SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
ON FORM 10K
Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number
February 28, 1997 1-8798
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Nu Horizons Electronics Corp.
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(Exact name of registrant as specified in its charter)
Delaware 11-2621097
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 Maxess Road, Melville, New York 11747
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(Address of principal executive offices) (Zip Code)
(516) 396-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock Par Value $.0066 Per Share NASDAQ National Market System
- --------------------------------------------- ----------------------------------
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 19, 1997.
Common Stock - Par Value $.0066 8,732,299
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Class Outstanding Shares
Aggregate Market Value of Non-Affiliate Stock at May 19, 1997 -
---------------------------------------------------------------
approximately $60,602,155
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I:
Item 1. Business Pages 3 - 7
Item 2. Properties Pages 7 - 8
Item 3. Legal Proceedings Page 8
Item 4. Submission of Matters to a Vote of Security Holders Page 8
PART II:
Item 5. Market for the Registrant's Common Equity and Related Page 8
Stockholder Matters
Item 6. Selected Financial Data Page 9
Item 7. Management's Discussion and Analysis of Financial Pages 10 - 13
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data Pages F1 - F19
Item 9. Changes in and Disagreements with Accountants on Page 14
Accounting and Financial Disclosures
PART III:
Item 10. Directors and Executive Officers of the Company Pages 14 - 15
Item 11. Executive Compensation Pages 16 - 25
Item 12. Security Ownership of Certain Beneficial Owners and Page 26
Management
Item 13. Certain Relationships and Related Transactions Page 26
PART IV:
Item 14. Exhibits, Financial Statement Schedules, and Reports Pages 27 - 34
on Form 8-K
Signatures Page 35
Exhibit Index
Page 2
PART I.
ITEM 1. BUSINESS:
GENERAL:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, NIC Components Corp. ("NIC") and Nu Horizons/Merit
Electronics Corp. ("NUM"), are engaged in the distribution of high
technology active and passive electronic components. Nu Horizons
International Corp. ("International"), another wholly-owned subsidiary,
is an export distributor of electronic components. Nu Visions
Manufacturing, Inc. ("NUV" or "Nu Visions") located in Springfield,
Massachusetts, another wholly-owned subsidiary of the Company, is a
contract assembler of circuit boards, harnesses and related
electromechanical devices for various OEM's. All references herein to
the Company shall, unless the context otherwise requires, be deemed to
refer to the Company and its subsidiaries.
Active components distributed by the Company, principally to original
equipment manufacturers (OEM's) in the United States, include mainly
commercial semiconductor products such as memory chips, microprocessors,
digital and linear circuits, microwave, RF and fiberoptic components,
transistors and diodes. Passive components distributed by NIC,
principally to OEM's and other distributors nationally, consist of a high
technology line of chip and leaded components including capacitors,
resistors and related networks.
The active and passive components distributed by the Company are
utilized by the electronics industry and other industries in the
manufacture of sophisticated electronic products including: industrial
instrumentation, computers and peripheral equipment, consumer
electronics, telephone and telecommunications equipment, satellite
communications equipment, cellular communications equipment, medical
equipment, automotive electronics, and audio and video electronic
equipment.
Manufacturers of electronic components augment their marketing programs
through the use of independent distributors and contract assemblers such
as the Company, upon which the Company believes they rely to a
considerable extent to market their products. Distributors and
assemblers, such as the Company, offer their customers the convenience of
diverse inventories and rapid delivery, design and technical assistance,
and the availability of product in smaller quantities than generally
available from manufacturers. Generally, companies engaged in the
distribution of active and passive electronic components, such as the
Company, are required to maintain a relatively significant investment in
inventories and accounts receivable. To meet these requirements, the
Company, and other companies in the industry, typically depend on
internally generated funds as well as external borrowings.
Management's policy is to manage, maintain and control all inventories
from its principal headquarters and stocking facilities on Long Island,
New York and stocking facilities in San Jose, California. As additional
franchise line opportunities become available to the Company, the need
for branch level inventories may be necessary and desirable in order to
better serve the specific needs of local markets.
Page 3
ITEM 1. BUSINESS (Continued):
Semiconductor Products (Active Components):
The Company is a distributor of a broad range of semiconductor products
to commercial and military OEM's principally in the United States. The
Company is a franchised distributor of active components for
approximately forty product lines, the most significant of which are SGS-
Thomson Microelectronics and Toshiba. Other significant franchised
product lines include Allegro, Cirrus Logic, Crystal, Elantec, Exar,
Exel, Microelectronics, Integrated Circuit Systems, International
Rectifier, Maxim Integrated Products, NEC, Silicon Systems, Standard
Microsystems Corporation, Supertex, Inc., Watkins Johnson, and Xilinx.
The Company's franchise agreements authorize it to sell all or part of
the product line of a manufacturer on a non-exclusive basis. Under these
agreements, each manufacturer will grant credits for any subsequent price
reduction by such manufacturer and inventory return privileges whereby
the Company can return to each such manufacturer for credit or exchange a
percentage ranging from 5% to 20% of the inventory purchased from said
manufacturer during a semi-annual period. The franchise agreements
generally may be cancelled by either party upon written notice. The
Company anticipates, in the future, entering into additional franchise
agreements and increasing its inventory levels in accordance with
business demands.
Passive Components and Relationship with Nippon:
NIC has been the exclusive outlet in North America for Nippon
Industries Co. Ltd.'s (Japan) brand of passive components and does not
anticipate any change in this relationship. While the Company does not
have a written agreement with Nippon in this regard, it believes that a
formal written agreement is not material to its ongoing business
relationship with Nippon.
Due to certain market situations, NIC, with Nippon's assent, has also
established several manufacturing associations with U.S. and Taiwan based
companies. NIC intends to continue to give Nippon priority however, in
acquiring its products whenever the technology and pricing are commensurate
with the North American market's requirements.
Contract Assembly:
As discussed above, the Company's core business is the distribution of
active components to OEM's and passive components to OEM's and
distributors nationally in the United States.
Those components are then placed on printed circuit boards by the OEM's
themselves or are contracted for placement to outside contract assembly
companies (domestically or offshore). The Company believes that the
latter outside contract assembly is becoming more prevalent nationally,
especially among small to midsize OEM's
With a view towards maximizing the Company's current customer base as
well as offering new customers additional services, the Company decided
that contract circuit board assembly was a natural extension to its
business, since 80% of the components found on most printed circuit
boards can be provided through the Company's active and NIC's passive
products.
Page 4
ITEM 1. BUSINESS (Continued):
Contract Assembly (continued):
In August 1991, the Company formed a new subsidiary, Nu Visions
Manufacturing, Inc. (NUV or Nu Visions), a Massachusetts corporation, for
the purpose of providing contract through hole and surface mount circuit
board assembly services. NUV began doing business in September 1991 and
was moved to a new facility in mid-February 1992. In order to expand and
enhance this part of the business, the Company has acquired approximately
$2,000,000 of automated circuit board assembly equipment.
Sales and Marketing:
Management's strategy for long-term success has been to focus the
Company's sales and marketing efforts towards the following industry
segments: industrial, telecom/datacom, medical instrumentation,
microwave and RF, fiberoptic, consumer electronics, security and
protection devices, office equipment, computers and computer peripherals,
factory automation and robotics both domestically and abroad. In order
to help achieve these goals, the Company may enter into new franchise
agreements for a broad base of commodity semiconductor products including
those used in the key niche industries referred to above.
As of February 28, 1997 the Company had approximately 13,000 customers.
All sales are made through customers' purchase orders. Semiconductors
are sold primarily via telephone by the Company's in-house staff of
approximately 90 salespersons, and by a field sales force of
approximately 110 salespersons. The Company maintains branch sales
facilities located as follows:
EAST COAST
----------
Massachusetts - Boston
New York - Amityville (Long Island) and Rochester
New Jersey - Mt. Laurel (Philadelphia) and Pine Brook
Ohio - Cleveland
Maryland - Columbia
North Carolina - Raleigh
Georgia - Atlanta
Alabama - Huntsville
Florida - Ft. Lauderdale and Orlando
MIDWEST
-------
Minnesota - Minneapolis
Texas - Austin and Dallas
WEST COAST
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California - Irvine, Los Angeles, San Diego and San Jose
NIC's passive components are marketed through the services of a
national network of approximately 20 independent sales representative
organizations, employing over 200 salespersons, as well as through NIC's
in-house sales and engineering personnel. The independent representative
organizations do not represent competing product lines but sell other
related products. Commissions to such organizations are generally
equivalent to 5% of all sales in a representative's exclusive territory.
