<PAGE>
Nu Horizons
Electronics Corp.
Nineteen Ninety-Six Annual Report
<PAGE>
Corporate Profile
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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. Nu Horizons is a
franchised distributor of components manufactured by many major semiconductor
manufacturers.
NIC Components Corp. is a wholly-owned subsidiary of Nu Horizons and is the
exclusive North American sales and marketing outlet for the extensive line of
passive components manufactured by Nippon Industries Co., Ltd., a leading
Japanese component manufacturer. NIC has also established several other
manufacturing associations as well as a nationwide network of distributors and
is "designed-in" as a qualified source of passive components by over seven
thousand original equipment manufacturers.
Nu Horizons International Corp., another wholly-owned subsidiary, is a worldwide
export distributor of electronic components.
Nu Visions Manufacturing, Inc., located in Springfield, Massachusetts, a wholly-
owned subsidiary of the Company, is a contract assembler of circuit boards, and
related electromechanical devices for various OEM's.
<PAGE>
Selected Financial Data
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<TABLE>
<CAPTION>
For The Year Ended
February February February February February
29, 1996 28, 1995 28, 1994 28, 1993 29, 1992
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<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $202,803,184 $130,251,554 $92,418,038 $60,507,620 $42,187,636
Gross profit on sales 48,201,148 30,913,305 24,950,478 15,390,022 10,715,954
Gross profit percentage 23.8% 23.7% 27.0% 25.4% 25.4%
Income before provision for
income taxes 15,799,592 7,444,147 8,549,534 2,564,335 495,559
Net income 9,396,301 4,421,823 5,044,225 1,489,658 296,816
Earnings per common share:
Primary $ 1.14 $ .56 $ .65 $ .20 $ .04
Fully diluted $ .97 $ .52 $ .65 $ .19 $ .04
Balance Sheet Data:
Working capital $ 57,954,434 $ 36,328,941 $23,792,512 $17,523,791 $12,465,363
Total assets 75,459,586 51,972,606 37,448,040 26,083,687 17,849,628
Long-term debt 27,094,030 20,580,613 9,339,195 8,079,590 4,279,514
Shareholders' equity 37,617,703 22,541,916 18,051,985 12,679,681 10,887,624
</TABLE>
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<PAGE>
To Our Shareholders
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Fiscal 1996 proved to be the most gratifying year in the Company's history,
combining success in both marketing strategies as well as record financial
results for the period.
Net sales for the year ended February 29, 1996 increased 56% to a record $202.8
million, eclipsing the previous record of $130.3 million achieved in the prior
year. Net income was $9,396,000 or $1.14 per share as compared to $4,422,000 or
$.56 per share for the prior year. In addition, selling, general and
administrative expenses, as a percent of sales, improved for the fifth
consecutive year, from 17% in fiscal 1995 to 15% in fiscal 1996.
Our balance sheet continued to strengthen as a result of our operating
performance. At year end, the Company enjoyed a current ratio of 6.4:1 with
working capital of approximately $57.9 million. Shareholder equity increased to
a record $37.6 million as compared to $22.5 million a year earlier.
Momentum has been maintained during the first quarter of fiscal 1997, generating
record sales of $57.3 million, the highest level of sales for any quarter in the
Company's history. Sales for the comparable quarter of fiscal 1996 were $44.7
million. We continue to be optimistic about the results for all of fiscal 1997,
however, the gains for the first quarter may not be indicative of full year
results.
The electronic component distribution industry appears to be continuing its
trend of consolidation and mergers. The largest suppliers are increasingly
turning to financially strong nationally oriented distributors. This development
should continue to reward distributors who are able to react quickly to a
changing marketplace through the utilization of innovative strategies and
convenient solutions for both their customers and suppliers.
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We believe that our strategy for growth encompasses the elements required for
continued success. Efforts made toward geographical expansion over the last
several years have resulted in our becoming a national distributor with nineteen
sales offices, two stocking locations (East and West coasts), over four hundred
employees and three additional sales locations planned for fiscal 1997. This has
given us the ability to continue to attract major new suppliers. For example, we
have recently entered into a national distribution agreement with Sun
Microsystems Inc. This agreement is expected to provide exciting opportunities
in the future in connection with the distribution of Sun's new JAVA technology
products in addition to their current product line.
We continue to focus on a higher margin proprietary product mix as well as
customer and value added services within the core business of distributing
active and passive components. Upgrading those services with the latest
technology includes, for example, implementation of a full on-line Electronic
Data Interchange (EDI) capability for the convenience of those customers who may
benefit from its use.
The Company has also established a web site on the Internet
(http://www.NUHORIZONS.com/). The web site is intended to be informative as to
who, where and what we are, and, more importantly, allows a customer who might
need detailed product information to browse our inventory, obtain
specifications, determine availability, etc., at the customer's convenience.
We are continuing our commitment to maintaining the highest quality standards
and are pleased to announce that NIC Components Corp., and Nu Visions
Manufacturing, Inc., two wholly-owned subsidiaries of the Company, have both
achieved ISO 9002 quality registration during fiscal 1996. Nu Horizons achieved
this registration in fiscal 1995. ISO 9002 is the international quality standard
which is increasingly becoming a requirement to qualify as a supplier to a
substantial number of customers in the marketplace.
Nu Visions Manufacturing, Inc., our sub-contract manufacturing subsidiary,
experienced improved performance in fiscal 1996, but continued to incur a net
loss for the period. We remain confident that this segment of the business will
contribute to our overall profitability in the near future.
Nu Horizons is experiencing exciting growth with even greater potential. While
we focus on developing new opportunities, we continue to fine tune existing
operations to improve profitability, enhance shareholder value and become
increasingly valuable to our customers and suppliers.
In conclusion, we would like to thank our employees, customers and suppliers for
their contributions to our success and to our shareholders for their continuing
support.
Irving Lubman
Chairman of the Board
Arthur Nadata
President, Treasurer and Director
Richard Schuster
Vice President, Secretary and Director
-[3]-
<PAGE>
Review of Operations
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Electronic components have become pervasive in an ever widening array of
products so numerous they cannot all be listed here. This trend, coupled with
the increasing use of computers and interactive media applications, has resulted
in a stunning growth for the industry.
