corp.
Paul Durando 1999 $150,000 $ 31,011 10,000 $ 1,500
Vice President, 1998 138,942 25,827 15,000 1,389
Finance and Treasurer 1997 130,000 33,514 20,000 1,500
</TABLE>
- ----------
(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 Messrs. Lubman, Nadata and Schuster for a
continually renewing five year term. The Contracts specify a base salary of
$226,545 for each officer, which shall be increased each year by the change in
the consumer price index. The Contracts provide for payment to Mr. Lubman of an
annual bonus of 2.33% and to each of Messers. Nadata and Schuster of an annual
bonus equal to 3.33% (9% to the aggregate) of the Company's consolidated
earnings before income taxes. Benefits are also payable upon the occurrence of
either a change in control of the Company, as defined, or the termination of the
officer's employment, as defined. In the event the employee terminates his
employment within six months after a change in control of the Company, he will
receive a lump sum payment equal to three-quarters of the remaining compensation
under his employment agreement. The Contracts also provide for certain payments
of the executives' salaries, performance bonuses and other benefits in the event
of death or disability of the officer for the balance of the period covered by
the agreement.
5
<PAGE>
The following table sets forth certain information with respect to stock
options granted to the officers named in the Summary Compensation Table during
the fiscal year ended February 28, 1999.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
% of at Assumed
Total Annual Rates
Options Exercise of Stock Price
Options Granted to Price Expiration Appreciation for
Granted(1) Employees ($ per share) Date Entire Term (2) (3)
---------- --------- ------------- ---- -------------------
5% 10%
--- ---
<S> <C> <C> <C> <C> <C> <C>
P. Durando 10,000 2.9% $ 6.125 5/28/08 $ 38,550 $ 97,650
I. Lubman 75,000 21.6% 6.125 5/28/08 289,125 732,375
A. Nadata 100,000 28.7% 6.125 5/28/08 385,500 976,500
R. Schuster 75,000 21.6% 6.125 5/28/08 289,125 732,375
</TABLE>
- ----------
(1) Options were granted for a term of ten years, subject to earlier
termination on termination of employment. Options become exercisable
in two equal annual installments commencing one year from the date of
grant.
(2) These amounts represent assumed rates of appreciation, which may not
necessarily be achieved. The actual gains, if any, are dependent on
the market value of the Company's stock at a future date as well as
the option holder's continued employment throughout the vesting
period. Appreciation reported is net of exercise price.
(3) Potential Realizable Value is based on the assumed annual growth rates
for the five-year option term. Annual growth of 5% results in a stock
price of $9.98 per share and 10% results in a price of $15.89 per
share for the recipients on the shares granted at $6.125. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the stock as well as the option holder's continued
employment throughout the vesting period. There can be no assurance
that the amounts reflected in this table will be achieved.
Appreciation reported is net of exercise price.
6
<PAGE>
- ----------
The following table sets forth certain information as to each exercise of
stock options during the fiscal year ended February 28, 1999 by the persons
named in the Summary Compensation Table and the fiscal year end value of
unexercised options:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY End at FY End
Acquired on Value Exercisable/ Exercisable/
Exercise Realized (1) Unexercisable Unexercisable
-------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Irving Lubman -- -- 236,150 --
137,500 --
Arthur Nadata -- -- 236,150 --
162,500 --
Richard Schuster -- -- 236,150 --
137,500 --
Paul Durando -- -- 36,250 --
36,250 --
</TABLE>
- ----------
(1) Market value less exercise price, before payment of applicable federal or
state taxes.
Directors who are not employees of the Company receive an annual fee of
$2,500 for Board Membership and $500 for each Board of Directors or Committee
meeting attended. There were two meetings of each of the Board of Directors and
the Compensation Committee during the fiscal year ended February 28, 1999. Each
director attended or participated in all of the meetings of the Board of
Directors and the committees thereof on which he served.
For the fiscal year ended February 28, 1999, there was one meeting of the
Audit Committee. The Company's Audit Committee is involved in discussions with
the Company's independent public accountants with respect to the scope and
results of the Company's year-end audit, the Company's internal accounting
controls and the professional services furnished by the independent auditors to
the Company. During fiscal 1999, the Company had no standing Nominating
Committee or any committee performing similar functions.
Key Employees Stock Incentive Plan:
The Company has a Key Employees Stock Incentive Plan ("Plan"), approved by
the stockholders in 1984, as amended in September 1987, which presently covers
712,765 shares of Common Stock. Options are currently outstanding for 192,450
shares and no shares are currently available for grant. The Plan is intended to
provide an additional means of inducing executives and other "key salaried
employees" of the Company (which is defined under Section 422A of the Internal
Revenue Code) to join and remain with the Company by offering them a greater
share of the Company's stock and a greater identification with the Company.
The Board of Directors or a Committee, which may be appointed and
maintained by the Board, shall have the power to administer the Plan. The Board
or Committee has full power and authority: (i) to designate participants;
7
<PAGE>
(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 and Stock Appreciation Rights may be exercised and the nature and
duration of restrictions as to transferability or constituting substantial risk
forfeiture; (iv) to accelerate the right to an optionee to exercise in whole or
in part any previously granted ISO including any options modified to qualify as
ISOs; and (v) to interpret the provisions and supervise the administration of
the Plan. The Board has appointed the Compensation Committee to administer the
Plan.
The purchase price of each share subject to an Option or any portion
thereof, which has been designated by the Board or the Committee as an ISO,
shall not be less than 100% (or 110%, if at the time of grant the optionee owns
more than 10% of the voting stock of the Company) in the case of options
designated as ISOs or 85% in case of options not designated as incentive stock
options, of the fair market value of such shares on the date the option is
granted. In no event shall the option price be less than the par value of the
stock.
1994 Stock Option Plan:
In September 1994, the Company's stockholders approved the 1994 Stock
Option Plan (the "1994 Plan"), as amended in September 1996, under which key
employees and officers of the Company, its subsidiaries and affiliates may be
granted options to purchase an aggregate of 1,100,000 shares of the Company's
Common Stock. The 1994 Plan is administered by the Compensation Committee,
consisting of at least two members of the Board of Directors. The Compensation
Committee, subject to provisions in the 1994 Plan, has the authority to
designate, in its discretion, which persons are to be granted options, the
number of shares subject to each option, and the period of each option. Each
recipient must be an employee of the Company at the time of grant and throughout
the period ending on the day three months before the date of exercise. Under the
terms of the 1994 Plan, the exercise price of the shares subject to each option
granted will be not less than 85% nor more than 100% of the fair market value at
the date of grant or 110% of such fair market value for options granted to any
employee to or director who owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company.
Adjustments will be made to the purchase price in the event of stock dividends,
corporate reorganizations, or similar events. During fiscal 1999, 10,500 options
were granted under the 1994 Plan with an exercise price of $6.125. Options are
currently outstanding for 1,094,500 shares and 5,500 options are currently
available for grant. No options to purchase shares granted under the 1994 Plan
have been exercised.
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 (other than to change the manner of
determining Fair Market Value to conform to any then applicable provision of the
Code or any regulation thereunder); (iv) extends the expiration date of the 1994
Plan, or the limit on the maximum term of
8
<PAGE>
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, as amended, (the "1998 Option Plan"), under which
any director, officer, employee or consultant of the Company, a subsidiary or an
affiliate may be granted options to purchase an aggregate 1,050,000 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 in the Securities Exchange Act of
1934. The Compensation Committee administers the 1998 Option Plan. Subject to
the terms of the 1998 Option Plan, the Board of Directors or the Committee may
determine and designate those directors, officers, employees and consultants who
are to be granted stock options under the 1998 Option Plan and the number of
shares to be subject to such options and the term of the options to be granted,
which term may not exceed ten years. The Board of Directors 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 fair market value at the date of grant. The option price, as well as
the number of shares subject to such option, shall be appropriately adjusted by
the Committee in the event of stock splits, stock dividends, recapitalizations,
and certain other events involving a change in the Company's capital. During
fiscal 1999, 337,500 options were granted under the 1998 Option Plan with
exercise prices of $6.125, $5.00 and $4.62. Options are currently outstanding
for 715,000 shares and 35,000 options are currently available for grant. No
options granted under the 1998 Option plan have been exercised.