Page 5
ITEM 1. BUSINESS (Continued):
Sales and Marketing (Continued):
NIC has developed a national network of approximately 75 regional
distributor locations which market passive components on a non-exclusive
basis. Approximately 35 of the regional distributors have entered into
agreements with NIC whereby they are required to purchase from NIC a
prescribed initial inventory. These distributors are protected by NIC
against price reductions and are granted certain inventory return and
other privileges. Due to the efforts of NIC and its distributors, NIC's
passive components have been tested and "designed in" as a prime source
of qualified product by over 7,000 OEM's in the United States.
Nu Visions' contract manufacturing facilities are marketed through the
services of several East Coast independent sales representatives as well
as the Company's field sales force.
No single customer accounted for more than 2% of the Company's
consolidated sales for the year ended February 28, 1997. The Company's
sales practice is to require payment within thirty days of delivery.
Source of Supply:
The Company inventories an extensive stock of active and passive
components; however, if the Company's customers order products for which
the Company does not maintain inventory, the Company's marketing strategy
is to obtain such products from its franchise manufacturers, or, if a
product is unobtainable, to identify and recommend satisfactory
interchangeable alternative components. For this purpose, the Company
devotes considerable efforts to familiarizing itself with component
product movement throughout the industry, as well as to constant
monitoring of its own inventories.
As of February 28, 1997, there was one manufacturer that represented
more than 10% of the Company's inventory, on a consolidated basis. That
supplier, SGS-Thomson, accounted for 14% of total inventory. Electronic
components distributed by the Company generally are presently readily
available; however, from time to time the electronics industry has
experienced shortages or surplus of certain electronic products.
For the year ended February 28, 1997, the Company purchased inventory
from one supplier, Xilinx, that was in excess of 10% of the Company's
total purchases. Purchases from this supplier aggregated approximately
$21,385,000 for the fiscal year.
Competition and Regulation:
The Company competes with many companies that distribute semiconductor
and passive electronic components and to a lesser extent companies which
manufacture such products and sell them directly to OEM's and other
distributors. Many of these companies have substantially greater assets
and possess greater financial and personnel resources than those of the
Company. In addition, certain of these companies possess independent
franchise agreements to carry semiconductor product lines which the
Company does not carry, but which it may desire to have. Competition is
based primarily upon inventory availability, quality of service,
knowledge of product and price. The Company believes that it derives an
advantage in the distribution of passive electronic components from the
distribution of those components under its own label.
Page 6
ITEM 1. BUSINESS (Continued):
Competition and Regulation (Continued):
The Company's competitive ability to price its imported active and
passive components could be adversely affected by increases in tariffs,
duties, changes in the United States' trade treaties with Japan, Taiwan
or other foreign countries, transportation strikes and the adoption of
Federal laws containing import restrictions. In addition, the cost of
the Company's imports could be subject to governmental controls and
international currency fluctuations. Because imports are paid for with
U.S. dollars, the decline in value of United States currency as against
foreign currencies would cause increases in the dollar prices of the
Company's imports from Japan and other foreign countries. Although the
Company has not experienced any material adverse effect to date in its
ability to compete or maintain its profit margins as a result of any of
the foregoing factors, no assurance can be given that such factors will
not have a material adverse effect in the future.
Backlog:
The Company defines backlog as orders, believed to be firm, received
from customers and scheduled for shipment no later than 60 days for
active components and no later than 90 days for passive components from
the date of the order. As of May 1, 1997, the Company's backlog was
approximately $24,000,000 as compared to a backlog of approximately
$30,000,000 at May 1, 1996.
Employees:
As of February 28, 1997, the Company employed approximately 412
persons: 10 in management, 243 in sales and sales support, 17 in product
and purchasing, 14 in accounting and finance, 31 in operations, 67 in
manufacturing, and 30 in shipping, receiving and warehousing. The
Company believes that its employee relations are satisfactory.
ITEM 2. PROPERTIES
In December 1996, the Company leased an approximately 80,000 square
foot facility in Melville, Long Island, New York to serve as its executive
offices and main distribution center. In April 1997, the Company moved its
executive offices to this facility and is in the process of moving its
distribution operation with a completion date of June 1997. 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 Amityville facility, which served as corporate headquarters until
April 1997, was placed for sale. A contract for sale was entered into in
March 1997 and closing on the property is expected on or about July 15, 1997.
The Company satisfied the mortgage indebtedness on the Amityville property in
February 1997. While there can be no assurances that a closing will take
place, the Company currently knows of no impediments to a satisfactory
conclusion of the sale.
In October 1991, the Company leased approximately 10,400 square feet of
manufacturing and office space in Springfield, Massachusetts for its Nu
Visions subsidiary which was subsequently increased to 14,400 square feet
in 1996. The lease term is from February 17, 1992 to February 16, 2002
at an annual base rental of $100,850 subject to annual consumer price
index increases not to exceed 2% annually. The lease includes buy out
provisions at the end of the fifth and sixth years.
Page 7
ITEM 2. PROPERTIES (Continued):
On May 1, 1996, the Company leased approximately 25,000 square feet of
warehouse and office space in San Jose, California for its Nu
Horizons/Merit subsidiary. This facility will serve as the Company's
West Coast regional sales and distribution headquarters. The lease term
is from May 1, 1996 to April 30, 2001 at an annual base rental of
$225,000.
The Company also leases space for seventeen (17) branch sales offices
which range in size from 1,000 square feet to 5,000 square feet, with
lease terms that expire between September 1996 and January 2002. Annual
rentals range from $9,300 to $48,000 with aggregate rentals approximating
$362,000.
ITEM 3. LEGAL PROCEEDINGS:
No material legal proceeding is pending to which the Company is a party
or to which any of its property is or may be subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted during the fourth quarter of the fiscal year
ended February 28, 1997 to a vote of security holders through the
solicitation of proxies or otherwise.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
(a) The Company's common stock is traded on the NASDAQ National Market
System under the symbol "NUHC". The following table sets forth, for
the periods indicated, the high and low closing prices for the
Company's common stock, as reported by the NASDAQ National Market
System.
HIGH LOW
------ ------
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 17.25 12.63
Second Quarter 14.75 7.25
Third Quarter 11.13 7.88
Fourth Quarter 10.00 7.88
FISCAL YEAR 1998:
First Quarter (Through May 19, 1997) 9.25 6.75
(b) As of May 19, 1997, the Company's common stock was owned by
approximately 4,500 holders of record.
(c) The Company has never paid a cash dividend on its common stock. In
addition, the Company's prior revolving credit line agreement
prohibited, without the bank's consent, the payment of cash
dividends. The Company's existing revolving credit line agreement
only permits dividends of up to 25% of the Company's consolidated
net income.