The record sales and earnings for Nu Horizons Electronics Corp. in fiscal 1996
is a result of carefully developed operating strategies designed to maximize the
Company's participation in this impressive industry development.
First and foremost is the Company's ability to aggressively react to the
complete product and technical needs of its customers. Furthermore, strong
franchised product lines, technical expertise, a physical presence nationwide,
diversity and depth of inventory and a knowledge of specific product
availability or satisfactory alternatives have rewarded Nu Horizons with an
exceptional reputation among end-users.
This is management's business philosophy, diligently employed throughout many
years in the industry, and one that will continue to be the cornerstone of the
Company's future operating policy.
Nu Horizons Electronics Corp. is divided into five operating divisions. Nu
Horizons and its wholly owned subsidiary, Nu Horizons/Merit Electronics Corp.,
distribute a wide variety of semiconductor (active) components to commercial
original equipment manufacturers (OEM's). NIC Components Corp., a wholly owned
subsidiary, is the exclusive outlet in North America for Nippon Industries Co.,
Ltd.'s line of passive components. Combined, the product mix of these three
divisions represent nearly two-thirds of the electronic components that are used
throughout the industry. Nu Horizons International Corp., another wholly owned
subsidiary, markets electronic products directly to overseas customers. Nu
Visions Manufacturing, Inc., a wholly owned subsidiary, provides complete
electronic industrial contract manufacturing services.
Nu Horizons
Nu Horizons and Nu Horizons/Merit distribute semiconductor components throughout
the United States with sales facilities in nineteen locations and stocking
facilities on both the East and West coasts. The Company intends to continue its
aggressive sales and marketing approach in fulfilling its commitment to become a
leading national distributor through the continued expansion of the Company's
sales force, engineering staff, product support personnel and geographic
presence.
In addition, the Company's commitment to quality control has resulted in its
registration to the ISO 9002 quality standard. Nu Horizons has franchise
agreements with over fifty manufacturers covering both commodity type
semiconductors as well as specialty niche advanced technology products
empha-
- -[4]-
<PAGE>
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sizing low power, high speed and small packages. The Company's franchise
agreements authorize it to sell all or part of the products of a manufacturer on
a non-exclusive basis. A franchise agreement may be cancelled by either party
upon written notice.
Nu Horizons International
Nu Horizons International Corp. is an export distributor of active electronic
components. International's sales are made through authorized sales
representatives and by in-house sales personnel.
NIC Components Corp.
NIC Components Corp. is a leading provider of passive components, including
resistors, capacitors, thermistors, inductors and potentiometers under its own
label. NIC markets its products through independent sales representatives,
distributors and its own in-house sales people. The Company believes that NIC
has a reputation for high quality leading edge technology as evidenced by the
thousands of OEM's who are either using or designing in its products. NIC's
distributor network includes 10 of the top 50 distributors in North America.
NIC is continuing to expand this product line to offer its customers the most
complete passive component lineup in our industry today under one label. NIC is
in the forefront of marketing several new lines of surface mount Aluminum
Electrolytic Capacitors which offer unique features that should provide new
avenues for increased market penetration in virtually all industry segments.
NIC's marketing strategy is to compete in the high quality, advanced technology
components arena. The engineering department has also been expanded to better
service the more technically advanced manufacturers. The passive components
market continues to show steady growth and NIC is a major factor in this field.
Nu Visions Manufacturing
Nu Visions Manufacturing, Inc., located in a state-of-the-art facility in
Springfield, Massachusetts, provides complete turnkey or kitted assembly
services to various OEM's. Surface mount circuit board assembly equipment
includes state-of-the-art automatic screening, pick and place and reflow
convection oven equipment.
Automatic through-hole circuit board insertion equipment includes parts
sequencing, DIP insertion, axial lead component insertion, dual wave soldering
and aqueous cleaning.
In addition, full GenRad test and repair facilities offer our customers
unsurpassed quality and reliability in their finished goods.
Nu Visions offers its contract assembly services to all of Nu Horizon's existing
distribution customers, as well as separate contract assembly customers. As a
result, this is expected to facilitate increasing our market penetration to all
segments of the electronics industry.
-[5]-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Fiscal Year 1996 versus 1995
Introduction:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, Nu Horizons/Merit Electronics Corp. ("Merit"), NIC Components
Corp. ("NIC") and Nu Horizons International Corp. ("International"), are engaged
in the distribution of high technology active and passive electronic components
to a wide variety of original equipment manufacturers ("OEM's") 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 OEM's 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") located in Springfield,
Massachusetts, another subsidiary of the Company, is a contract assembler of
circuit boards, harnesses and related electromechanical devices for various
OEM's.
The financial information presented herein includes: (i) Balance sheets
as of February 29, 1996 and February 28, 1995; (ii) Statements of income for the
twelve month periods ended February 29, 1996 and February 28, 1995 and 1994
(iii) Statements of cash flows for the twelve month periods ended February 29,
1996 and February 28, 1995 and 1994; (iv) Consolidated changes in stockholder's
equity for the twelve month periods ended February 29, 1996 and February 28,
1995 and 1994.
Results of Operations:
Net sales for the year ended February 29, 1996 aggregated $202,803,184
as compared to $130,251,554 for the year ended February 28, 1995, an increase of
56%. Management attributes the increase in sales for the period to the following
reasons: Approximately $3,303,000 or 4.6% of the overall increase resulted from
incremental sales at the Nu Visions Manufacturing subsidiary. Approximately
$12,807,000 or 17.6% of the overall increase resulted from incremental sales
relative to the newer California segment of the distribution business which the
Company owned for ten months during fiscal 1995. The balance of the overall
increase, approximately $56,441,000 or 77.8%, resulted from incremental sales
generated by the East Coast core distribution business and NIC passive component
business as a whole, through greater market penetration and continued economic
strength in the electronic component industry.
Gross profit margin as a percentage of net sales was 23.8% for the year
ended February 29, 1996 as compared to 23.7% for the year ended February 28,
1995. Management attributes the relative stabilization of profit margins during
these periods primarily to a settling effect in the marketplace subsequent to
the down ward adjustment in calendar 1994. Although the Company expects that
these conditions will continue, as long as current market trends prevail, no
assurances can be given in this regard.