Outside Director Stock Option Plan:
In September 1994, the Company's stockholders approved the Outside
Directors Stock Option Plan (the "Director Plan") which covers 150,000 shares of
the Company's Common Stock. The primary purposes of the Director Plan are to
attract and retain well-qualified persons for service as directors of the
Company and to provide such outside directors with the opportunity to increase
their proprietary interest in the Company's continued success and further align
their interests with the interests of the stockholders of the Company through
the grant of options to purchase shares of the Company's Common Stock.
All directors of the Company who are not employees of the Company, of which
there are presently three, are eligible to participate in the Director Plan.
The Board of Directors of the Company may amend the Director Plan from time
to time in such manner as it may deem advisable. The provisions of the Director
Plan relating to (i) which directors shall be granted options; (ii) the amount
of shares subject to options granted; (iii) the price at which shares subject to
options may be purchased; and (iv) the timing of grants of options shall not be
amended more than once every six (6) months, other than to comport with changes
in the Code or the Employee Retirement Income Security Act of 1974, as amended.
No amendment to the Director Plan shall adversely affect any outstanding option,
however, without the consent of the optionee that holds such option.
The Compensation Committee of the Board of Directors has the responsibility
and authority to administer and interpret the provisions of the Director Plan.
The Compensation Committee shall appropriately adjust the number of shares for
which awards may be granted pursuant to the Director Plan in the event of
reorganization, recapitalization, stock split, reverse stock split, stock
dividend, exchange or combination of shares, merger, consolidation, rights
offering, or any change in capitalization.
9
<PAGE>
Under the Director Plan, each non-employee Director 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 non-employee
Director upon vesting.
Summary of Fiscal 1999 Stock Option Grants:
During fiscal 1999, the Company granted options to purchase 100,000 shares
to Mr. Nadata, 75,000 shares to each of Messrs. Lubman and Schuster and 10,000
shares to Mr. Durando at a price of $6.125 per share and options to purchase
10,000 shares to each of Messrs. Blau, Gardner, and Polmeni at a price of
$6.125.
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
hereunder) 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, except for voting
rights which insure 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 431,251 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 ($10,000 in calendar 1998). 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 Company,
matching contributions by the Company are fully vested. As of February 28, 1999
approximately 250 employees had elected to participate in the plan. For the
fiscal year ended February 28, 1999, the Company contributed approximately $114,
216 to the plan, of which $8,814 was a matching contribution of $2,438 for each
of Mr. Lubman, Mr. Nadata, Mr. Schuster and $1,500 for Mr. Durando.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee consisted during fiscal 1999 of
Messrs. Gardner (Chairman), Blau and 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
1999 is furnished by the Compensation Committee.
General Policies
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain management talent required to achieve
aggressive corporate objectives in a rapidly changing industry, and thereby
increase stockholder value. It is the Company's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives and to
reward exceptional performance and contributions to the development of the
Company's business. To attain these objectives, the Company's executive
compensation program includes a competitive base salary, coupled with, with
respect to certain executives, a substantial cash bonus which is "at risk" based
on the Company's earnings.
Many of the Company's employees, including its executive officers, also are
eligible to be granted stock options periodically in order to more directly
align their interests with the long-term financial interest of the Company's
stockholders.
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 Company's stock option plans. Among the Company's executive officers,
the number of shares subject to options granted to each individual generally
depends upon his or her base salary and the level of that officer's management
responsibility.
During fiscal 1999, 10,000 options were granted to each outside director
under the Company's Outside Director Stock Option Plan. Options to purchase
100,000 shares were granted to Mr. Nadata, 75,000 shares were granted to each
Messrs. Lubman and Schuster and 10, 000 shares were granted to Mr. Durando under
the Company's 1998 Stock Option Plan. Bonuses were paid to three executive
officers, as set forth in the Summary Compensation Table, pursuant to the terms
of their employment agreements with the Company and on a discretionary basis to
Paul Durando, the Company's Vice President, Finance and Director. This latter
bonus was determined to be appropriate by the Compensation Committee in light of
Mr. Durando's contributions to the Company's performance, his base salary level
and the level of his management responsibilities.
Compensation of Chief Executive Officer
The Company has entered into an employment agreement with Arthur Nadata,
the Company's President and Chief Executive Officer, pursuant to which Mr.
Nadata receives a base salary of $226,545, adjusted for CPI index increases, and
an incentive bonus equal to three and thirty-three one-hundredths percent
(3.33%) of the Company's consolidated pre-tax earnings. In this way, Mr.
Nadata's cash compensation is tied directly to the Company's profitability.
The Compensation Committee
Herbert Gardner
Harvey Blau
Dominic Polimeni
Compliance with Section 16 (a) of the Securities Exchange Act
Section 16 (a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities ("Reporting Persons") to file report of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "SEC") and the National Association of Securities
Dealers (the "NASD"). These Reporting Persons are required by SEC regulation to
furnish the Company with copies of all Forms 3, 4 and 5 they file with the SEC
and NASD.
Based solely on the Company's review of the copies of the forms it has
received, the Company believes that all Reporting Persons complied on a timely
basis with all filing requirements applicable to them with respect to
transactions during fiscal year 1999.
12
<PAGE>
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, 1999, the Company paid $75,481 in legal fees to Blau, Kramer,
Wactlar & Lieberman, P.C.
For the fiscal year ended February 28, 1999, the Company received an
aggregate $380,000 in respect of various electronic components sold to
Procomponents, Inc. and PCI Manufacturing, two corporations in which Mitchell
Lubman, Mr. Lubman's brother, is an officer and owns greater than ten percent
equity interest.
For the fiscal year ended February 28, 1999, the Company received an
aggregate $412,000 in respect of various electronic components sold to Brevan
Electronics, a corporation in which Stuart Schuster, Mr. Schuster's brother, is
an officer and owns a greater than ten percent equity interest.
COMPANY STOCK PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for a five year period (February 28, 1994
to February 28, 1999) with the cumulative total return of the NASDAQ Market
Index (which includes the Company) and a peer group of companies selected by the
Company for purposes of the comparison. Dividend reinvestment has been assumed
and, with respect to companies in the Peer Group, the returns of each such
company have been weighted to reflect relative stock market capitalization.
COMPARE 5 -YEAR CUMULATIVE TOTAL RETURN
AMONG NU-HORIZONS ELECTRONICS CORP., NASDAQ MARKET INDEX
AND PEER GROUP INDEX
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
------------------------------------ FISCAL YEAR ENDING --------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY/INDEX/MARKET 3/01/1994 2/28/1995 2/29/1996 2/28/1997 2/27/1998 2/26/1999
Nu Horizons Electn 100.00 84.51 176.06 104.23 71.13 49.30
Customer Selected Stock List 100.00 95.07 126.17 142.88 148.40 78.88
NASDAQ Market Index 100.00 95.47 131.83 158.24 215.21 278.09
</TABLE>
Assumes $100 Invested on March 1, 1994
Assumes Dividend Reinvested
Fiscal Year Ending February 28, 1999
Peer group includes All American Semiconductor, Arrow Electronics Inc., Avnet
Inc., Bell Microproducts, Inc., Jaco Electronics Inc., Kent Electronics Corp.,
Marshall Industries, Pioneer Standard Electronics, and 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, 1999 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 2000 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, 1999 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 26, 2000 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 12, 1999
14
<PAGE>
NU HORIZONS ELECTRONICS CORP.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING - September 23, 1999
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 23, 1999 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 |_| WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) all nominees listed below
IRVING LUBMAN ARTHUR NADATA
(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: _________________, 1999
_____________________________________[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.
Annual Report
1999
Plain cover with quarter circle cutout exposing a portion of photograph on page
three with the following list of words showing through the cutout:
Global
Customer Focus
Leadership
Quality
Technology
Opportunities
Logistics
Engineering
<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 OEMs.
NIC Eurotech Limited, located in Buckingham, England, is a wholly-owned
subsidiary of Nu Horizons and is the sales, marketing and distribution outlet
for NIC Components Corp. product in Europe.