Page 8
ITEM 6. SELECTED FINANCIAL DATA:
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 1997 29, 1996 28, 1995 28, 1994 28, 1993
--------- ----------- ----------- ----------- ------------
INCOME STATEMENT
DATA:
Net sales $216,612,707 $202,803,184 $130,251,554 $92,418,038 $60,507,620
Gross profit
on sales 48,488,124 48,201,148 30,913,305 24,950,478 15,390,022
Gross profit
percentage 22.4% 23.8% 23.7% 27.0% 25.4%
Income before
provision for
income taxes 11,921,256 15,799,592 7,444,147 8,549,534 2,564,335
Net income 7,073,560 9,396,301 4,421,823 5,044,225 1,489,658
Earnings per
common share:
Primary $.78 $1.14 $.56 $.65 $.20
Fully diluted $.69 $.97 $.52 $.65 $.19
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 1997 29, 1996 28, 1995 28, 1994 28, 1993
------------ ------------ ------------ ------------ ------------
BALANCE SHEET
DATA:
Working capital 51,941,472 $57,954,434 $36,328,941 $23,792,512 $17,523,791
Total assets 74,783,314 75,459,586 51,972,606 37,448,040 26,083,687
Long-term debt 15,523,483 27,094,030 20,580,613 9,339,195 8,079,590
Shareholders'
equity 46,950,735 37,617,703 22,541,916 18,051,985 12,679,681
Page 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Introduction:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, Nu Horizons/Merit Electronics Corp. ("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" or "Nu Visions") 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 28, 1997 and February 29, 1996; (ii) Statements of income for
the twelve month periods ended February 28, 1997, February 29, 1996 and
February 28, 1995 (iii) Statements of cash flows for the twelve month
periods ended February 28, 1997, February 29, 1996 and February 28, 1995;
(iv) Consolidated changes in shareholders' equity for the twelve month
periods ended February 28, 1997, February 29, 1996 and February 28, 1995.
Fiscal Year 1997 versus 1996
Results of Operations:
Net sales for the year ended February 28, 1997 aggregated $216,612,707 as
compared to $202,803,184 for the year ended February 29, 1996, an increase
of 6.8%. Management attributes this moderate increase in sales for the
period entirely to the core semiconductor distribution business which
experienced excess inventory levels at the semiconductor manufacturing
(supplier) level which resulted in reduced unit pricing and lower overall
sales volume. Management believes that this situation is temporary and is
now in the process of correction; however, no assurance can be given in
this regard.
Gross profit margin as a percentage of net sales was approximately 22.4%
for the year ended February 28, 1997 as compared to 23.8% for the year
ended February 29, 1996. Management attributes this lower profit margin
primarily to a general downward correction of selling prices in the
marketplace, for both semiconductors and passive components, during the
period and a greater volume of larger orders at lower gross profit margins.
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.
Page 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1997 versus 1996 (Continued)
Results of Operations (continued):
Operating expenses increased by $4,496,530 to $34,873,910 for the year
ended February 28, 1997 from $30,377,380 for the year ended February 29,
1996, an increase of approximately 14.8%. The dollar increase in
operating expenses was due to increases in the following expense
categories: Approximately $3,740,000 or approximately 83% of the
increases were for personnel related costs - commissions, salaries,
travel and fringe benefits. The remaining increase of approximately
$756,000 or approximately 17% of the total increment is a result of
increases in various other operating expenses. Toward the latter part of
fiscal 1996 and early in fiscal 1997, the Company decided to pursue a
policy of upgrading and enlarging its sales and sales support staff to
support anticipated future growth in the near as well as more distant
future. increased sales levels in the second, third and fourth quarters
of fiscal 1997 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 decreased by $325,625 from $2,026,717 for the year
ended February 29, 1996 to $1,701,092 for the year ended February 28, 1997.
This decrease was primarily due to the interest on higher average levels of
bank debt being more than offset by the lower amount of outstanding
subordinated convertible debt (see Note 7 of the Consolidated Financial
Statements).
INTEREST COSTS
FOR THE FISCAL
YEARS ENDED
----------------------
February February
28, 1997 29, 1996
---------- ----------
Revolving Bank Credit $1,116,340 $ 916,226
Sub. Convert. Notes 584,752 1,110,491
---------- ----------
Total Interest Expense $1,701,092 $2,026,717
========== ==========
Net income for the year ended February 28, 1997 was $7,073,560 or $.69
per share, fully diluted, as compared to $9,396,301 or $.97 per share
fully diluted, for the year ended February 29, 1996. The decrease in
earnings is primarily due to increased operating expenses and the lack of
commensurate increased sales volume.
Results of Operations:
Fiscal Year 1996 versus 1995
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
subsidiary. Approximately $12,807,000 or 17.6% of the overall increase
resulted from incremental sales relative to the new 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.
Page 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1996 versus 1995 (Continued)
Results of Operations (continued):
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 downward 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.
INTEREST COSTS
FOR THE FISCAL
YEARS ENDED
----------------------
February February
29, 1996 28, 1995
---------- ----------
Revolving Bank Credit $ 916,226 $ 716,707
Sub. Convert. Notes 1,110,491 670,312
---------- ----------
Total Interest Expense $2,026,717 $1,387,019
========== ==========
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:
Fiscal Year 1997 versus 1996
The Company ended its 1997 fiscal year with working capital and cash
aggregating approximately $51,941,000 and $946,000, respectively at
February 28, 1997 as compared to approximately $57,954,000 and $874,000
respectively, at February 29, 1996. The Company's current ratio at
February 28, 1997 was 5.2:1. The Company believes that its financial
position at February 28, 1997 will enable it to take advantage of any new
opportunities that may arise.
Page 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1997 versus 1996 (Continued)
Liquidity and Capital Resources (continued):
On April 8, 1996, the Company entered into an amended and restated
unsecured revolving line of credit, which currently provides for maximum
borrowings of $25,000,000 through April 8, 2000. At February 28, 1997,
$8,000,000 was outstanding under this line of credit as compared to
$17,300,000 at February 29, 1996. On May 23, 1997, subsequent to the
balance sheet date, the Company entered into a new unsecured revolving
line of credit with new banks, which currently provides for maximum
borrowings of $35,000,000 through May 23, 2001.
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. The Company has registered,
under the Securities Act of 1933, for the resale by the holders thereof,
117,666 shares of common stock, representing the number of shares of
common stock obtainable by such holders upon conversion of $1,059,000 of
the outstanding principal amount of such notes. As of February 28, 1997,
$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 line of credit will be sufficient to meet its
financing requirements for at least the next twelve month 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.
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, 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.
Page 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 28, 1997 and February 29, 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended February 28, 1997 in conformity with generally
accepted accounting principles.
/s/ LAZAR, LEVINE, & COMPANY LLP
----------------------------------
LAZAR, LEVINE & COMPANY LLP
New York, New York
May 23, 1997
Page F-1
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
- -ASSETS- FEBRUARY FEBRUARY
28, 1997 29, 1996
CURRENT ASSETS:
Cash (including time deposits) $ 946,084 $ 874,267
Accounts receivable-net of allowance for
doubtful accounts of $2,192,079 and $1,509,802
for 1997 and 1996, respectively 30,636,645 30,005,182
Inventories 29,764,570 36,808,915
Prepaid expenses and other current assets 2,903,269 1,013,923
----------- -----------
TOTAL CURRENT ASSETS 64,250,568 68,702,287
PROPERTY, PLANT AND EQUIPMENT - NET
(Notes 3 and 6) 7,550,356 3,439,804
OTHER ASSETS
Costs in excess of net assets acquired-net 1,909,256 2,066,180
Other assets (Note 4) 1,073,134 1,251,315
----------- -----------
$74,783,314 $75,459,586
=========== ===========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
--------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 7,931,500 $ 7,898,757
Accrued expenses 4,186,802 2,254,878
Current portion of long-term debt (Note 6) 190,794 373,930
Income taxes (Note 9) - 220,288
----------- -----------
TOTAL CURRENT LIABILITIES 12,309,096 10,747,853
----------- -----------
LONG TERM LIABILITIES:
Deferred income taxes (Note 9) 222,148 115,577
Revolving credit line (Notes 5 and 15) 8,000,000 17,300,000
Long-term debt (Note 6) 242,335 678,453
Subordinated convertible notes (Note 7) 7,059,000 9,000,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 15,523,483 27,094,030
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 10, 11 and 12)
SHAREHOLDERS' EQUITY (Note 8):
Preferred stock, $1 par value, 1,000,000
shares authorized; none issued or
outstanding - -
Common stock, $.0066 par value, 20,000,000
shares authorized; 8,732,299 and
8,423,137 shares issued and outstanding
for 1997 and 1996, respectively 57,633 55,593
Additional paid-in capital 18,938,984 16,821,502
Retained earnings 28,234,018 21,160,458
----------- -----------
47,230,635 38,037,553
Less: loan to ESOP (Notes 6 and 10) 279,900 419,850
----------- -----------
46,950,735 37,617,703
----------- -----------
$74,783,314 $75,459,586
=========== ===========
See notes to consolidated financial statements.