Operating expenses increased by $8,283,222 to $30,377,380 for the year
ended February 29, 1996 from $22,094,158 for the year ended February 28, 1995,
an increase of approximately 37%. As a percentage of net sales, operating
expenses declined from 17% in fiscal 1995 to 15% in fiscal 1996, as sales grew
more rapidly than operating expenses. The dollar increase in operating expenses
was due to increases in the following expense categories: Approximately
$7,319,000 or approximately 88% of the increases were for personnel related
costs - commissions, salaries, travel and fringe benefits. These increases were
required to produce the increased sales which were achieved during the past
fiscal year. The remaining increase of approximately $964,000 or approximately
12% of the total increment is a result of increases in various other operating
costs to support the increase in net sales for the period.
Interest expense increased by $639,698 from $1,387,019 for the year
ended February 28, 1995 to $2,026,717 for the year ended February 29, 1996. This
increase was primarily due to higher average borrowings resulting from an
increase in the Company's inventory and accounts receivable required to support
the 56% increase in sales volume mentioned above. See the liquidity and capital
resources discussion below.
<TABLE>
<CAPTION>
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INTEREST COSTS For The Fiscal Years Ended
February February
29, 1996 28, 1995
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<S> <C> <C>
Revolving Bank Credit $ 916,226 $ 716,707
Sub. Convert. Notes 1,110,491 670,312
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Total Interest Expense $2,026,717 $1,387,019
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</TABLE>
Net income for the year ended February 29, 1996 was $9,396,301 or $.97
per share, fully diluted, as compared to $4,421,823 or $.52 per share fully
diluted, for the year ended February 28, 1995. The increase in earnings is
primarily due to increased sales volume net of higher operating expenses.
Liquidity and Capital Resources:
The Company ended its 1996 fiscal year with working capital and cash
aggregating approximately $57,954,000 and $874,000, respectively at February 29,
1996 as compared to approximately $36,329,000 and $499,000 respectively, at
February 28, 1995. The Company's current ratio at February 29, 1996 was 6.4:1.
The Company believes that its financial position at February 29, 1996 will
enable it to take advantage of any new opportunities that may arise.
On April 8, 1996, subsequent to the balance sheet date, the Company
entered into a new amended and restated unsecured revolving line of credit,
which currently provides for maximum borrowings of $25,000,000 at the bank's
prime rate, through April 8, 2000. At February 29, 1996, $17,300,000 was
outstanding under this line of credit as compared to $4,400,000 at February 28,
1995.
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 is being amortized over the life of the notes. As of
February 29, 1996, $6,000,000 of the notes have been converted into 666,666
shares of common stock and $9,000,000 principal amount of subordinated
convertible notes remained outstanding.
On April 19, 1996, subsequent to the balance sheet date $1,491,003 of
the notes were converted into $165,667 shares of common stock and $7,508,997
principal amount of subordinated convertible notes remain outstanding as of May
17, 1996.
The Company has experienced an overall shortfall in operating cash flow
over the last eight fiscal quarters primarily due to the approximate fifty-six
percent increase in sales for the current fiscal year and the approximately
forty-one percent increase in sales in fiscal 1995. As a result of this sales
growth the Company has been required to finance increased levels of accounts
receivable and inventory which exceed the amounts that can be supported by
operating cash flows. The short fall in operating cash flow has been
supplemented through the issuance of the subordinated convertible notes and the
utilization of the unsecured bank credit line as described above.
-[6]-
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While the Company cannot predict that growth will continue at the same
rate experienced over the last two fiscal years, management is planning for
substantial growth over the ensuing twelve month period which more than likely
will result in a continued shortfall in operating cash flow. The Company
anticipates that its capital resources provided by its bank line of credit will
be sufficient to meet its financing requirements during that period.
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.
Fiscal Year 1995 versus 1994
Results of Operations
Net sales for the year ended February 28, 1995 aggregated $130,251,554
as compared to $92,418,038 for the year ended February 28, 1994, an increase of
41%. Management attributes the increase in sales for the period to the following
reasons: Approximately $13,845,000 or 37% of the overall increase resulted from
the inception of distribution operations, as of April 1, 1994, of the new
"MERIT" subsidiary located in San Jose, California. Approximately $1,328,000 or
3% of the overall increase resulted from incremental sales increases achieved at
the Nu Visions Manufacturing subsidiary. The balance of the increase,
approximately $22,661,000 or 60% of the overall increase, resulted from
incremental sales generated by the core distribution business through greater
market penetration and continuing economic strength in the electronic industry.
Gross profit margin as a percentage of net sales was 23.7% for the year
ended February 28, 1995 as compared to 27% for the year ended February 28, 1994.
Management attributes this lower profit margin primarily to a downward
correction in selling prices in the marketplace during the period ended February
28, 1995 and a greater volume of larger orders at lower gross profit margins.
Operating expenses increased $6,185,668 to $22,094,158 for the year
ended February 28, 1995 from $ 15,908,490 for the year ended February 28, 1994,
an increase of approximately 39%. As a percentage of net sales, operating
expenses declined from 17.2% in fiscal 1994 to 16.9% in fiscal 1995. The dollar
increase in operating expenses was due to increases in the following expense
categories: Approximately $5,540,000 or approximately 90% of the increases were
for personnel related costs - commissions, salaries, travel, fringe benefits and
the addition of the San Jose California distribution facility and sales branches
in Dallas, Texas, Austin, Texas and Edina, Minnesota. These increases were
required to produce the increased sales which were achieved during the past
fiscal year. The remaining increase of approximately $645,000 or approximately
10% of the total increment is a result of increases in various other operating
costs to support the increase in net sales for the period.
Interest expense increased $850,428 from $536,591 for the year ended
February 28, 1994 to $1,387,019 for the year ended February 28, 1995. This
increase was primarily due to higher average borrowings resulting from an
increase in the Company's inventory and accounts receivable resulting from the
increase in sales volume and debt incurred in connection with the Merit
acquisition, as well as higher interest rates during the period.
Net income for the year ended February 28, 1995 was $4,421,823 or $.52
per share, fully diluted, as compared to $5,044,225 or $.65 per share, fully
diluted, for the year ended February 28, 1994. The decrease in earnings is
primarily due to lower gross profit margins and higher operating expenses,
partially offset by the increase in sales volume.