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 Nu Horizons,
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>
<TABLE>
<CAPTION>
Selected Financial Data
- --------------------------------------------------------------------------------------------------------------------------
For The Year Ended
February February February February February
28, 1999 28, 1998 28, 1997 29, 1996 28, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $253,872,325 $233,325,408 $216,612,707 $202,803,184 $130,251,554
Gross profit on sales 55,036,322 50,794,325 48,488,124 48,201,148 30,913,305
Gross profit percentage 21.7% 21.8% 22.4% 23.8% 23.7%
Income before provision for income taxes 7,624,158 8,947,537 11,921,256 15,799,592 7,444,147
Net income 4,544,831 5,297,991 7,073,560 9,396,301 4,421,823
Earnings per common share:
Basic $ .52 $ .61 $ .81 $ 1.19 $ .57
Diluted $ .43 $ .52 $ .69 $ .97 $ .52
February February February February February
28, 1999 28, 1998 28, 1997 29, 1996 28, 1995
- --------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 68,849,897 $ 75,217,607 $ 51,941,472 $ 57,954,434 $ 36,328,941
Total assets 99,758,895 99,641,428 74,783,314 75,459,586 51,972,606
Long-term debt 22,377,852 32,790,395 15,523,483 27,094,030 20,580,613
Shareholders' equity 56,337,068 51,542,045 46,950,735 37,617,703 22,541,916
</TABLE>
Six small pictures in collage form:
Modem jack with modem wire
Person on a cell phone
Computer monitor
Mouse manipulated by a hand
Portion of a laptop keyboard
A Palm VII handheld computer
At random over the pictures are printed the following list of words:
Manufacturing
Global
Internet
Customer Focus
Leadership
Quality
Technology
Opportunities
Logistics
Engineering
<PAGE>
Three Photos of Executives
to our shareholders
[PHOTO]
From left to right:
Arthur Nadata,
Richard Schuster
and Irving Lubman
We continued to experience challenging business conditions in our fiscal 1999
period. Although it may seem redundant, we have to say that the electronics
industry, specifically in the component segment, still faced over-supply and
continued price erosion. However, we continued to invest and position ourselves
for a strong and strategic position in a market where consumption is still
growing. This is evidenced by our increased shipments of actual units and a 9%
growth in revenue over the last fiscal year. Sales increased to a record $253.9
million, surpassing the previous record of $233.3 million in the prior year,
while net income decreased to $4.5 million from $5.3 million. Though we were
disappointed with last year's earnings, the positive results of our investments
are now becoming evident. Our first quarter results for fiscal 2000 set a new
sales record of $74.1 million with earnings increasing to $1.5 million for the
period, a 26% growth when compared to the same period last year . We continue to
be optimistic about results for all of fiscal 2000, however, the gains for the
first quarter may not be indicative of full year results. Again we have shown
that giving our stockholders long term value for their investment takes vision,
perseverance and the dedicated involvement of a "hands on" management team.
2
<PAGE>
Today we see tremendous opportunities for our growth . The pervasive use of
the Internet is increasing demand from the PC sector, cellular phone production
is at an all time high, hand held computer sales are growing rapidly and the use
of electronic components in the automotive sector are up significantly. With
economic conditions in Asia improving, the glut of components entering the North
American market has sharply declined. Prices appear to be stabilizing and we
have experienced some shortages in specific component areas. We believe that the
above factors will help to increase our earnings in the coming fiscal year.
New Customer Focus
We continue to service the emerging growth and second tier customer market.
However, with our specialized product offerings, engineering services and strong
supply chain management programs, a new arena has opened for us. The top tier of
original equipment manufacturers and contract manufacturers are now contributing
more to our revenue than ever before. We have developed strategic partnerships
with a number of these large global customers and expect to focus more on this
segment.
Supply Chain Management
In conjunction with engineering/design, a distributor must be a viable
solution to the equipment and contract manufacturers supply of raw materials.
Reducing or eliminating the manufacturers' costs of purchasing, expediting,
warehousing and inspecting add enormous value for the customer. In an age of low
cost components it is often the total cost of procurement that matters in the
final analysis. Nu Horizons and NIC Components have
3
<PAGE>
responding rapidly to the
challenges and
opportunities
of the electronic market
made significant investments in computer hardware, software, automated
warehousing and global logistics to provide the supply chain management that is
in demand today.
Internet, Intranet and Extranet
High speed, accurate and comprehensive information must be available to our own
employees and representatives, as well as to our growing customer base. We have
a highly skilled team of software technicians and programmers whose priority is
to make information available in the most user-friendly format. We are
constantly upgrading and enhancing our web sites to provide sales and technical
support. Our Intranet is expected to lead our internal organization to a
"paperless," real time communication organization.
4
<PAGE>
Reports and extensive analysis tools will be a keyboard-touch away so that our
employees can better inform and service our customers. Our new Extranet software
is designed to enable our customers to access our system within a secure format.
They can have all the efficiencies and information to better make design
decisions, ease actual ordering of products and assist inventory management.
Information management is the key to customer satisfaction and loyalty, as well
as to maximizing our own profitability.
Engineering Leadership
Our team of FAEs (field application engineers) are among the most select in our
industry. Intensive training, along with our supplier's strong technical
resources, gives Nu Horizons the edge in working with our customer's design
departments. Our FAEs bring both knowledge and a sense of trust which turns a
customer into a true partner. The customer often looks to us as an extension of
their own engineering departments and our suppliers as a conduit for their new
technologies.
In closing, we wish to thank our employees, customers and suppliers for
their contributions to our continuing efforts and our shareholders for their
encouragement and support.
/s/ Irving Lubman /s/ Arthur Nadata /s/ Richard Schuster
Irving Lubman Arthur Nadata Richard Schuster
Chairman of the Board President and Vice President,
CEO and Director Secretary and Director
5
<PAGE>
Nu Horizons Electronics Corp.
pivoting all our efforts around
customer focus
At Nu Horizons we recognize the importance of customer retention and
development. Customer focused programs such as our dedicated, application
specific Field Application Engineers, Electronic Commerce and Materials
Management Solutions, Value Added Service Center, Internet capabilities and
partnership with companies like Questlink are all a part of our focus to our
customer-first commitment. Every department, all our internal back office
systems, and our strategic alliances have been developed for the ultimate in
customer satisfaction.
Our line card offers the synergy of commodity and high technology products
from semiconductor leaders such as Allegro, Alpha Industries, Cirrus Logic,
Exar, Hyundai, Maxim, Micrel, SMSC, STMicrolelectronics, Sun and Xilinx. We
enjoy exclusive relationships with Basic Communications, a spin-off from Cirrus
Logic, ISD, a division of Winbond, and TDK semiconductor, a recognized leader in
Communication IC's. We believe our best-in-class customer programs and service
capabilities, paired with our synergistic line card, gives us the edge we need
to increase market share, sales and earnings.
6
<PAGE>
Six Photos:
Upper left - Person on cell phone
Upper center - Background photo of component with the following written on it:
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.
Upper right - Palm VII handheld computer
Lower left - Computer monitor and keyboard
Lower center - Eleven various semiconductor components
Lower right - Integrated circuit semiconductor component
[PHOTO]
<PAGE>
NIC Components Corp.
global strength and technology
leadership
NIC continues to outpace many of the developing technologies within the passive
component field. Passive components are used extensively in all electronic
equipment but especially in PCs, telecom, industrial controls, automotive and
test and medical instrumentation. NIC has concentrated on expanding their line
of surface mount components which enable a manufacturer to produce circuit
boards at high speeds and lower costs. NIC has introduced many new innovative
products that offer new reduced sizes, longer life and better performance.
NIC recently formed a new strategic account development unit (SADU) to
support large global customers. Typically these multi-national companies will
design their products in North America and purchase and manufacture them in many
locations around the world. From design to production and from prototype orders
to supply chain management our SADU team works closely with the customer. Our
emphasis on global logistics led to our establishing a European operation in
1998 (NIC Eurotech Ltd.) and we currently plan to enter into a new joint venture
in Asia.