Page F-2
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEAR ENDED
-----------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1997 29, 1996 28, 1995
------------- ------------ -----------
NET SALES $216,612,707 $202,803,184 $130,251,554
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales (Note 12) 168,124,583 154,602,036 99,338,249
Operating expenses 34,873,910 30,377,380 22,094,158
Interest expense 1,701,092 2,026,717 1,387,019
Interest income (8,134) (2,541) (12,019)
------------ ------------ -----------
204,691,451 187,003,592 122,807,407
INCOME BEFORE PROVISION
FOR INCOME TAXES 11,921,256 15,799,592 7,444,147
Provision for income
taxes (Note 9 ) 4,847,696 6,403,291 3,022,324
------------ ------------ -----------
NET INCOME $ 7,073,560 $ 9,396,301 $ 4,421,823
============ ============ ===========
EARNINGS PER SHARE
(Note 2i):
Primary $ .78 $ 1.14 $ .56
============ ============ ===========
Fully diluted $ .69 $ .97 $ .52
============ ============ ===========
See notes to consolidated financial statements.
Page F-3
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED LOAN TO SHAREHOLDERS'
SHARES STOCK CAPITAL EARNINGS ESOP EQUITY
--------- ------- ----------- ----------- ---------- --------------
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
--------- ------- ----------- ----------- --------- -----------
Balance at
February 28, 1995 7,732,051 51,032 10,726,727 11,764,157 - 22,541,916
Exercise of stock
options 24,420 161 99,175 - - 99,336
Conversion of
subordinated
convertible notes 666,666 4,400 5,995,600 - - 6,000,000
Loan to ESOP - - - - (559,800) (559,800)
Repayment from ESOP - - - - 139,950 139,950
Net income - - - 9,396,301 - 9,396,301
--------- ------- ----------- ----------- --------- -----------
Balance at
February 29, 1996 8,423,137 55,593 16,821,502 21,160,458 (419,850) 37,617,703
Exercise of stock
options 93,495 617 177,905 - - 178,522
Conversion of
subordinated
convertible notes 215,667 1,423 1,939,577 - - 1,941,000
Repayment from ESOP - - - - 139,950 139,950
Net income - - - 7,073,560 - 7,073,560
--------- ------- ----------- ----------- --------- -----------
Balance at
February 28, 1997 8,732,299 $57,633 $18,938,984 $28,234,018 $(279,900) $46,950,735
========= ======= =========== =========== ========= ===========
See notes to consolidated financial statements
Page F-4
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEAR ENDED
-----------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1997 29, 1996 28, 1995
------------ ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
Cash flows from operating activities:
Cash received from customers $215,279,744 $192,949,945 $125,991,043
Cash paid to suppliers and employees (197,159,875) (196,045,525) (124,980,742)
Interest received 8,134 2,541 18,991
Interest paid (1,701,092) (2,026,717) (1,387,019)
Income taxes paid (1,677,850) (6,034,790) (5,770,418)
------------ ------------ ------------
Net cash provided (used) by
operating activities 14,749,061 (11,154,546) (6,128,145)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (4,936,512) (1,055,558) (602,746)
Purchase of stock for ESOP - (559,800) -
Purchase of Merit Electronics -
net of cash acquired - - (5,753,022)
------------ ------------ ------------
Net cash (used) by investing
activities (4,936,512) (1,615,358) (6,355,768)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings under revolving
credit line 21,150,000 65,000,000 66,090,000
Repayments under revolving
credit line (30,450,000) (52,100,000) (69,790,000)
Principal payments of long-term
debt (619,254) (413,884) (468,917)
Proceeds from exercise of employee
stock options 178,522 99,336 27,442
Proceeds from long-term debt - 559,800 -
Proceeds from subordinated debt - - 15,000,000
------------ ------------ ------------
Net cash (used in) provided by
financing activities (9,740,732) 13,145,252 10,858,525
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 71,817 375,348 (1,625,388)
Cash and cash equivalents, beginning
of year 874,267 498,919 2,124,307
------------ ------------ ------------
Cash and cash equivalents, end of year $ 946,084 $ 874,267 $ 498,919
============ ============ ============
See notes to consolidated financial statements.
Page F-5
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
FOR THE YEAR ENDED
-----------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1997 29, 1996 28, 1995
----------- ---------- -----------
RECONCILIATION OF NET INCOME TO NET
CASH FROM BY OPERATING ACTIVITIES:
Net income $ 7,073,560 $ 9,396,301 $ 4,421,823
----------- ------------ ------------
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation and amortization 1,238,967 1,169,816 886,235
Bad debts 701,500 635,000 442,500
Contribution to ESOP (compensation) 139,950 139,950 40,666
Changes in assets and liabilities:
(Increase) in accounts receivable (1,332,963) (9,853,239) (4,260,511)
Decrease (increase) in inventories 7,044,345 (14,553,370) (3,566,701)
(Increase) decrease in prepaid
expenses and other current assets (1,889,346) 623,688 (1,183,805)
(Increase) in other assets (77,902) (77,969) (1,277,857)
Increase (decrease) in accounts
payable and accrued expenses 1,964,667 1,666,050 (354,525)
(Decrease) increase in income taxes (220,288) 212,545 (1,625,045)
Increase (decrease) in other
current liabilities - (43,686) 34,361
(Decrease) increase in deferred
taxes 106,571 (469,632) 314,714
----------- ------------ ------------
Total adjustments 7,675,501 (20,550,847) (10,549,968)
----------- ------------ ------------
Net cash provided (used) by operating
activities $ 14,749,061 $(11,154,546) $(6,128,145)
============ ============= ===========
NON-CASH FINANCING ACTIVITIES:
During the year ended February 29, 1996 the subordinated debt-holder (see
Note 7) converted $6,000,000 of debt into 666,666 shares of the Company's
common stock.
During the year ended February 28, 1997, the subordinated debt-holder (see
Note 7) converted $1,941,000 of debt into 215,667 shares of the Company's
common stock.
See notes to consolidated financial statements.
Page F-6
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
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. 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/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable.
The Company maintains, at times, deposits in federally insured financial
institutions in excess of federally insured limits. Management attempts
to monitor the soundness of the financial institution and believes the
Company's risk is negligible.
Concentrations with regard to accounts receivable are limited due to the
Company's large customer base.
The carrying amount of cash, accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short-term nature of
these items. The carrying amount of long-term debt also approximates fair
value since the interest rates on these instruments approximate market
interest rates.
d. Inventories:
Inventories, which consist primarily of goods held for resale, are stated
at the lower of cost (first-in, first-out method) or market.
Page F-7
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
e. Depreciation:
Depreciation is provided using the straight-line method as follows:
Building and improvements 25 years
Office equipment 5 years
Furniture and fixtures 5 years
Computer equipment 5 years
Leasehold improvements are amortized over the term of the lease.
Maintenance and repairs are charged to operations and major improvements
are capitalized. Upon retirement, sale or other disposition, the
associated cost and accumulated depreciation are eliminated from the
accounts and any resulting gain or loss is included in operations.
f. Income Taxes:
The Company has elected to file a consolidated federal income tax return
with its subsidiaries. The Company utilizes Financial Accounting
Standards Board Statement No. 109 (SFAS 109) "Accounting for Income
Taxes". SFAS 109 requires use of the asset and liability approach of
providing for income taxes. Deferred income taxes are provided for on the
timing differences for certain items which are treated differently for tax
and financial reporting purposes. These items include depreciation of
fixed assets, inventory capitalization valuations and the recognition of
bad debt expense.
International has elected under Section 995 of the Internal Revenue Code
to be taxed as an "Interest Charge Disc". Based upon these rules, income
taxes are paid when International distributes its income to the parent
company. Until distributions are made, the parent company pays interest
only on the deferred tax liabilities. International's untaxed income at
February 28, 1997 approximates $2,400,000.
g. Goodwill:
Costs in excess of net assets acquired are being amortized on a straight-
line basis over fifteen years. As of February 28, 1997, accumulated
amortization of goodwill aggregated $444,618.