Report of Management
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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 judgements 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 & Company LLP, the independent accountants, have been
selected by the Board of Directors to examine the Company's financial
statements. Their report appears herein.
Paul Durando
Vice President, Finance
Arthur Nadata
President
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<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
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<TABLE>
<CAPTION>
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February February
29, 1996 28, 1995
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<S> <C> <C>
Assets
Current Assets:
Cash (including time deposits) $ 874,267 $ 498,919
Accounts receivable-net of allowance for
doubtful accounts of $1,509,802 and $898,359
for 1996 and 1995, respectively 30,005,182 20,786,943
Inventories 36,808,915 22,255,545
Prepaid expenses and other current assets 1,013,923 1,637,611
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Total Current Assets 68,702,287 45,179,018
Property, Plant and Equipment -- Net (Notes 4 and 7) 3,439,804 3,141,054
Other Assets
Cost in excess of net assets acquired-net 2,066,180 2,223,104
Other assets (Note 5) 1,251,315 1,429,430
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$75,459,586 $51,972,606
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Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 7,898,757 $ 6,286,579
Accrued expenses 2,254,878 2,201,006
Current portion of long-term debt (Note 7) 373,930 311,063
Income taxes (Note 10) 220,288 7,743
Other current liabilities -- 43,686
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Total Current Liabilities 10,747,853 8,850,077
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Long Term Liabilities:
Deferred income taxes (Note 10) 115,577 585,209
Revolving credit line (Note 6) 17,300,000 4,400,000
Long-term debt (Note 7) 678,453 595,404
Subordinated convertible notes (Note 8) 9,000,000 15,000,000
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Total Long Term Liabilities 27,094,030 20,580,613
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Commitments and Contingencies (Notes 6, 11,
12 and 13)
Shareholders' Equity (Note 9):
Preferred stock, $1 par value, 1,000,000
shares authorized; none issued or
outstanding -- --
Common stock, $.0066 par value, 20,000,000
shares authorized; 8,423,137 and
7,732,051 shares issued and outstanding
for 1996 and 1995, respectively 55,593 51,032
Additional paid-in capital 16,821,502 10,726,727
Retained earnings 21,160,458 11,764,157
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38,037,553 22,541,916
Less: loan to ESOP (Notes 7 and 11) 419,850 --
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37,617,703 22,541,916
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$75,459,586 $51,972,606
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</TABLE>
See notes to consolidated financial statements.
-[8]-
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Consolidated Statements of Income
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<TABLE>
<CAPTION>
For The Year Ended
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February February February
29, 1996 28, 1995 28, 1994
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<S> <C> <C> <C>
Net Sales $202,803,184 $130,251,554 $92,418,038
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Costs and Expenses:
Cost of sales (Note 13) 154,602,036 99,338,249 67,467,560
Operating expenses 30,377,380 22,094,158 15,908,490
Interest expense 2,026,717 1,387,019 536,591
Interest income (2,541) (12,019) (44,137)
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187,003,592 122,807,407 83,868,504
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Income Before Provision For Income Taxes 15,799,592 7,444,147 8,549,534
Provision for income taxes (Note 10) 6,403,291 3,022,324 3,505,309
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Net Income $ 9,396,301 $ 4,421,823 $ 5,044,225
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Earnings Per Share (Note 2i):
Primary $ 1.14 $ .56 $ .65
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Fully diluted $ .97 $ .52 $ .65
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</TABLE>
See notes to consolidated financial statements.
-[9]-
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
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<TABLE>
<CAPTION>
Common Stock Additional Total
Common Dividend Paid-In Retained Loan To Shareholders'
Shares Stock Payable Capital Earnings ESOP Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 28, 1993 4,809,246 $48,092 $ 2,403 $10,471,496 $ 2,298,109 $(140,419) $12,679,681
Stock dividend distributed 240,319 2,403 (2,403) -- -- -- --
Exercise of stock
options and warrants 113,670 930 -- 227,396 -- -- 228,326
Repayment from ESOP -- -- -- -- -- 99,753 99,753
Stock split 2,550,399 (515) -- 515 -- -- --
Net income -- -- -- -- 5,044,225 -- 5,044,225
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Balance at
February 28, 1994 7,713,634 50,910 -- 10,699,407 7,342,334 (40,666) 18,051,985
Exercise of stock options 18,417 122 -- 27,320 -- -- 27,442
Repayment from ESOP -- -- -- -- -- 40,666 40,666
Net income -- -- -- -- 4,421,823 -- 4,421,823
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Balance at
February 28, 1995 7,732,051 51,032 -- 10,726,727 11,764,157 -- 22,541,916
Exercise of stock options 24,420 161 -- 99,175 -- -- 99,336
Conversion of subordinated
convertible notes 666,666 4,400 -- 5,995,600 -- -- 6,000,000
Loan to ESOP -- -- -- -- -- (559,800) (559,800)
Repayment from ESOP -- -- -- -- -- 139,950 139,950
Net income -- -- -- -- 9,396,301 -- 9,396,301
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Balance at
February 29, 1996 8,423,137 $55,593 $ -- $16,821,502 $21,160,458 $(419,850) $37,617,703
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</TABLE>
See notes to consolidated financial statements
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<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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<TABLE>
<CAPTION>
For The Year Ended
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February February February
29, 1996 28, 1995 28, 1994
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<S> <C> <C> <C>
Increase (Decrease) In Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 192,949,945 $ 125,991,043 $ 88,245,555
Cash paid to suppliers and employees (196,045,525) (124,980,742) (85,752,410)
Interest received 2,541 18,991 47,037
Interest paid (2,026,717) (1,387,019) (536,591)
Income taxes paid (6,034,790) (5,770,418) (1,744,114)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used by)operating activities (11,154,546) (6,128,145) 259,477
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,055,558) (602,746) (827,629)
Purchase of stock for ESOP (559,800) -- --
Purchase of Merit Electronics -- net of cash acquired -- (5,753,022) --
- ----------------------------------------------------------------------------------------------------------------
Net cash (used by) investing activities (1,615,358) (6,355,768) (827,629)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under revolving credit line 65,000,000 66,090,000 20,050,000
Repayments under revolving credit line (52,100,000) (69,790,000) (18,550,000)