8
<PAGE>
[PHOTO]
Six Photos:
Upper left - NIC Components advertising piece
Upper right - Capacitors - loose and on tape and reel
Upper center - Circuit board with passive components
Lower left - Handheld computer mouse
Lower center - Map with the following written on it:
NIC designs and manufactures components that meet the demands of today's cutting
edge technology. We offer our customers component solutions for building their
products with more features, in smaller and less expensive formats.
Lower right - Portion of a laptop keyboard and screen
<PAGE>
Nu Visions Manufacturing, Inc.
satisfying the demands for
high quality
circuit board assembly
Nu Visions provides assembly and testing of printed circuit boards to the
Original Equipment Manufacturer (OEM) market segment that demands high quality,
and more technically complicated assemblies. By addressing this niche in the
market, Nu Visions generally commands higher margins than the larger contract
manufacturers whose business is dominated by large high volume, price sensitive
OEMs. Our newly expanded Springfield, Massachusetts state-of-the-art facility
offers advanced manufacturing technologies that includes, but is not limited to,
Surface Mount Equipment, Auto-inspection Equipment and Water soluble processing.
It also has capabilities that include: Fine Pitch to 15 mil, Turnkey Assembly,
Box Build Assembly, Ball Grid Array, In-circuit Testing and Prototyping.
10
<PAGE>
[PHOTO]
Five Photos:
Upper left - Technician using microscope
Upper center - Background photo of circuit board with the following written on
it:
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 40 billion dollars in the U.S. this year.
Upper right - Technician examining a circuit board
Lower left - Nu Visions Manufacturing Facility - Exterior
Lower right - Close up of a circuit board
<PAGE>
providing
greater access
through our internet, intranet and extranet
All types of mission critical information is available from our data storage
systems on the web.
Our Web site allows a browser to search for a part by number, commodity or
application. The browser can request a quote or place an order via e-commerce.
Our intranet provides fast and easy access for our employees to company
policies, company and supplier presentations, supplier training, newsletters,
new product announcements and sales tools. Our extranet allows our customers to
check their order status, review their invoices and account receivable
information, check stock, request a quote or place an order.
Recently we have partnered with Questlink, a leading electronic component
Web site servicing the worldwide design engineering community. Via key word
search, Questlink can provide data sheets and application notes on a wide
variety of semiconductor products. Questlink also allows an engineer to buy
semiconductor products offered by Nu Horizons via electronic commerce. This
service provides an engineer with information he needs at the beginning stage of
his design cycle, shortens the time to market, and provides Nu Horizons with new
customer leads.
Our web connections are designed to allow us to react to changes in the
marketplace quickly. We can offer our services all day, every day - our
business never closes.
12
<PAGE>
[PHOTO]
Six Photos:
Upper left - Fingertip striking key on keyboard
Upper center - Nu Horizons website on monitor
Upper right - NIC Components website on monitor
Lower left - Woman on phone in front of monitor
Lower center - Background closeup photo of web address on a monitor with the
following written on it:
Everyone benefits from our web activities. Customers search for key information,
buy on line and check delivery of their own orders. Our employees stay current
on new products, training tools and marketing programs that help them sell
smarter.
Lower right - Technician in front of telephone switch
<PAGE>
exceeding industry norms in
material
management
Our electronic commerce is one choice in our variety of customer-oriented
materials management programs. For example, we believe that our customized
Electronic Commerce program exceeds the industry norms by putting the customer
at the ready mark in ten working days. In addition to our popular bonded and
consignment inventory programs, our auto replenishment and in-plant store
programs offer customized digital documentation designed to reduce customers'
costs and increase their opportunities in their race to market. We also offer a
complete logistics program through our wholly-owned subsidiary, Titan Logistics
Corp. We provide warehousing, asset management, picking, packing and shipping
from our fully-automated warehouses in Melville, NY and San Jose, CA.
14
<PAGE>
Six Photos:
Upper left - Technician selecting components from storage bin
Upper center - Background photo of a bar code label with the following written
on it:
By continuing to expand our business applications with the use of the highest
levels of technology available such as the Web, we believe we offer a level of
customer focus that is needed to help us exceed our goals.
Upper right - Woman in front of computer screen
Lower left - Computer screen near conveyor system
Lower center - Conveyor and storage system
Lower right - Bar code scanning gun and bar codes
<PAGE>
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"), Nu Horizons Eurotech Limited ("NUE"), NIC Eurotech Limited ("NIE"),
Titan Logistics Corp. ("TITAN") and Nu Horizons International Electronics Corp.
("International"), are engaged in the distribution of high technology active and
passive electronic components to a wide variety of original equipment
manufacturers ("OEMs") of electronic products. Active components distributed by
the Company include semiconductor products such as memory chips,
microprocessors, digital and linear circuits, microwave/RF and fiberoptic
components, transistors and diodes. Passive components distributed by NIC,
principally to OEMs and other distributors nationally, consist of a high
technology line of chip and leaded components, including capacitors, resistors
and related networks.
Nu Visions Manufacturing, Inc. ("NUV" or "Nu Visions") located in
Springfield, Massachusetts, another wholly-owned subsidiary of the Company, is a
contract assembler of circuit boards, harnesses and related electromechanical
devices for various OEMs.
The financial information presented herein includes: (i) Balance sheets as
of February 28, 1999, and February 28, 1998; (ii) Statements of income for the
twelve month periods ended February 28, 1999, February 28, 1998 and February 28,
1997; (iii) Statements of cash flows for the twelve month periods ended February
28, 1999, February 28, 1998 and February 28, 1997; and (iv) Consolidated changes
in shareholders' equity for the twelve month periods ended February 28, 1999,
February 28, 1998 and February 28, 1997.
Results of Operations:
Fiscal Year 1999 versus 1998
Net sales for the year ended February 28, 1999 aggregated $253,872,325 as
compared to $233,325,408 for the year ended February 29, 1998, an increase of
8.8%. Management attributes this increase in sales for the period entirely to
the core semiconductor distribution business which experienced demand but, due
to reduced unit pricing as a result of excess inventory levels at the
semiconductor manufacturing (supplier) level resulted in only moderate increases
in net sales.
Gross profit margin as a percentage of net sales was 21.7% for the year
ended February 28, 1999 as compared to 21.8% for the year ended February 28,
1998. Management attributes this relative stability in profit margins to
substantial inventory oversupplies at the supplier level, as mentioned above and
resulting reduced unit pricing. No assurance can be given that gross profit
stabilization will continue in future periods.
Operating expenses increased by $5,037,184 to $45,170,606 for the year
ended February 28, 1999 from $40,133,422 for the year ended February 28, 1998,
an increase of approximately 12.5%. The dollar increase in operating expenses
was due to increases in the following expense categories: Approximately
$3,290,000 or approximately 65% of the increases were for personnel related
costs - commissions, salaries, travel and fringe benefits. The remaining
increase of approximately $1,747,000 or approximately 35% of the total increment
is a result of increases in various other operating expenses including, but not
limited to, freight out, rent, telephone, computer expenses and various general
and administrative expenses. Toward the latter part of fiscal 1998 and early in
fiscal 1999, the Company decided to pursue and continue with a policy of
upgrading and enlarging its sales and sales support staff as well as physical
branch facilities to support anticipated future growth in the near as well as
more distant future. Increased sales levels in the second, third and fourth
quarters of fiscal 1998 and in fiscal 1999 did not meet expectations. The
Company continues to believe in this strategy for long-term growth and expects
market conditions to undergo a correction in the near future although no
assurances can be given in this regard.
Interest expense increased by $519,998 from $1,723,163 for the year ended
February 28, 1998 to $2,243,161 for the year ended February 28, 1999. This
increase was primarily due to the interest on higher average levels of bank debt
during the year resulting from an increase in average receivables and
inventories which were necessary to support increased sales.
<TABLE>
<CAPTION>
Interest Costs For The Fiscal Year Ended
February 28, 1999 February 28, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Revolving Bank Credit $1,660,794 $1,140,796
Sub. Convert. Notes 582,367 582,367
- -------------------------------------------------------------------------------------
Total Interest Expense $2,243,161 $1,723,163
=====================================================================================
</TABLE>
Net income for the year ended February 28, 1999 was $4,544,831 or $.43 per
share diluted, as compared to $5,297,991 or $.52 per share diluted, for the year
ended February 28, 1998. The decrease in earnings is primarily due to increased
operating expenses and the lack of a commensurate increase in gross margin on
sales.