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.
Page F-8
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
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 10) are included in outstanding shares. Fully
diluted earnings per common share has been computed assuming conversion of
all dilutive stock options and convertible debt.
The following average shares were used for the computation of primary and
fully diluted earnings per share:
1997 1996 1995
---------- ---------- ---------
Primary 9,089,772 8,236,249 7,847,677
Fully diluted 10,818,859 10,410,699 9,279,297
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.
Page F-9
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, which is reflected at cost, consists of the
following:
1997 1996
---------- ----------
Land $ 266,301 $ 266,301
Building and improvements 1,747,930 1,747,930
Furniture, fixtures and office
equipment 5,791,946 2,037,183
Computer equipment 2,476,185 2,278,582
Assets held under capitalized
leases 919,834 919,834
Leasehold improvements 984,146 -
---------- ----------
12,186,342 7,249,830
========== ==========
Less: accumulated depreciation
and amortization 4,635,986 3,810,026
---------- ---------
$7,550,356 $3,439,804
========== ==========
Depreciation expense including depreciation of capitalized leases for the
years ended February 28, 1997, February 29, 1996 and February 28, 1995
aggregated $825,960, $756,808 and $615,356, respectively.
The Company has entered into a contract to sell the land and building which
served as its corporate headquarters. The sales price aggregates
approximately $1,175,000 and the Company expects to close the transaction in
July 1997.
4. OTHER ASSETS:
Other assets as of February 28, 1997 and February 29, 1996 consists of the
following:
1997 1996
------------ ----------
Net cash surrender value - life insurance $ 869,473 $ 793,537
Debt issue costs - net (Note 7) 151,359 407,443
Other 52,302 50,335
---------- ----------
$1,073,134 $1,251,315
========== ==========
Page F-10
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
5. REVOLVING CREDIT LINE:
In February, 1988 the Company entered into an agreement with its bank, which
as amended, provided for a $25,000,000 unsecured revolving line of credit at
the bank's prime rate (8.25 % at February 28, 1997) with payments of
interest only through April 8, 2000. Direct borrowings under lines of
credit were $8,000,000 and $17,300,000 at February 28, 1997 and February 29,
1996, respectively. The credit agreement contained various covenants
including a restriction on the payment of cash dividends without the bank's
consent. As of the end of the fiscal year, the Company met all of the
required covenants.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
1997 1996
---- ----
Mortgage payable to bank, due in quarterly
installments of $26,552 plus interest at
88% of the bank's prime rate (8.25% at
February 28, 1997) $ - $398,276
Term loan payable to bank, due in monthly
installments of $9,321 plus interest at
the bank's prime rate to March 31, 2000 354,182 447,388
Various capitalized equipment leases,
interest rates ranging from 6.78% to 8.38%,
maturing in 1997 and 1998. Gross lease
obligations aggregate $85,134 and $34,748,
for each of the next two fiscal years,
with interest thereon aggregating $40,935 78,947 206,719
---------- --------
433,129 1,052,383
Less: current portion 190,794 373,930
---------- --------
$ 242,335 $678,453
========== ========
The mortgage payable was 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 10). Other equipment loans are secured by the specific
equipment acquired.
Long-term debt of the Company matures as follows:
1998 $190,794
1999 111,852
2000 111,852
2001 18,631
--------
$433,129
========
Page F-11
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
7. SUBORDINATED CONVERTIBLE NOTES:
In a private placement completed on August 31, 1994, the Company issued $15
million principal amount of Subordinated Convertible Notes, which are due in
$5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are
subordinate in right of payment to all existing and future senior
indebtedness of the Company. The notes bear interest at 8.25%, payable
quarterly on November 15, February 15, May 15 and August 15. The notes are
convertible into shares of common stock at a conversion price of $9.00 per
share. The cost of issuing these notes was $521,565 and is being amortized
over the life of the notes.
As of February 28, 1997, $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 which are due in
increments of $2,353,000 on August 31, 2000, 2001 and 2002.
8. STOCK OPTIONS:
Stock options granted to date under the Company's Key Employees Stock
Incentive Plan and the 1994 Stock Option Plan generally expire five years
after date of grant and become exercisable in four equal annual installments
commencing one year from date of grant. Stock options granted under the
Company's Outside Director Stock Option Plan expire ten years after the date
of grant and become exercisable in three equal annual installments on the
date of grant and the succeeding two anniversaries thereof.
A summary of options granted and related information for the two years ended
February 28, 1997 is as follows:
Weighted Average
Options Exercise Price
----------- --------------
Outstanding, February 28, 1995 717,415 $ 6.46
Granted 323,000 9.33
Exercised (24,420) 4.07
Canceled (23,023) 2.86
----------
Outstanding, February 29, 1996 992,972 7.54
Weighted average fair value of options
granted during the year $4.50
========
Granted 471,500 8.56
Exercised (93,495) 1.91
Canceled (68,750) 10.36
----------
Outstanding, February 28, 1997 1,302,227 8.16
==========
Weighted average fair value of options
granted during the year $4.39
========
Options exercisable:
February 28, 1995 13,305 $ 5.96
February 29, 1996 159,945 7.35
February 28, 1997 381,377 7.86
Page F-12
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
8. STOCK OPTIONS (continued):
Exercise prices for options outstanding as of February 28, 1997 ranged from
$2.11 to $14.83. The weighted-average remaining contractual life of these
options is approximately 5 years. Outstanding options at February 28, 1997
are held by 44 individuals.
The Company applies APB 25 and related Interpretations in accounting for the
Option Plan. Accordingly, no compensation cost has been recognized for the
Option Plan. Had compensation cost for the Option Plan 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:
1997 1996
---------- ----------
Net earnings:
As reported $7,073,560 $9,396,301
Pro forma 7,051,451 7,996,865
Primary earnings per share:
As reported $ .78 $ 1.14
Pro forma .78 .97
Fully diluted earnings per share:
As reported $ .69 $ .97
Pro forma .68 .83
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for 1997 and 1996, respectively: expected volatility of
48.3% and 39.8%, respectively; risk free interest rate of 6.5%; and expected
lives of 3 to 5 years.
The effects of applying SFAS 123 in the above pro forma disclosures are not
indicative of future amounts as they do not include the effects of awards
granted prior to 1995. Additionally, future amounts are likely to be
affected by the number of grants awarded since additional awards are
generally expected to be made at varying amounts.
9. INCOME TAXES:
The provision for income taxes is comprised of the following:
FEBRUARY FEBRUARY FEBRUARY
28, 1997 29, 1996 28, 1995
---------- ---------- ----------
Current:
Federal $4,213,767 $5,082,876 $2,436,377
State and local 900,193 1,107,016 461,816
Deferred:
Federal (221,867) 178,923 120,704
State (44,397) 34,476 3,427
---------- ---------- ----------
$4,847,696 $6,403,291 $3,022,324
========== ========== ==========
Page F-13
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
9. INCOME TAXES (continued):
The components of the net deferred income tax liability, pursuant to SFAS
109, as of February 28, 1997 and February 29, 1996 are as follows:
1997 1996
---- ----
Deferred Tax Assets:
Accounts Receivable $ 679,600 $ 614,188
Inventory 162,400 146,448
----------- ---------
Total Deferred Tax Assets 842,000 760,636
----------- ---------
Deferred Tax Liabilities:
Fixed Assets (112,148) (8,136)
Income of Interest Charge DISC (952,000) (868,077)
----------- ---------
Total Deferred Tax Liabilities (1,064,148) (876,213)
----------- ---------
Net Deferred Tax Liabilities $ (222,148) $(115,577)
=========== =========
The following is a reconciliation of the maximum statutory federal tax rate to
the Company's effective tax rate:
1997 1996 1995
---- ---- ----
Statutory rate 35.0% 35.0% 34.0%
State and local taxes 7.0 6.5 6.4
Other (1.3) (1.0) .2
---- ----- ----
Effective tax rate 40.7% 40.5% 40.6%
===== ===== =====
10. EMPLOYEE BENEFIT PLANS:
On January 13, 1987, the Company's Board of Directors approved the
termination of the Company's pension plan and approved the adoption of an
employee stock ownership plan (ESOP) to replace the terminated pension plan.