Principal payments of long-term debt (413,884) (468,917) (355,164)
Proceeds from exercise of employee stock options 99,336 27,442 228,326
Proceeds from long-term debt 559,800 -- --
Proceeds from subordinated debt -- 15,000,000 --
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 13,145,252 10,858,525 1,373,162
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 375,348 (1,625,388) 805,010
Cash and cash equivalents, beginning of year 498,919 2,124,307 1,319,297
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 874,267 $ 498,919 $ 2,124,307
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Reconciliation Of Net Income To Net Cash Provided By Operating Activities:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net income $ 9,396,301 $ 4,421,823 $ 5,044,225
- ----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by (used by) operating activities:
Depreciation and amortization 1,169,816 886,235 535,794
Bad debts 635,000 442,500 409,000
Contribution to ESOP (compensation) 139,950 40,666 99,753
Changes in assets and liabilities:
(Increase) in accounts receivable (9,853,239) (4,260,511) (4,172,483)
(Increase) in inventories (14,553,370) (3,566,701) (6,239,178)
(Increase) decrease in prepaid expenses and other current assets 623,688 (1,183,805) (193,494)
(Increase) in other assets (77,969) (1,277,857) (71,353)
Increase (decrease) in accounts payable and accrued expenses 1,666,050 (354,525) 3,105,867
Increase (decrease) in income taxes 212,545 (1,625,045) 1,255,853
Increase (decrease) in other current liabilities (43,686) 34,361 (19,848)
Increase (decrease) in deferred taxes (469,632) 314,714 505,341
- ----------------------------------------------------------------------------------------------------------------
Total adjustments (20,550,847) (10,549,968) (4,784,748)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used by) operating activities $(11,154,546) $ (6,128,145) $ 259,477
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Non-Cash Financing Activities:
During the year ended February 29, 1996 the subordinated debt-holder (see Note
8) converted $6,000,000 of debt into 666,666 shares of the Company's common
stock.
See notes to consolidated financial statements.
-[11]-
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Three Years Ended February 29, 1996
- -------------------------------------------------------------------------------
1. Organization:
Nu Horizons Electronics Corp. and its subsidiaries, NIC Components Corp.,
and Nu Horizons International Corp., were incorporated in the State of New York
on October 22, 1982, November 8, 1982, and December 8, 1986, respectively. Nu
Visions Manufacturing, Inc. was incorporated in the State of Massachusetts on
August 9, 1991. On April 15, 1987, Nu Horizons Electronics Corp. was
reincorporated in the State of Delaware. On April 18, 1994, Nu Horizons/Merit
Electronics Corp. was incorporated in the State of Delaware, for the express
purpose of acquiring the business of Merit Electronics, Inc. See Note 3 of these
Notes for further information. All companies are wholesale distributors
throughout the United States or export distributors of electronic components,
except for Nu Visions Manufacturing, which is a contract assembler of circuit
boards and various electromechanical devices.
2. Summary of Significant Accounting Policies:
a. Principles of Consolidation:
The consolidated financial statements include the accounts of Nu Horizons
Electronics Corp., (the "Company") and its wholly-owned subsidiaries, NIC
Components Corp. ("NIC"), Nu Horizons/Merit Electronics Corp. ("NUM"), Nu
Visions Manufacturing, Inc. ("NUV") and Nu Horizons International Corp.
("International"). All material intercompany balances and transactions have
been eliminated.
b. Use of Estimates:
In preparing financial statements in accordance with generally accepted
accounting principles, management makes certain estimates and assumptions, where
applicable, that affect the reported amounts of assets and 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:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable.
The Company maintains, at times, deposits in federally insured financial
institutions in excess of federally insured limits. Management attempts to
monitor the soundness of the financial institution and believes the Company's
risk is negligible.
Concentrations with regard to accounts receivable are limited due to the
Company's large customer base.
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:
- --------------------------------------------------------------------------------
Building and improvements 25 years
Transportation equipment 3 years
Office equipment 5 years
Furniture and fixtures 5 years
Computer equipment 5 years
- --------------------------------------------------------------------------------
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. 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 29, 1996
approximates $2,600,000.
The Company adopted SFAS No. 109, Accounting For Income Taxes ("SFAS 109"),
for the year ended February 28, 1993. SFAS 109 requires use of the asset and
liability approach of providing for income taxes and required implementation no
later than for years beginning after December 15, 1992. Management of the
Company believes that the adoption of SFAS No. 109 had no material effect on the
financial statements.
g. Goodwill:
Costs in excess of net assets acquired (see Note 3) are being amortized on
a straight-line basis over fifteen years. For the year ended February 29, 1996,
amortization of goodwill aggregated $287,694.
The Company periodically reviews the valuation and amortization of goodwill
to determine possible impairment by comparing the carrying value to the
undiscounted future cash flows of the related assets, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of.
h. Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
i. Earnings Per Common Share:
Primary earnings per share has been computed on the basis of the weighted
average number of common shares and common equivalent shares outstanding during
each period presented. All shares held by the Employee Stock Ownership Plan (see
Note 11) are included in outstanding shares. Fully diluted earnings per common
share has been computed assuming conversion of all dilutive stock options and
convertible debt. All per share amounts have been retroactively restated for all
periods presented - see Note 9 regarding stock dividends and three for two stock
split.
The following average shares were used for the computation of primary and fully
diluted earnings per share:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary 8,236,249 7,847,677 7,774,440
Fully diluted 10,410,699 9,279,297 7,814,605
- --------------------------------------------------------------------------------
</TABLE>
j. Reclassifications:
Certain prior year information has been reclassified to conform to the
current year's reporting presentation.
k. Accounting Changes:
As permitted by SFAS No. 123, Accounting for Stock-based Compensation,
which becomes effective for the Company as of March 1, 1996, and which
encourages companies to record expense for stock options and other stock-based
employee compensation awards based on their fair value at date of grant, Nu
Horizons will continue to apply its current accounting policy under Accounting
Principles Board Opinion No. 25 and will include the necessary disclosures in
its fiscal 1997 financial statements.