Fiscal Year 1998 versus 1997
Results of Operations:
Net sales for the year ended February 28, 1998 aggregated $233,325,408 as
compared to $216,612,707 for the year ended February 28, 1997, an increase of
7.7%. Management attributes this moderate increase in sales for the period
entirely to the core semiconductor distribution business which experienced
excess inventory levels at the semiconductor manufacturing (supplier) level
evidenced by reduced unit pricing in spite of substantial increases in unit
demand resulting in only moderate increases in sales dollar volume. Management
believes that this situation is temporary and is now in the process of
correction; however, no assurance can be given in this regard.
Gross profit margin as a percentage of net sales was 21.8% for the year
ended February 28, 1998 as compared to 22.4% for the year ended February 28,
1997. Management attributes this lower profit margin primarily to a general
downward correction of selling prices in the marketplace, for both
semiconductors and passive components, during the period and a greater volume of
larger orders at lower gross profit margins. Although the Company expects that
these conditions will not continue, as long as current market trends prevail, no
assurances can be given in this regard.
Operating expenses increased by $5,259,512 to $40,133,422 for the year
ended February 28, 1998 from $34,873,910 for the year ended February 28, 1997,
an increase of approximately 15.1%. The dollar increase in operating expenses
was due to increases in the following expense categories: Approximately
$3,328,000 or approximately 63.3% of the increases were for personnel related
costs - commissions, salaries, travel and fringe benefits. During fiscal 1998
the Company decided to continue to pursue a policy of upgrading and enlarging
its sales and sales support staff to support anticipated future growth in the
near as well as more distant future. Increased sales levels in the second, third
and fourth quarters
17
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
of fiscal 1998 did not meet expectations. The remaining increase of
approximately $1,931,000 or approximately 36.7% of the total increment is a
result of increases in various other operating expenses primarily due to
increased overhead from the Company's new corporate headquarters and
distribution facility.
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.
<TABLE>
<CAPTION>
Interest Costs For The Fiscal Year Ended
February 28, 1998 February 28, 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
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
=====================================================================================
</TABLE>
Net income for the year ended February 28, 1998, was $5,297,991 or $.52 per
share, diluted, as compared to $7,073,560 or $.69 per share diluted, for the
year ended February 28, 1997. The decrease in earnings is primarily due to
increased operating expenses and the lack of commensurate increased sales
volume.
Liquidity and Capital Resources:
Fiscal Year 1999 versus 1998
The Company ended its 1999 fiscal year with working capital and cash
aggregating approximately $68,850,000 and $504,000, respectively at February 28,
1999 as compared to approximately $75,218,000 and $4,334,000 respectively, at
February 28, 1998. The Company's current ratio at February 28, 1999, was 4.3:1.
The Company believes that its financial position at February 28, 1999, will
enable it to take advantage of any new opportunities that may arise.
On May 23, 1997, the Company entered into a new unsecured revolving line of
credit, which currently provides for maximum borrowings of $35,000,000 through
May 23, 2001 with two banks. At February 28, 1999, $14,900,000 was outstanding
under this line of credit as compared to $25,300,000 at February 28, 1998.
In a private placement completed on August 31, 1994, the Company issued $15
million principal amount of Subordinated Convertible Notes, which are due in
$5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are
subordinate in right of payment to all existing and future senior indebtedness
of the Company. The notes bear interest at 8.25%, payable quarterly on November
15, February 15, May 15 and August 15. The notes are convertible into shares of
common stock at a conversion price of $9.00 per share. The cost of issuing these
notes was $521,565 and was amortized over three years. As of February 28, 1999,
$7,941,000 of the notes have been converted into 882,333 shares of common stock
and $7,059,000 principal amount of subordinated convertible notes remained
outstanding and are due in increments of $2,353,000 on August 31, 2000, 2001 and
2002. No assurance can be given that the notes will be converted or that the
shares of common stock underlying the notes will be sold by the holders thereof.
The Company anticipates that its resources provided by its cash flow from
operations and its bank lines of credit will be sufficient to meet its financing
requirements for at least the next twelve-month period.
Impact of Year 2000 Issue:
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could potentially result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in other similar normal business activities.
Assessment. The Year 2000 problem could affect computers, software and
other equipment which the Company uses, operates or maintains. Accordingly, the
Company reviewed its internal computer programs and systems to ensure that the
programs and systems will be Year 2000 compliant. The Company has ensured that
its software is already year 2000 compliant.
Vendors. The Company has initiated communications, including surveys, with
its vendors (and customers) to identify and, to the extent possible, to resolve
issues involving the Year 2000 problem. However, the Company has limited or no
control over responses to our inquiries and the actions of these third parties.
Thus, while the company does not anticipate any significant Year 2000 problems
with its vendors, there can be no assurance that these vendors will resolve any
or all of their Year 2000 problems before the occurrence of a disruption to its
business or that of its customers. Since there are many suppliers of alternative
products, the Company does not anticipate that the failure of its vendors to
resolve Year 2000 problems with their systems in a timely manner will have a
material adverse effect on the Company's business, financial condition, and
results of operation; however no assurances can be given in this regard.
Most Likely Consequences of Year 2000 Problems. The Company believes it has
identified and resolved all potential internal Year 2000 problems that could
materially adversely affect its business operations. However, the Company does
not believe that it is possible to determine with complete certainty that all
Year 2000 problems which affect it have been identified or corrected. The number
of devices that could be affected and the interactions among these devices are
simply too numerous. In addition, one cannot accurately predict how many Year
2000 problem-related failures will occur or the severity, duration or financial
consequences of these perhaps inevitable failures. In addition, the Company is
unable to determine with any degree of certainty, the changes in buying habits
of its current and potential customers due to their concerns over Year 2000
issues and whether its vendors will be Year 2000 compliant. As a result, the
Company expects that it could likely experience a significant number of
operational inconveniences and inefficiencies for its and its customers that may
divert management's time and attention and financial and human resources from
its ordinary business activities.
Contingency Plans. Since the Company has ensured that its software is Year
2000 compliant, it does not believe that it needs to develop contingency plans
to identify and correct Year 2000 problems affecting its internal systems. The
Company expects to develop contingency plans by the end of June 1999 to deal
with any Year 2000 problems identified by its vendors. If the Company is
required to implement any of these contingency plans, it could have a material
adverse effect on the Company's financial condition and results of
18
<PAGE>
operations.
Disclaimer. The discussion of the Company's efforts, and management's
expectations , relating to Year 2000 compliance are forward-looking statements.
The Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated with such compliance, could be adversely impacted
by, among other things, the availability and cost of programming and testing
resources, vendors' ability to modify proprietary software, and unanticipated
problems identified in our ongoing compliance review.
Inflationary Impact:
Since the inception of operations, inflation has not significantly affected
the operating results of the Company. However, inflation and changing interest
rates have had a significant effect on the economy in general and therefore
could affect the operating results of the Company in the future.