The ESOP covers all eligible employees and contributions are determined by
the Board of Directors. 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 28, 1997, February 29, 1996 and February 28, 1995 aggregated
$139,950, $139,950 and $40,666, respectively.
In May 1988, the Company, on behalf of the ESOP, entered into an additional
credit agreement with a 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 28, 1997, the ESOP owned 360,810 shares at an
average price of approximately $2.52 per share. At February 28, 1997,
direct borrowings outstanding under the ESOP line of credit were $354,182.
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, 1997 were $111,585, $90,243 and
$61,519, respectively.
Page F-14
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
11. 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) 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 April 1997, subsequent to the
balance sheet date, the Company moved its executive offices to the
facility and is in the process of moving its distribution operation with
a completion date of June 1997. The lease term is from December 17,
1996 to December 16, 2008 at an annual base rental of $601,290 and
provision for a 4% annual escalation in each of the last ten years of
the term. The Company also leases certain other office, warehouse and
other properties which leases include various escalation clauses,
renewal options, etc. Aggregate minimum rental commitments under
noncancellable operating leases are as follows:
Fiscal 1998 $1,354,547
Fiscal 1999 1,315,188
Fiscal 2000 1,262,713
Fiscal 2001 1,171,665
Fiscal 2002 878,190
Thereafter 5,691,328
Rent expense was $712,548, $587,079 and $450,201 for each of the three
years in the period ending February 28, 1997.
(c) The Company has signed a four year consulting agreement with the former
owner of Merit Electronics 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.
12. MAJOR SUPPLIERS:
For the year ended February 28, 1997 the Company purchased inventory from
one supplier that was in excess of 10% of the Company's total purchases.
Purchases from this supplier aggregated approximately $21,385,000.
For the year ended February 29, 1996 the Company purchased inventory from
two suppliers that were 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.
Page F-15
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
13. BUSINESS SEGMENT INFORMATION:
The Company's operations have been classified into two business segments:
Electronic component distribution and industrial contract manufacturing.
The component distribution segment includes the resale of active and passive
components to various original equipment manufacturers and distributors.
The industrial contract manufacturing segment consists of a subsidiary which
provides electronic circuit board and harness assembly services to original
equipment manufacturers. This segment began operations in September 1991.
Summarized financial information by business segment for fiscal 1997 and
1996 is as follows:
1997 1996
- -------------------------------------------------------------------------------
Net sales:
Electronic Component Distribution $206,417,667 $195,929,559
Industrial Contract Manufacturing 10,195,040 6,873,625
- -------------------------------------------------------------------------------
$216,612,707 $202,803,184
- -------------------------------------------------------------------------------
Operating income (loss):
Electronic Component Distribution $ 13,019,791 $ 18,038,688
Industrial Contract Manufacturing 594,423 (214,920)
- -------------------------------------------------------------------------------
$ 13,614,214 $ 17,823,768
- -------------------------------------------------------------------------------
Total assets:
Electronic Component Distribution $ 70,577,102 $ 71,653,755
Industrial Contract Manufacturing 4,206,212 3,805,831
- -------------------------------------------------------------------------------
$ 74,783,314 $ 75,459,586
- -------------------------------------------------------------------------------
Depreciation and amortization:
Electronic Component Distribution $ 978,684 $ 920,827
Industrial Contract Manufacturing 260,283 248,989
- -------------------------------------------------------------------------------
$ 1,238,967 $ 1,169,816
- -------------------------------------------------------------------------------
Capital expenditures (including capital leases):
Electronic Component Distribution $ 4,566,196 $ 659,163
Industrial Contract Manufacturing 370,316 396,395
- -------------------------------------------------------------------------------
$ 4,936,512 $ 1,055,558
- -------------------------------------------------------------------------------
Page F-16
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
THREE MONTH PERIOD ENDED
-----------------------------------------------
FEBRUARY NOVEMBER AUGUST MAY
28, 1997 30, 1996 31, 1996 31, 1996
-------- -------- -------- --------
NET SALES $54,198,484 $53,958,639 $50,783,044 $57,672,540
----------- ----------- ----------- -----------
COST OF SALES 42,071,313 41,894,971 39,411,875 44,746,424
----------- ----------- ----------- -----------
OTHER OPERATING
EXPENSES 9,517,539 9,138,969 9,103,283 8,807,077
----------- ----------- ----------- -----------
PROVISION FOR
INCOME TAXES 1,084,131 1,182,805 916,658 1,664,102
----------- ----------- ----------- -----------
NET INCOME $ 1,525,501 $ 1,741,894 $ 1,351,228 $ 2,454,937
=========== =========== =========== ===========
PRIMARY EARNINGS $.17 $.20 $.15 $.27
PER SHARE ==== ==== ==== ====
WEIGHTED AVERAGE
NUMBER OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 8,896,514 8,887,610 8,974,574 9,130,000
=========== ========= ========= =========
THREE MONTH PERIOD ENDED
-----------------------------------------------
FEBRUARY NOVEMBER AUGUST MAY
29, 1996 30, 1995 31, 1995 31, 1995
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 $.29 $.34 $.30 $.21
PER SHARE ==== ==== ==== ====
WEIGHTED AVERAGE
NUMBER OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 8,874,371 8,310,144 8,009,707 7,852,309
=========== =========== =========== ===========
Page F-17
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1997
-----------------------------------
15. SUBSEQUENT EVENTS:
On May 23, 1997, subsequent to the balance sheet date, 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.
Page F-18
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 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.
BY: /s/ PAUL DURANDO BY: /S/ ARTHUR NADATA
- ------------------------------ --------------------------
Paul Durando Arthur Nadata
Vice President, Finance and President and
Treasurer Chief Executive Officer
Page F-19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES:
The Company had no disagreements on accounting or financial disclosure
matters with its accountants, nor did it change accountants, during the
three year period ending February 28, 1997.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY:
NAME AGE POSITION
---- --- --------
Irving Lubman 58 Chief Operating Officer and
Chairman of The Board
Arthur Nadata 51 President, Chief Executive Officer
and Director
Richard S. Schuster 48 Vice-President, Secretary and
Director
Paul Durando 53 Vice President - Finance, Treasurer
and Director
Herbert M. Gardner 57 Director
Harvey R. Blau 61 Director
The Company's Certificate of Incorporation provides for a Board of
Directors consisting of not less than three nor more than eleven
directors, classified into three classes as nearly equal in number as
possible, whose terms of office expire in successive years. The following
table sets forth the directors of the Company.
Class I Class II Class III
(To Serve Until the (To Serve Until the (To Serve Until the
Annual Meeting of Annual Meeting of Annual Meeting of
Stockholders in 1997) Stockholders in 1998) Stockholders in 1996)
--------------------- --------------------- ---------------------
Paul Durando Harvey Blau (1) Irving Lubman
Herbert Gardner (1) Richard S. Schuster Arthur Nadata
(1) Member of Compensation and Audit Committees
All officers serve at the discretion of the Board. There are no family
relationships among the directors and officers.
Irving Lubman has been Chairman of the Board since October 1982 and
Chief Operating Officer since September 1996. Mr. Lubman was Chief
Executive Officer from October 1982 to September 1996. Mr. Lubman has
been actively involved in electronic components distribution since 1957,
when he joined Milgray Electronics Corp., holding the position of sales
manager until 1968. From 1968 through October 1982, when he joined the
Company, Mr. Lubman was corporate vice president of Diplomat Electronics
Corp., also a distributor of electronic components.
Arthur Nadata has been President and a Director since October 1982 and
Chief Executive Officer since September 1996. Mr. Nadata was also the
Treasurer of the Company from October 1982 to September 1996. Prior to
joining the Company in October 1982, Mr. Nadata worked for eighteen years
for Diplomat Electronics Corp. in various operational and sales positions
of increasing responsibility, eventually becoming corporate vice president
of sales and marketing.