- -[12]-
<PAGE>
- --------------------------------------------------------------------------------
3. Acquisition:
Effective April 1, 1994, Nu Horizons/Merit Electronics Corp., a newly
formed subsidiary of the Company, acquired substantially all of the assets and
assumed certain liabilities of Merit Electronics Corp., an electronic component
distributor, located in San Jose, California. The $6,000,000 cost of the
acquisition was paid in cash and was financed through a borrowing of the same
amount under the Company's revolving line of credit (see Note 6).
This acquisition was accounted for using the purchase method of accounting.
The Company's consolidated statement of earnings did not include the
revenues and expenses of Nu Horizons/Merit until April 1, 1994. The operations
of Nu Horizons/Merit after April 1, 1994 are reflected for the fiscal years
ended February 28, 1995 and February 29, 1996. The following pro forma results
were developed assuming the acquisition had occurred at the beginning of the
earliest period presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Pro Forma Year Ended
(Unaudited) February 28, 1995 February 28, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $131,914,000 $107,507,000
Net earnings 4,426,000 5,484,000
Earnings per share $ .56 $ .71
- --------------------------------------------------------------------------------
</TABLE>
This unaudited pro forma sales and earnings information is not necessarily
indicative of the combined results that would have occurred had the acquisition
taken place on March 1, 1993, nor are they necessarily indicative of results
that may occur in the future.
4. Property, Plant and Equipment:
Property, plant and equipment, which is reflected at cost, consists of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
February February
29, 1996 28, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 266,301 $ 266,301
Building and improvements 1,747,930 1,574,435
Furniture, fixtures and office equipment 2,037,183 1,512,926
Computer equipment 2,278,582 1,920,776
Assets held under capitalized leases 919,834 919,834
- --------------------------------------------------------------------------------
7,249,830 6,194,272
Less: accumulated depreciation
and amortization 3,810,026 3,053,218
- --------------------------------------------------------------------------------
$3,439,804 $3,141,054
- --------------------------------------------------------------------------------
</TABLE>
Included in building and improvements is approximately $65,000 of the
interest costs which were capitalized during the period of construction of the
corporate headquarters.
Depreciation expense including depreciation of capitalized leases for the
years ended February 29, 1996 and February 28, 1995 and 1994 aggregated
$756,808, $615,356 and $501,098, respectively.
5. Other Assets:
Other assets as of February 29, 1996 and February 28, 1995 consists of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net cash surrender value--life insurance $ 793,537 $ 720,959
Debt issue costs--net 407,443 663,527
Other 50,335 44,944
- --------------------------------------------------------------------------------
$1,251,315 $1,429,430
- --------------------------------------------------------------------------------
</TABLE>
6. Revolving Credit Line:
In February, 1988 the Company entered into an agreement with its bank,
which as amended, provides for a $18,000,000 unsecured revolving line of credit
at the bank's prime rate (8.25 % at February 29, 1996) with payments of interest
only through May 1, 1997. Direct borrowings under lines of credit were
$17,300,000 and $4,400,000 at February 29, 1996 and February 28, 1995,
respectively. The credit agreement contains various covenants including a
restriction on the payment of cash dividends without the bank's consent. The
Company meets all of the required covenants.
(See Note 16b)
7. Long--Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following:
- --------------------------------------------------------------------------------
February February
29, 1996 28, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage payable to bank, due in quarterly
installments of $26,552 plus interest at
88% of the bank's prime rate (7.26% at
February 29, 1996) to December 1, 1999 $398,276 $504,483
Term loan payable to bank, due in monthly
installments of $9,321 plus interest at
the bank's prime rate to March 31, 2000 447,388 --
Non-Compete Agreement
due in annual installments -- 14,500
Various capitalized equipment leases,
interest rates ranging from 6.78% to 8.38%,
maturing in 1997 and 1998. Gross lease
obligations aggregate $172,089, $85,134
and $34,748, for each of the next three
fiscal years, with interest thereon
aggregating $85,252 206,719 387,484
- --------------------------------------------------------------------------------
1,052,383 906,467
Less: current portion 373,930 311,063
- --------------------------------------------------------------------------------
$678,453 $595,404
- --------------------------------------------------------------------------------
</TABLE>
The mortgage payable is collateralized by land, building, and substantially
all furniture and fixtures. The term loan payable is secured by a pledge of the
shares of the common stock of the Company purchased with the proceeds of the
loans (See Note 11). Other equipment loans are secured by the specific equipment
acquired.
Long-term debt of the Company matures as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 373,930
1998 325,104
1999 246,157
2000 107,192
- --------------------------------------------------------------------------------
$1,052,383
- --------------------------------------------------------------------------------
</TABLE>
8. 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
30, February 28, May 31 and August 31. 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 is being amortized over the life of the notes.
As of February 29, 1996, $6,000,000 of the notes have been converted into
666,666 shares of common stock and $9,000,000 principal amount of subordinated
convertible notes remained outstanding. (See Note 16a)
-[13]-
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Three Years Ended February 29, 1996
- --------------------------------------------------------------------------------
9. Capital Stock, Options and Warrants:
On September 16, 1992, the Board of Directors approved a 5% stock dividend
payable on October 21, 1992 to shareholders of record on October 1, 1992. As a
result of the stock dividend, 225,153 shares were distributed, common stock was
increased by $2,251, additional paid-in capital was increased by $856,145 and
retained earnings was decreased by $858,396.
On March 9, 1993, the Board of Directors approved a 5% stock dividend
payable on April 12, 1993 to shareholders of record on March 22, 1993. As a
result of the stock dividend, 240,319 shares were distributed, common stock was
increased by $2,403, additional paid-in capital was increased by $1,529,742 and
retained earnings was decreased by $1,532,145.
On September 7, 1993, the Company's Board of Directors, declared a three
for two stock split of the common stock, to be distributed on September 30, 1993
to all holders of record at the close of business on September 20, 1993. As a
result of the stock split, 2,550,399 shares were distributed. All shares and per
share data for all periods presented have been restated to reflect this stock
split.