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, 1999 February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 504,320 $ 4,333,669
Accounts receivable-net of allowance for doubtful accounts of $2,630,984 and
$2,362,722 for 1999 and 1998, respectively 41,920,403 37,351,029
Inventories 45,113,894 44,004,890
Prepaid expenses and other current assets 2,355,255 4,837,007
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 89,893,872 90,526,595
Property, Plant, and Equipment-Net (Note 3) 7,130,794 6,359,775
Other Assets
Costs in excess of net assets acquired-net 1,595,408 1,752,332
Other assets (Note 4) 1,138,821 1,002,726
- ------------------------------------------------------------------------------------------------------------------------------
$99,758,895 $99,641,428
==============================================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $14,369,712 $12,112,365
Accrued expenses 6,674,263 3,196,623
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 21,043,975 15,308,988
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities:
Deferred income taxes (Note 8) 418,852 431,395
Revolving credit line (Notes 5) 14,900,000 25,300,000
Subordinated convertible notes (Note 6) 7,059,000 7,059,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 22,377,852 32,790,395
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 9, 10 and 11)
Shareholders' Equity (Note 7):
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued or
outstanding
Common stock, $.0066 par value, 20,000,000 shares authorized; 8,753,076
shares issued and outstanding for February 28, 1999 and 1998, respectively 57,770 57,770
Additional paid-in capital 19,042,230 19,042,230
Retained earnings 38,076,840 33,532,009
- ------------------------------------------------------------------------------------------------------------------------------
57,176,840 52,632,009
Less: loan to ESOP (Note 9) 839,772 1,089,964
- ------------------------------------------------------------------------------------------------------------------------------
56,337,068 51,542,045
- ------------------------------------------------------------------------------------------------------------------------------
$99,758,895 $99,641,428
==============================================================================================================================
</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, 1999 February 28, 1998 February 28, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 253,872,325 $ 233,325,408 $ 216,612,707
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of sales (Note 11) 198,836,003 182,531,083 168,124,583
Operating expenses 45,170,606 40,133,422 34,873,910
Interest expense 2,243,161 1,723,163 1,701,092
Interest income (1,603) (9,797) (8,134)
- ------------------------------------------------------------------------------------------------------------------------------------
246,248,167 224,377,871 204,691,451
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 7,624,158 8,947,537 11,921,256
Provision for income taxes (Note 8) 3,079,327 3,649,546 4,847,696
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,544,831 $ 5,297,991 $ 7,073,560
====================================================================================================================================
Earnings Per Share (Note 2i):
Basic $.52 $.61 $.81
====================================================================================================================================
Diluted $.43 $.52 $.69
====================================================================================================================================
</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 29, 1996 8,423,137 $ 55,593 $ 16,821,502 $ 21,160,458 $ (419,850) $ 37,617,703
Exercise of stock options 93,495 617 177,905 -- -- 178,522
Conversion of subordinated
convertible notes 215,667 1,423 1,939,577 -- -- 1,941,000
Repayment from ESOP -- -- -- -- 139,950 139,950
Net income -- -- -- 7,073,560 -- 7,073,560
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1997 8,732,299 57,633 18,938,984 28,234,018 (279,900) 46,950,735
Exercise of stock options 20,777 137 103,246 -- -- 103,383
Loan to ESOP -- -- -- -- (950,014) (950,014)
Repayment from ESOP -- -- -- -- 139,950 139,950
Net income -- -- -- 5,297,991 -- 5,297,991
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1998 8,753,076 57,770 19,042,230 33,532,009 (1,089,964) 51,542,045
Repayment from ESOP -- -- -- -- 250,192 250,192
Net income -- -- -- 4,544,831 -- 4,544,831
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1999 8,753,076 $ 57,770 $ 19,042,230 $ 38,076,840 $ (839,772) $ 56,337,068
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
Consolidated Statements Of Cash Flows
Nu Horizons Electronics Corp. and Subsidiaries
<TABLE>
<CAPTION>
For the Year Ended February 28, 1999 February 28, 1998 February 28, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (Decrease) In Cash And Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 248,540,451 $ 226,296,024 $ 215,279,744
Cash paid to suppliers and employees (236,336,921) (232,653,486) (197,159,875)
Interest received 1,602 9,797 8,134
Interest paid (2,243,161) (1,723,163) (1,701,092)
Income taxes paid (1,359,716) (4,511,763) (1,677,850)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 8,602,255 (12,582,591) 14,749,061
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,031,604) (1,176,904) (4,936,512)
Purchase of stock for ESOP -- (950,014) --
Proceeds from sale of building -- 1,126,840 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (2,031,604) (1,000,078) (4,936,512)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under revolving credit line 43,950,000 51,650,000 21,150,000
Repayments under revolving credit line (54,350,000) (34,350,000) (30,450,000)
Principal payments of long-term debt -- (433,129) (619,254)
Proceeds from exercise of employee stock options -- 103,383 178,522
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (10,400,000) 16,970,254 (9,740,732)
- -----------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,829,349) 3,387,585 71,817
Cash and cash equivalents, beginning of year 4,333,669 946,084 874,267
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 504,320 $ 4,333,669 $ 946,084
===================================================================================================================================
Reconciliation Of Net Income To Net Cash From Operating Activities:
Net income $ 4,544,831 $ 5,297,991 $ 7,073,560
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization 1,417,509 1,488,057 1,238,967
Bad debts 762,500 315,000 701,500
Contribution to ESOP (compensation) 250,192 139,950 139,950
Loss on sale of building -- 60,871 --
Changes in assets and liabilities:
(Increase) in accounts receivable (5,331,874) (7,029,384) (1,332,963)
(Increase) decrease in inventories (1,109,004) (14,240,320) 7,044,345
(Increase) decrease in prepaid expenses and other current assets 2,481,752 (1,933,738) (1,889,346)
(Increase) in other assets (136,095) (80,951) (77,902)
Increase in accounts payable and accrued expenses 5,734,987 3,190,686 1,964,667
(Decrease) in income taxes -- -- (220,288)
(Decrease) increase in deferred taxes (12,543) 209,247 106,571
- -----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 4,057,424 (17,880,582) 7,675,501
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities $ 8,602,255 $ (12,582,591) $ 14,749,061
===================================================================================================================================
</TABLE>
Non-cash Financing Activities:
During the year ended February 28, 1997, the subordinated debt-holder (see
Note 6) 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, 1999
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
1. ORGANIZATION:
Nu Horizons Electronics Corp. and its subsidiaries, are wholesale
distributors throughout the United States or export distributors of electronic
components, except for Nu Visions Manufacturing, which is a contract assembler
of circuit boards and various electromechanical devices. During fiscal 1999 the
Company incorporated two new subsidiaries in the United Kingdom, one of which is
currently inactive.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation:
The consolidated financial statements include the accounts of Nu Horizons
Electronics Corp. (the "Company"), and its wholly-owned subsidiaries, NIC
Components Corp. ("NIC"), Nu Horizons/Merit Electronics Corp. ("NUM"), Nu
Visions Manufacturing, Inc. ("NUV"), Nu Horizons International Corp.
("International"), NIC Eurotech Limited ("NIE"), Nu Horizons Eurotech ("NUE")
and Titan Logistics Corp. ("Titan"). All material intercompany balances and
transactions have been eliminated.
b. Use of Estimates:
In preparing financial statements, in accordance with generally accepted
accounting principles, management makes certain estimates and assumptions, where
applicable, that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as reported amounts of revenues and expenses during the
reporting period. While actual results could differ from those estimates,
management does not expect such variances, if any, to have a material effect on
the financial statements.
c. Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable.
The Company maintains, at times, deposits in federally insured financial
institutions in excess of federally insured limits. Management attempts to
monitor the soundness of the financial institutions 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:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Office equipment 5 years
Furniture and fixtures 5-12 years
Computer equipment 5 years
- --------------------------------------------------------------------------------
</TABLE>
Leasehold improvements are amortized over the term of the lease.
Maintenance and repairs are charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition, the associated cost and
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is included in operations.
f. Income Taxes:
The Company has elected to file a consolidated federal income tax return
with its subsidiaries. The Company utilizes Financial Accounting Standards Board
Statement No. 109 (SFAS 109) "Accounting for Income Taxes". SFAS 109 requires
use of the asset and liability approach of providing for income taxes. Deferred
income taxes are provided for on the timing differences for certain items which
are treated differently for tax and financial reporting purposes. These items
include depreciation of fixed assets, inventory capitalization valuations and
the recognition of bad debt expense.
International has elected under Section 995 of the Internal Revenue Code to
be taxed as an "Interest Charge Disc". Based upon these rules, income taxes are
paid when International distributes its income to the parent company. Until
distributions are made, the parent company pays interest only on the deferred
tax liabilities. International's untaxed income at February 28, 1999
approximates $3,200,000.
g. Goodwill:
Costs in excess of net assets acquired are being amortized on a
straight-line basis over fifteen years. As of February 28, 1999 and 1998,
accumulated amortization of goodwill aggregated $758,466 and $601,542,
respectively.
The Company periodically reviews the valuation and amortization of goodwill
to determine possible impairment by comparing the carrying value to the
undiscounted future cash flows of the related assets, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of.
23
<PAGE>
Notes to Consolidated Financial Statements
Three Years Ended February 28, 1999
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
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.