Page 14
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued):
Richard S. Schuster has been Vice President, Secretary and a Director
since October 1982. For the seven years prior to joining the Company in
November 1982, Mr. Schuster served as manager of Capar Components Corp.,
an importer and distributor of passive components, and a wholly-owned
subsidiary of Diplomat Electronics Corp. For the six years prior to
1975, Mr. Schuster was employed by International Components Corp.,
responsible for production, engineering and sales of imported
semiconductor and passive components.
Paul Durando has been Vice President, Finance since joining the Company
in March 1991, Treasurer since September 1996 and has been a Director
since September 1994. Prior to joining the Company in March 1991, Mr.
Durando served for six years as Executive Vice President of Sigma Quality
Foods, Inc. From 1977 to 1984, he was Vice President, Operations of the
Wechsler Coffee Corp. Mr. Durando was also associated with Deloitte
Haskins & Sells for seven years.
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 Comtempri Homes
Inc., Inc., a director of Transmedia Network, Inc., TGC Industries Inc.,
Shelter Components Corp., Hirsch International Corp. and The Western
Systems Corp.
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.
Page 15
ITEM 11. EXECUTIVE COMPENSATION:
The following table sets forth the compensation paid by the Company to its
chief Executive Officer and each of the three remaining executive officers
for the years ended February 28, 1997, February 29, 1996 and February 28,
1995.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation (1) Compensation
------------------------------- ------------
Securities
Name of Principal and Fiscal Underlying All Other (2)
Position Year Salary Bonus Options Compensation
- --------------------- ------- -------- --------- -------- ------------
Irving Lubman 1997 $229,893 $446,843 100,000 $ 9,697
COO, Chairman 1996 226,545 586,608 50,000 11,412
of the Board 1995 214,022 275,709 148,650 11,673
Arthur Nadata 1997 $229,893 $446,843 100,000 $13,597
President and 1996 226,545 586,608 50,000 17,497
CEO 1995 214,022 275,709 148,650 9,464
Richard Schuster 1997 $229,893 $446,843 100,000 $11,612
Vice President, 1996 226,545 586,608 50,000 13,053
Secretary and 1995 214,022 275,709 148,650 12,249
President, NIC
Components Corp.
Paul Durando 1997 $130,000 $33,514 20,000 $ 1,500
Vice President, 1996 125,000 45,000 20,000 1,250
Finance and 1995 115,000 10,000 10,000 850
Treasurer
SUMMARY COMPENSATION TABLE - Footnotes
(1) No Other Annual Compensation is shown because the amounts of perquisites
and other non-cash benefits provided by the Company do not exceed the
lesser of $50,000 or 10% of the total annual base salary and bonus
disclosed in this table for the respective officer.
(2) The amounts disclosed in this column include the Company's contributions
on behalf of the named executive officer to the Company's 401(k)
retirement plan in amounts equal to a maximum of 1% of the executive
officer's annual salary.
Page 16
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Employment Contracts
The Company has 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 $200,000 for each officer,
which shall be increased each year by the change in the consumer price
index, and also entitles each of the officers to an annual bonus equal to
3.33% (10% in the aggregate) of the Company's consolidated earnings before
income taxes. Benefits are also payable upon the occurrence of either a
change in control of the Company, as defined, or the termination of the
officer's employment, as defined. In the event the employee terminates his
employment within six months after a change in control of the Company, he
will receive a lump sum payment equal to three quarters of the remaining
compensation under his employment agreement. The contracts also provide for
certain payments of the executive's salaries, performance bonuses and other
benefits in the event of death or disability of the officer for the balance
of the period covered by the agreement.
The following table sets forth certain information with respect to stock
options granted to the officers named in the Summary Compensation Table
during the fiscal year ended February 28, 1997.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value
% of at Assumed
Total Annual Rates
Options Exercise of Stock Price
Options Granted to Price Expiration Appreciation for
Granted(1) Employees ($ per share) Date Entire Term (2) (3)
---------- ---------- ------------- ----------- --------------------
5% 10%
---------- --------
I. Lubman 100,000 22.2% 8.13 9/13/01 $225,000 $496,000
A. Nadata 100,000 22.2% 8.13 9/13/01 225,000 496,000
R. Schuster 100,000 22.2% 8.13 9/13/01 225,000 496,000
P. Durando 20,000 4.3% 8.13 9/13/01 45,000 99,200
Page 17
ITEM 11. EXECUTIVE COMPENSATION (Continued):
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR - Footnotes
(1) Options were granted for a term of five years, subject to earlier
termination on termination of employment. Options become exercisable in
four equal annual installments commencing one year from the date of
grant.
(2) These amounts represent assumed rates of appreciation which may not
necessarily be achieved. The actual gains, if any, are dependent on the
market value of the Company's stock at a future date as well as the
option holder's continued employment throughout the vesting period.
Appreciation reported is net of exercise price.
(3) Potential Realizable Value is based on the assumed annual growth rates
for the five-year option term. Annual growth of 5% results in a stock
price of $10.38 per share and 10% results in a price of $13.09, per
share for Messrs. Lubman, Nadata, Schuster and Durando on the shares
granted at $8.13. 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.
The following table sets forth certain information as to each exercise of
stock options during the fiscal year ended February 28, 1997 by the persons
named in the Summary Compensation Table and the fiscal year end value of
unexercised options:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR-END
OPTIONS/SAR VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY End (2) at FY End
--------------------------- -------------
Acquired on Value Exercisable/ Exercisable/
Exercise Realized (1) Unexercisable Unexercisable
----------- ------------ ------------- -------------
Irving Lubman 24,805 $374,062 111,488 $255,614
187,162 274,702
Arthur Nadata 24,805 371,728 111,488 255,614
187,162 274,702
Richard Schuster 24,805 371,728 111,488 255,614
187,162 274,702
Paul Durando 6,250 62,365 16,250 16,225
35,000 49,688
1. Market value less exercise price, before payment of applicable federal or
state taxes.
2. The share quantities in this column give effect to 5% stock dividend
declared by the Company on March 6, 1993 and a 3 for 2 stock split
declared by the Company on September 7, 1993.
Page 18
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Directors who are not employees of the Company receive a fee of $500 for
each Board of Directors or Committee meeting attended. There were three
meetings of the Board of Directors during the fiscal year ended February 28,
1997. 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, 1997, 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 1997, the Company had no
standing Nominating Committee or any committee performing similar functions.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee consisted during fiscal 1997 of Messrs.
Gardner (Chairman) and Blau. Mr. Gardner is Senior Vice President of Janney
Montgomery Scott, Inc., investment bankers, which acted as placement agent
in connection with the Company's $15 million private placement of
convertible subordinated notes in August 1994. Mr. Blau is a partner in the
law firm of Blau, Kramer, Wactlar & Lieberman, P.C. The Company has
utilized, and anticipates that it will continue to utilize, the services of
Blau, Kramer, Wactlar & Lieberman, P.C. as its general counsel.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation
Committee Report on Executive Compensation" and "Company Stock Performance"
will not be deemed to be filed or to be proxy soliciting material or
incorporated by reference in any prior or future filings by the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers generally is determined
by the Compensation Committee of the Board of Directors. Each member of the
Compensation Committee is a Director who is not an employee of the Company
or any of its affiliates. The following report with respect to certain
compensation paid or awarded to the Company's executive officers during
fiscal 1997 is furnished by the Compensation Committee.
General Policies
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain management talent required to achieve
aggressive corporate objectives in a rapidly changing industry, and thereby
increase stockholder value. It is the Company's policy to provide
incentives to its senior management to achieve both short-term and long-term
objectives and to reward exceptional performance and contributions to the
development of the Company's business. To attain these objectives, the
Company's executive compensation program includes a competitive base salary,
coupled with, with respect to certain executives, a substantial cash bonus
which is "at risk" based on the Company's earnings.
Many of the Company's employees, including its executive officers, also are
eligible to be granted stock options periodically in order to more directly
align their interests with the long-term financial interests of the
Company's stockholders.
Page 19
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Relationship of Compensation to Performance
The Compensation Committee annually establishes, subject to any applicable
employment agreements, the salaries which will be paid to the Company's
executive officers during the coming year. In setting salaries, the Board
of Directors takes into account several factors, including competitive
compensation data, the extent to which an individual may participate in the
stock option plan maintained by the Company and its affiliates, and
qualitative factors bearing on an individuals's experience,
responsibilities, management and leadership abilities, and job performance.