A summary of activity with respect to stock options for the three years
ended February 29, 1996 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Total Shares
Option Option Available For
Shares Price Price Future Grants
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding,
February 28, 1993 240,205 $ .90-$2.11 $ 344,438 269,167
Granted 37,500 5.41 202,875
Exercised (122,823) .90 -2.11 (195,966)
- --------------------------------------------------------------------------------
Balance outstanding,
February 28, 1994 154,882 .90 -5.41 351,347 241,376
Granted 580,950 7.25 -8.13 4,311,381
Exercised (18,417) .90 -2.11 (27,442)
- --------------------------------------------------------------------------------
Balance outstanding,
February 28, 1995 717,415 .90 -8.13 4,635,286 410,000
Granted 323,000 7.38 -14.50 3,013,320
Exercised (24,420) 2.11 -7.87 (99,336)
Cancelled (23,023) 2.11 -7.88 (65,758)
- --------------------------------------------------------------------------------
Balance outstanding,
February 29, 1996 992,972 $ .90-$14.50 $7,483,512 90,000
- --------------------------------------------------------------------------------
</TABLE>
Stock options granted to date under the Company's Key Employees Stock
Incentive Plan and 1994 Stock Option Plan generally expire five years after date
of grant and become exercisable in four equal annual installments commencing one
year from date of grant. Stock options granted under the Company's Outside
Director Stock Option Plan expire ten years after the date of grant and become
exercisable in three equal annual installments on the date of grant and the
succeeding two anniversaries thereof.
10. Income Taxes:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
February February February
29, 1996 28, 1995 28, 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $5,082,876 $2,436,377 $2,679,000
State and local 1,107,016 461,816 775,000
Deferred:
Federal 178,923 120,704 45,309
State 34,476 3,427 6,000
- --------------------------------------------------------------------------------
$6,403,291 $3,022,324 $3,505,309
- --------------------------------------------------------------------------------
</TABLE>
The components of the net deferred income tax liability, pursuant to SFAS
109, as of February 29, 1996 and February 28, 1995 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Accounts Receivable $614,188 $364,588
Inventory 146,448 64,960
- --------------------------------------------------------------------------------
Total Deferred Tax Assets 760,636 429,548
- --------------------------------------------------------------------------------
Deferred Tax Liabilities:
Fixed Assets (8,136) (256,293)
Income of Interest Charge DISC (868,077) (758,464)
- --------------------------------------------------------------------------------
Total Deferred Tax Liabilities (876,213) (1,014,757)
- --------------------------------------------------------------------------------
Net Deferred Tax Liabilities $(115,577) $(585,209)
- --------------------------------------------------------------------------------
The following is a reconciliation of the maximum statutory federal tax rate
to the Company's effective tax rate:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Statutory rate 35.0% 34.0% 34.0%
State and local taxes 6.5 6.4 6.0
Other (1.0) .2 1.0
- --------------------------------------------------------------------------------
Effective tax rate 40.5% 40.6% 41.0%
- --------------------------------------------------------------------------------
</TABLE>
11. 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. Contributions are in the form of cash which is utilized to acquire
the Company's common stock for the benefit of participating employees.
Contributions to the Plan for the years ended February 29, 1996, 1995 and 1994
aggregated $139,950, $40,666 and $99,753, respectively.
In May 1988, the Company, on behalf of the ESOP, entered into an additional
credit agreement with its bank which provides for a $2,000,000 revolving line of
credit at the bank's prime rate until April 8, 2000. Direct borrowings under
this line of credit are payable in forty-eight equal monthly installments
commencing with the fiscal period subsequent to such borrowings. At February 29,
1996, the ESOP owned 360,810 shares at
- -[14]-
<PAGE>
- --------------------------------------------------------------------------------
an average price of approximately $2.52 per share. At February 29, 1996, direct
borrowings outstanding under the ESOP line of credit were $447,338.
In January 1991, the Company also established a 401-K profit sharing plan
to cover all eligible employees. The Company's contributions to the plan are
discretionary, but may not exceed 1% of compensation. Contributions to the plan
for the three years ended February 29, 1996 were $90,243, $61,519 and $46,611,
respectively.
12. Commitments:
(a) The Company signed employment contracts (the "Contracts"), as amended,
with three of its senior executives for a six year period expiring February 28,
2001. The Contracts specify a base salary of $200,000 for each officer, which
shall be increased each year by the change in the consumer price index, and also
entitles each of the officers to an annual bonus equal to 3.33% (10% in the
aggregate) of the Company's consolidated earnings before income taxes. Benefits
are also payable upon the occurrence of either a change in control of the
Company, as defined, or the termination of the officer's employment, as defined.
The contracts also provide for certain payments of the executive's 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.
(b) The Company leases certain office, warehouse and other properties which
leases include various escalation clauses, renewal options, etc. Aggregate
minimum rental commitments under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Fiscal 1997 $661,443
Fiscal 1998 614,075
Fiscal 1999 571,462
Fiscal 2000 524,233
Fiscal 2001 445,924
Fiscal 2002 148,698(i)
- --------------------------------------------------------------------------------
</TABLE>
Rent expense was $587,079, $450,201 and $262,985 for each of the three
years in the period ending February 29, 1996.
(i) This amount includes the last base rent lease commitment of $92,448
for the Nu Visions Manufacturing facility in Springfield, Massachusetts. The ten
year lease contains buy out provisions at the end of the fifth and sixth years
of $135,000 and $92,000, respectively. Alternatively, the Company could continue
to occupy the premises through February 2002 at the base rental.
(c) The Company has signed a four year consulting agreement with the former
owner of Merit Electronics (see Note 3) which commenced on April 29, 1994. The
agreement provides for the consultant to perform advisory services to Nu
Horizons/Merit and to receive consulting fees of approximately $665,000 per
annum.
13. Major Suppliers:
For the year ended February 29, 1996 the Company purchased inventory from
two suppliers that were each in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $33,505,000.
For the year ended February 28, 1995 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 $12,400,000.
For the year ended February 28, 1994, the Company purchased inventory from
two suppliers that were each in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $19,590,000.
14. Business Segment Information:
The Company's operations have been classified into two business segments:
Electronic component distribution and industrial contract manufacturing. The
component distribution segment includes the resale of active and passive
components to various original equipment manufacturers and distributors. The
industrial contract manufacturing segment consists of a subsidiary which
provides electronic circuit board and harness assembly services to original
equipment manufacturers. This segment began operations in September 1991.