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:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic 8,753,076 8,753,076 8,732,299
Diluted 11,271,859 10,898,859 10,818,859
</TABLE>
j. Reclassifications:
Certain prior year information has been reclassified to conform to the
current year's reporting presentation.
k. Stock-Based Compensation:
SFAS No. 123 "Accounting for Stock Based Compensation", effective January
1, 1996, requires the Company to either record compensation expense or to
provide additional disclosures with respect to stock awards and stock option
grants made after December 31, 1994. The accompanying Notes to Consolidated
Financial Statements include the disclosures required by SFAS No. 123. No
compensation expense is recognized pursuant to the Company's stock option plans
under SFAS No. 123 which is consistent with prior treatment under APB No. 25.
l. Advertising and Promotion Costs:
Advertising and promotion costs, which are included in general and
administrative expenses, are expensed as incurred. For the three years ended
February 28, 1999, such costs aggregated $909,000, $774,000 and $616,000,
respectively.
m. New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for years beginning
after December 15, 1997. This statement prescribes standards for reporting other
comprehensive income and its components. Since the Company currently does not
have any items of other comprehensive income, a statement of comprehensive
income is not required.
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information", is effective for years beginning after December 15, 1997. The
Company has adopted this standard for the current fiscal year.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment which is reflected at cost, consists of the
following:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Furniture, fixtures and office equipment $ 7,839,268 $ 6,290,449
Computer equipment 3,499,524 3,016,739
Assets held under capitalized leases 919,834 919,834
Leasehold improvements 1,254,364 1,254,364
- --------------------------------------------------------------------------------
13,512,990 11,481,386
Less: accumulated depreciation and amortization 6,382,196 5,121,611
- --------------------------------------------------------------------------------
$ 7,130,794 $ 6,359,775
================================================================================
</TABLE>
Depreciation expense including depreciation of capitalized leases for the
years ended February 28, 1999, February 28, 1998 and February 28, 1997
aggregated $1,260,585, $1,331,133 and $1,082,043, respectively.
During the year ended February 28, 1998, the Company completed the sale of
the land and building that served as its prior corporate headquarters.
4. OTHER ASSETS:
Other assets as of February 28, 1999 and February 28, 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net cash surrender value - life insurance $1,023,832 $ 937,878
Other 114,989 64,848
- --------------------------------------------------------------------------------
$1,138,821 $1,002,726
================================================================================
</TABLE>
5. REVOLVING CREDIT LINE:
On May 23, 1997, the Company entered into a new unsecured revolving line of
credit with two banks, which currently provides for maximum borrowings of
$35,000,000 at either (i) the lead bank's prime rate or (ii) LIBOR plus 57.5 to
112.5 basis points depending on the ratio of the Company's debt to its earnings
before interest, taxes, depreciation and amortization, at the option of the
Company through May 23, 2001. Direct borrowings under lines of credit were
$14,900,000 and $25,300,000 at February 28, 1999 and 1998, respectively. The
credit agreement contains various covenants including certain restrictions on
the payment of cash dividends without the bank's consent. As of the end of the
fiscal year, the Company met all of the required covenants.
24
<PAGE>
- --------------------------------------------------------------------------------
6. SUBORDINATED CONVERTIBLE NOTES:
In a private placement completed on August 31, 1994, the Company issued $15
million principal amount of Subordinated Convertible Notes, which are due in
$5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are
subordinate in right of payment to all existing and future senior indebtedness
of the Company. The notes bear interest at 8.25%, payable quarterly on November
15, February 15, May 15, and August 15. The notes are convertible into shares of
common stock at a conversion price of $9.00 per share. The cost of issuing these
notes was $521,565 and was amortized over three years.
As of February 28, 1999, $7,941,000 of the notes had been converted into
882,333 shares of common stock and $ 7,059,000 principal amount of subordinated
convertible notes remained outstanding which are due in increments of $2,353,000
on August 31, 2000, 2001 and 2002.
7. STOCK OPTIONS:
Stock options granted to date under the Company's Key Employees Stock
Incentive Plan and the 1994 and 1998 Stock Option Plans generally expire five
years after date of grant and become exercisable in four equal annual
installments commencing one year from date of grant. Stock options granted under
the Company's Outside Director Stock Option Plan expire ten years after the date
of grant and become exercisable in three equal annual installments on the date
of grant and the succeeding two anniversaries thereof.
A summary of options granted and related information for the three years
ended February 28, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
- ------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, February 28, 1996 992,972 $ 7.54
Granted 471,500 8.56
Exercised (93,495) 1.91
Cancelled (68,750) 10.36
- --------------------------------------------------------------
Outstanding, February 29, 1997 1,302,227 8.16
Weighted average fair value of options
granted during the year $ 4.39
======
Granted 118,500 8.30
Exercised (20,777) 4.98
Canceled (38,500) 10.14
- --------------------------------------------------------------
Outstanding, February 28, 1998 1,361,450 8.20
Weighted average fair value of options
granted during the year $ 3.13
======
Granted 378,000 5.87
Canceled (5,000) 5.41
- --------------------------------------------------------------
Outstanding, February 28, 1999 1,734,450 6.81
==============================================================
Weighted average fair value of options
granted during the year $ 3.05
======
Options exercisable:
February 28, 1997 381,377 $ 7.86
February 28, 1998 673,825 $ 7.52
February 28, 1999 997,950 $ 8.06
</TABLE>
Exercise prices for options outstanding as of February 28, 1999 ranged from
$4.62 to $14.50. The weighted-average remaining contractual life of these
options is approximately 5 years. Outstanding options at February 28, 1999 are
held by 44 individuals.
The Company applies APB 25 and related Interpretations in accounting for
the Option Plans. Accordingly, no compensation cost has been recognized for its
Option Plans. Had compensation cost for the Option Plans been determined using
the fair value based method, as defined in SFAS 123, the Company's net earnings
and earnings per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings:
As reported $4,544,831 $5,297,991 $7,073,560
Pro forma 4,311,690 4,827,590 7,051,451
Basic earnings per share:
As reported $ .52 $ .61 $ .81
Pro forma .49 .55 .81
Diluted earnings per share:
As reported $ .43 $ .52 $ .69
Pro forma .41 .47 .68
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively: expected volatility of 45.3%,
45.8% and 48.3%, respectively; risk free interest rate of 6.0%, 6.1% and 6.5%
for 1999, 1998 and 1997, respectively; and expected lives of 1 to 5 years.
25
<PAGE>
Notes to Consolidated Financial Statements
Three Years Ended February 28, 1999
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
The effects of applying SFAS 123 in the above pro forma disclosures are not
indicative of future amounts, as they do not include the effects of awards
granted prior to 1995. Additionally, future amounts are likely to be affected by
the number of grants awarded since additional awards are generally expected to
be made at varying amounts.
8. INCOME TAXES:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
February 28, 1999 February 28, 1998 February 28, 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $2,523,535 $3,103,097 $4,213,767
State and Local 680,931 655,559 900,193
Deferred:
Federal (64,760) (74,103) (221,867)
State (60,379) (35,007) (44,397)
- --------------------------------------------------------------------------------------
$3,079,327 $3,649,546 $4,847,696
======================================================================================
</TABLE>
The components of the net deferred income tax liability, pursuant to SFAS 109,
as of February 28, 1999 and February 28, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Accounts Receivable $ 672,003 $ 708,610
Inventory 98,600 100,300
- --------------------------------------------------------------------------------------
Total Deferred Tax Assets 770,603 808,910
- --------------------------------------------------------------------------------------
Deferred Tax Liabilities
Fixed Assets (68,890) (184,500)
Income of Interest Charge DISC (1,120,565) (1,055,805)
- --------------------------------------------------------------------------------------
Total Deferred Tax Liabilities (1,189,455) (1,240,305)
- --------------------------------------------------------------------------------------
Net Deferred Tax Liabilities $ (418,852) $ (431,395)
======================================================================================
</TABLE>
The following is a reconciliation of the maximum statutory federal tax rate to
the Company's effective tax rate:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local taxes 8.1 7.1 7.0
Other (2.7) (1.3) (1.3)
- -------------------------------------------------------------------------------------
Effective tax rate 40.4% 40.8% 40.7%
=====================================================================================
</TABLE>
9. EMPLOYEE BENEFIT PLANS:
On January 13, 1987, the Company's Board of Directors approved the
termination of the Company's pension plan and approved the adoption of an
employee stock ownership plan (ESOP) to replace the terminated pension plan. The
ESOP covers all eligible employees and contributions are determined by the Board
of Directors. The ESOP purchases shares of the Company's common stock using loan
proceeds. As the loan is repaid, a pro rata amount of common stock is released
for allocation to eligible employees. The Company makes cash contributions to
the ESOP to meet its obligations. Contributions to the ESOP for the three years
ended February 28, 1999 aggregated $250,192 for fiscal 1999 and $139,950 for
each of the other years . At February 28, 1999 the ESOP owned 431,251 shares at
an average price of approximately $3.79 per share.