Summarized financial information by business segment for fiscal 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales:
Electronic Component Distribution $195,929,559 $126,680,968
Industrial Contract Manufacturing 6,873,625 3,570,586
- --------------------------------------------------------------------------------
$202,803,184 $130,251,554
- --------------------------------------------------------------------------------
Operating income (loss):
Electronic Component Distribution $18,038,688 $9,614,776
Industrial Contract Manufacturing (214,920) (795,629)
- --------------------------------------------------------------------------------
$17,823,769 $8,819,147
- --------------------------------------------------------------------------------
Total assets:
Electronic Component Distribution $71,653,755 $49,879,311
Industrial Contract Manufacturing 3,805,831 2,093,295
- --------------------------------------------------------------------------------
$75,459,586 $51,972,606
- --------------------------------------------------------------------------------
Depreciation and amortization:
Electronic Component Distribution $920,827 $649,591
Industrial Contract Manufacturing 248,989 236,644
- --------------------------------------------------------------------------------
$1,169,816 $886,235
- --------------------------------------------------------------------------------
Capital expenditures
(including capital leases):
Electronic Component Distribution $659,163 $874,722
Industrial Contract Manufacturing 396,395 10,016
- --------------------------------------------------------------------------------
$1,055,558 $884,738
- --------------------------------------------------------------------------------
</TABLE>
-[15]-
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Three Years Ended February 29, 1996
- --------------------------------------------------------------------------------
15. Selected Quarterly Financial Data (Unaudited):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Three Month Period Ended
February 29, 1996 November 30, 1995 August 31, 1995 May 31, 1995
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net Sales $52,928,682 $55,066,644 $50,091,805 $44,716,053
- ------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 40,017,844 41,983,941 38,192,979 34,407,272
- ------------------------------------------------------------------------------------------------------------------------------
Other Operating Expenses 8,737,554 8,244,334 7,841,646 7,578,022
- ------------------------------------------------------------------------------------------------------------------------------
Provision For Income Taxes 1,648,131 2,004,226 1,651,272 1,099,662
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 2,525,153 $ 2,834,143 $ 2,405,908 $ 1,631,097
==============================================================================================================================
Primary Earnings Per Share $.29 $.34 $.30 $.21
==============================================================================================================================
Weighted Average Number Of Common And Common Equivalent
Shares Outstanding 8,874,371 8,310,144 8,009,707 7,852,309
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
Three Month Period Ended
February 28, 1995 November 30, 1994 August 31, 1994 May 31, 1994
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net Sales $37,150,707 $33,324,316 $31,014,574 $28,761,957
- ------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 28,699,720 25,573,225 23,452,551 21,612,753
- ------------------------------------------------------------------------------------------------------------------------------
Other Operating Expenses 6,724,029 6,126,443 5,613,071 5,005,615
- ------------------------------------------------------------------------------------------------------------------------------
Provision For Income Taxes 678,276 664,892 799,232 879,924
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,048,682 $ 959,756 $ 1,149,720 $ 1,263,665
==============================================================================================================================
Primary Earnings Per Share $.13 $.12 $.15 $.16
==============================================================================================================================
Weighted Average Number Of Common And Common Equivalent
Shares Outstanding 7,849,605 7,840,474 7,843,336 7,856,465
==============================================================================================================================
</TABLE>
16. Subsequent Events:
(a) Conversion of Subordinated Convertible Notes - On April 19, 1996,
subsequent to the balance sheet date, $1,491,003 of the notes were converted
into 165,667 shares of common stock and $7,508,997 principal amount of
subordinated convertible notes remained outstanding.
(b) Revolving Credit Agreement - On April 8, 1996, subsequent to the
balance sheet date, the Company entered into a new amended and restated
unsecured revolving line of credit, which currently provides for maximum
borrowings of $25,000,000 at the bank's prime rate through April 8, 2000.
Independent Auditors' Report
To The Board of Directors
Nu Horizons Electronics Corp.
Amityville, New York
We have audited the accompanying consolidated financial statements of Nu
Horizons Electronics Corp. and subsidiaries. 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nu Horizons
Electronics Corp. and subsidiaries at February 29, 1996 and February 28, 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended February 29, 1996 in conformity with generally
accepted accounting principles.
LAZAR, LEVINE & COMPANY LLP
New York, New York
May 16, 1996
- -[16]-
<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 1995:
First Quarter $10.75 $ 8.25
Second Quarter 8.75 5.75
Third Quarter 9.75 6.13
Fourth Quarter 9.50 6.88
- --------------------------------------------------------------------------------
Fiscal Year 1996:
First Quarter 9.38 6.50
Second Quarter 11.50 7.13
Third Quarter 17.25 10.50
Fourth Quarter 18.88 13.00
- --------------------------------------------------------------------------------
Fiscal Year 1997:
First Quarter (Through May 17, 1996) 16.63 14.50
</TABLE>
(b) As of May 17, 1996, the Company's common stock was owned by
approximately 4,500 holders of record.
(c) The Company has never paid a cash dividend on its common stock. In
addition, the Company's revolving credit line agreement prohibits, without the
bank's consent, the payment of cash dividends.
Corporate Information
- --------------------------------------------------------------------------------
Officers & Directors
Irving Lubman
Chairman of the Board of Directors
Arthur Nadata
President, Treasurer and Director
Richard S. Schuster
Vice President, Secretary, Director and President -
NIC Components Corp.
Paul Durando
Vice President - Finance 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. and
Contempri Homes Inc.
David Siegel
Director
President - Quantech Electronics Corp.
Robert Valone
Vice President - Sales
Martin Drucker
Vice President - Sales - Nu Horizons International Corp.
Ben Schwartz
Vice President - Marketing
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 & Company LLP
350 Fifth Avenue, New York, New York 10118
Annual Meeting
The Annual Meeting of Shareholders will be held on
September 13, 1996 at 10:00 AM at the de Seversky Conference Center,
Old Westbury, New York
Form 10-K
The Company's report on Form 10-K as filed with the Securities and
Exchange Commission is available upon written request to:
Office of the Secretary, Nu Horizons Electronics Corp.
6000 New Horizons Boulevard, Amityville, New York 11701
Stock Traded:
NASDAQ National Market (NUHC)
<PAGE>
Nu Horizons Electronics Corp.
- --------------------------------------------------------------------------------
6000 New Horizons Blvd.
Amityville, New York 11701
(516) 226-6000
Web: http://www.nuhorizons.com/