On October 31, 1997, the Company, on behalf of the ESOP, entered into an
additional credit agreement with a bank which provides for a $3,000,000
revolving line of credit at the bank's prime rate until October 31, 2001. Direct
borrowings under this line of credit are payable in forty-eight equal monthly
installments commencing with the fiscal period subsequent to such borrowings. At
February 28, 1999, there were no direct borrowings outstanding under the ESOP
line of credit.
In January 1991, the Company also established a 401-K profit sharing plan
to cover all eligible employees. The Company's contributions to the plan are
discretionary, but may not exceed 1% of compensation. Contributions to the plan
for the three years ended February 28, 1999 were $114,216, $120,403 and
$111,585, respectively.
10. COMMITMENTS:
(a) On September 13, 1996, the Company signed employment contracts (the
"Contracts"), as amended, with three of its senior executives for a continually
renewing five year term. The Contracts specify a base salary of $226,545 for
each officer, which shall be increased each year by the change in the consumer
price index, and also entitle two of the three officers to an annual bonus equal
to 3.33% and the third officer to 2.33% (9% in the aggregate) of the Company's
consolidated earnings before income taxes. Benefits are also payable upon the
occurrence of either a change in control of the Company, as defined, or the
termination of the officer's employment, as defined. The Contracts also provide
for certain payments of the executives' salaries, performance bonuses and other
benefits in event of death or disability of the officer for the balance of the
period covered by the agreement.
(b) In December 1996, the Company leased an approximately 80,000 square
foot facility in Melville, Long Island, New York to serve as its executive
offices and main distribution center. In mid- 1997, the Company moved its
executive offices and distribution operation to the facility. The lease term is
from December 17, 1996 to December 16, 2008 at an annual base rental of $601,290
and provision for a 4% annual escalation in each of the last ten years of the
term. The Company also leases certain other office, warehouse and other
26
<PAGE>
- --------------------------------------------------------------------------------
properties which leases include various escalation clauses, renewal options,
etc. Aggregate minimum rental commitments under noncancelable operating leases
are as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Fiscal 2000 $1,889,772
Fiscal 2001 1,693,636
Fiscal 2002 1,236,924
Fiscal 2003 806,409
Fiscal 2004 683,296
Thereafter 2,455,595
- --------------------------------------------------------------------------------
</TABLE>
Rent expense was $1,837,330, $1,459,325, and $712,548 for each of the prior
three years in the period ending February 28, 1999.
11. MAJOR SUPPLIERS:
For the year ended February 28, 1999, the Company purchased inventory from
two suppliers that was in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $45,040,000.
For the year ended February 28, 1998, the Company purchased inventory from
one supplier that was in excess of 10% of the Company's total purchases.
Purchases from this supplier aggregated approximately $18,872,000.
For the year ended February 28, 1997, the Company purchased inventory from
two suppliers that were in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $21,385,000.
12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
The Company's operations have been classified into two business segments:
Electronic component distribution and industrial contract manufacturing. The
component distribution segment includes the resale of active and passive
components to various original equipment manufacturers and distributors. The
industrial contract-manufacturing segment consists of a subsidiary, which
provides electronic circuit board and harness assembly services to original
equipment manufacturers. This segment began operations in September 1991.
Summarized financial information by business segment for fiscal 1999 and 1998 is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Electronic Component Distribution $243,514,672 $221,217,251 $206,417,667
Industrial Contract Manufacturing 10,357,653 12,108,157 10,195,040
- ---------------------------------------------------------------------------------------------
$253,872,325 $233,325,408 $216,612,707
Operating income (loss):
Electronic Component Distribution $ 9,210,235 $ 9,430,055 $ 13,019,791
Industrial Contract Manufacturing 655,481 1,230,848 594,423
- ---------------------------------------------------------------------------------------------
$ 9,865,716 $ 10,660,903 $ 13,614,214
Total assets:
Electronic Component Distribution $ 94,340,725 $ 95,519,254 $ 70,577,102
Industrial Contract Manufacturing 5,418,170 4,122,174 4,206,212
- ---------------------------------------------------------------------------------------------
$ 99,758,895 $ 99,641,428 $ 74,783,314
Depreciation and amortization:
Electronic Component Distribution $ 1,116,850 $ 1,201,732 $ 978,684
Industrial Contract Manufacturing 300,659 286,325 260,283
- ---------------------------------------------------------------------------------------------
$ 1,417,509 $ 1,488,057 $ 1,238,967
Capital expenditures (including capital leases):
Electronic Component Distribution $ 1,133,014 $ 983,419 $ 4,566,196
Industrial Contract Manufacturing 898,590 193,485 370,316
- ---------------------------------------------------------------------------------------------
$ 2,031,604 $ 1,176,904 $ 4,936,512
- ---------------------------------------------------------------------------------------------
</TABLE>
Geographic:
The Company's operations are primarily conducted in the United States.
Information about the Company's operations in different geographic areas for the
three years in the period ended February 28, 1999, is not considered material to
the financial statements.
27
<PAGE>
Notes to Consolidated Financial Statements
Three Years Ended February 28, 1999
Nu Horizons Electronics Corp. and Subsidiaries
- --------------------------------------------------------------------------------
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
Three Month Period Ended
February 28, 1999 November 30, 1998 August 31, 1998 May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $66,579,269 $64,263,220 $62,797,917 $60,231,919
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 52,712,341 50,681,732 48,848,889 46,593,041
- ------------------------------------------------------------------------------------------------------------------------------------
Operating and Interest Expenses 12,343,878 11,460,371 11,869,342 11,738,573
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes 618,237 833,274 848,862 778,954
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 904,813 $ 1,287,843 $ 1,230,824 $ 1,121,351
====================================================================================================================================
Basic Earnings Per share $ .10 $ .15 $ .14 $ .13
====================================================================================================================================
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 8,753,076 8,753,076 8,753,076 8,753,076
====================================================================================================================================
<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
====================================================================================================================================
</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, 1999 and 1998,
and the consolidated statements of income, changes in shareholders' equity and
cash flows for the three years in the period ended February 28, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred to the
above, present fairly in all material respects, the financial position of Nu
Horizons Electronics Corp. and subsidiaries at February 28, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended February 28, 1999 in conformity with generally accepted
accounting principles.
/s/ LAZAR LEVINE & FELIX LLP
LAZAR LEVINE & FELIX LLP
New York, New York
May 17, 1999
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.
<TABLE>
<CAPTION>
High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
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 $7.09 $6.00
Second Quarter 6.62 4.00
Third Quarter 6.87 3.50
Fourth Quarter 6.50 4.25
- --------------------------------------------------------------------------------
Fiscal Year 1999:
First Quarter (Through May 1, 1999) $5.87 $3.87
</TABLE>
(b) As of May 3, 1999, the Company's common stock was owned by
approximately 4,500 holders of record.
(c) The Company has never paid a cash dividend on its common stock. The
Company's current revolving credit line agreement permits dividends of up to 25%
of the Company's consolidated net income.
Annual Meeting
The Annual Meeting of Shareholders will be held on September 23, 1999 at 10:00
AM at de Seversky Conference Center, Old Westbury, NY.
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)
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
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
Design: Brady & Honaski Associates, Inc.
<PAGE>
Nu Horizons Electronics Corp.
70 Maxess Road
Melville, New York 11747
(516) 396-5000
Web: http//www.nuhorizons.com