Stock options are granted to key employees, including the Company's
executive officers, by the Compensation Committee of the Board of Directors
under the Plans. Among the Company's executive officers, the number of
shares subject to 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 1997, 10,000 options were granted to each outside director
under the Company's Outside Director Stock Option Plan. Options to purchase
100,000 shares each were granted to Messrs. Lubman, Nadata and Schuster and
options to purchase 20,000 shares were granted to Mr. Durando under the
Company's Stock Option Plan. Bonuses were paid to three executive officers,
as set forth in the Summary Compensation Table, pursuant to the terms of
their employment agreements with the Company and on a discretionary basis to
Paul Durando, the Company's Vice President, Finance and Director. This
latter bonus was determined to be appropriate by the Compensation Committee
in light of Mr. Durando's contributions to the Company's performance, his
base salary level and the level of his management responsibilities.
Compensation of Chief Executive Officer
The Company has entered into an employment agreement with Arthur Nadata, the
Company's President and Chief Executive Officer, pursuant to which Mr.
Nadata receives a base salary of $200,000, adjusted for CPI index increases,
and an incentive bonus equal to three and thirty-three one-hundreths 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.
In fiscal 1996, the Company granted Mr. Nadata's options to purchase 100,000
shares of Common Stock at an exercise price of $8.125 per share, which
represented the market price of the Common Stock on the date of grant. In
this way, Mr. Nadata's interest are directly aligned with the interests of
the Company's stockholders.
The Compensation Committee
Herbert Gardner
Harvey Blau
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 reports 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.
Page 20
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Compliance with Section 16(a) of the Securities Exchange Act (continued)
Based solely on the Company's review of the copies of the forms it has
received, the Company believes that all Reporting Persons complied on a
timely basis with all filing requirements applicable to them with respect to
transactions during fiscal year 1997, except that Irving Lubman, Chairman of
the Board; Arthur Nadata, President and Chief Executive Officer and
Director; Richard Schuster, Vice President, Secretary and Director and Paul
Durando, Vice President Finance, Treasurer and Director, each failed to
timely file one Form 4 relating to the vesting of shares of Common Stock
under the Company's Employee Stock Ownership Plan.
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,
1991 to February 28, 1997) 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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG NU HORIZONS ELECTRONICS CORP., NASDAQ MARKET INDEX AND PEER GROUP **
Nu Horizons NASDAQ
Measurement Period Electronics Market
(Fiscal Year Covered) Corp. Index Peer Group
- ----------------------- ----------- ------- ----------
Measurement Pt.
FYE 3/01/92 $100.00 $100.00 $100.00
FYE 2/28/93 $206.06 $100.16 $138.44
FYE 2/28/94 $451.84 $127.62 $190.04
FYE 2/28/95 $381.38 $121.85 $182.63
FYE 2/29/96 $795.49 $168.25 $245.88
FYE 2/28/97 $470.93 $201.94 $278.59
Assumes $100 Invested on March 1, 1992 in Nu Horizons Electronics Common
Stock, NASDAQ Market Index and Peer Group. Peer group includes All American
Semiconductor, Arrow Electronics Inc., Avnet Inc., Bell Industries Inc.,
Bell Microproducts Inc., Jaco Electronics Inc., Kent Electronics Corp.,
Marshall Industries, Pioneer Standard Electronics, Reptron Electronics Inc.,
Sterling Electronics Corp., Western Microtechnology and Wyle Laboratories
Inc.
* Total Return Assumes Reinvestment of Dividends
** Fiscal Year Ending February 28 and 29
Page 21
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Key Employees Stock Incentive Plan:
The Company has a Key Employees Stock Incentive Plan ("Plan"), approved by
the stockholders in 1984, as amended in September 1987, which presently
covers 712,765 shares of Common Stock. Options are currently
outstanding for 223,227 shares and no shares are currently available for
grant. The Plan is intended to provide an additional means of inducing
executives and other "key salaried employees" of the Company (which is
defined under Section 422A of the Internal Revenue Code) to join and remain
with the Company by offering them a greater share of the Company's stock and
a greater identification with the Company.
The Board of Directors or a Committee which may be appointed and
maintained by the Board shall have the power to administer the Plan. The
Board or Committee has full power and authority: (i) to designate
participants; (ii) to designate options or any portion thereof as Incentive
Stock Options ("ISO"); (iii) to determine the terms and provisions of
respective option agreements (which need not be identical) including, but
not limited to, provisions concerning the time or times when and the extent
to which the stock options ("Options") and Stock Appreciation Rights
("SARs") may be exercised and the nature and duration of restrictions as to
transferability or constituting substantial risk forfeiture; (iv) to
accelerate the right to an optionee to exercise in whole or in part any
previously granted ISO including any options modified to qualify as ISO's;
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 ISO's 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 "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 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 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 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 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 1997, 441,500 options
were granted under the Plan at an exercise price of $8.125. Options are
currently outstanding for 1,019,000 shares and 81,000 options are currently
available for grant. No options to purchase shares granted under the 1994
Plan have been exercised.
Page 22
ITEM 11. EXECUTIVE COMPENSATION (Continued):
1994 Stock Option Plan (continued):
The Compensation Committee of the Board of Directors will have the
responsibility and authority to administer and interpret the provisions of
the Stock Option Plan. The Compensation Committee shall appropriately
adjust the number of shares for which awards may be granted pursuant to the
1994 Stock Option 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 Plan, provided that, without
the Participant's approval, no change may be made which would prevent an ISO
granted under the 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 Incentive Stock Option 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 Stock Option Plan) the total number of shares or
other securities reserved for issuance under the 1994 Stock Option Plan;
(iii) decreases the minimum option prices stated in Section 2.2 of the 1994
Stock Option (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 Stock
Option Plan, or the limit on the maximum term of Options; or (v) withdraws
the administration of the 1994 Stock Option 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 Stock Option Plan.
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 two, are eligible to participate in the Director
Plan. None of the non-employee directors are eligible to participate in any
of the other compensation plans of the Company.
The Board of Directors of the Company may amend the Director Plan from
time to time in such manner as it may deem advisable. The provisions of the
Director Plan relating to (i) which directors shall be granted Options; (ii)
the amount of Shares subject to Options granted; (iii) the price at which
Shares subject to Options may be purchased; and (iv) the timing of grants of
Options shall not be amended more than once every six (6) months, other than
to comport with changes in the Code or the Employee Retirement Income
Security Act of 1974, as amended. No amendment to the Director Plan shall
adversely affect any outstanding Option, however, without the consent of the
Optionee that holds such Option.
Page 23
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Outside Director Stock Option Plan (continued):
The Compensation Committee of the Board of Directors has the
responsibility and authority to administer and interpret the provisions of
the Director Plan. The Compensation Committee shall appropriately adjust
the number of shares for which awards may be granted pursuant to the
Director Plan in the event of reorganization, recapitalization, stock split,
reverse stock split, stock dividend, exchange or combination of shares,
merger, consolidation, rights offering, or any change in capitalization.
Under the Director Plan, each non-employee Director ("Outside 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 Outside Director upon vesting.
Summary of Fiscal 1997 Stock Option Grants:
During fiscal 1997, the Company granted options to purchase 441,500 shares
at a price of $8.125 per share. Messrs. Lubman, Nadata and Schuster each
received options to purchase 100,000 shares at a price of $8.125 per share.
Mr. Durando received options to purchase 20,000 shares at price of to $8.125
per share.
Employee Stock Ownership Plan:
In January 1987, the Company adopted an Employee Stock Ownership Plan
("ESOP" or "Plan"), which covers substantially all of the Company's
employees. The ESOP is managed by three Trustees, Messrs. Lubman, Nadata
and Schuster (the "Trustees"), who vote the securities held by the Plan
(other than securities of the Company which have been allocated to
employees' accounts).
The annual contributions to the Plan are to be in such amounts as the
Board of Directors in its sole discretion shall determine. Each employee
who participates in the Plan has a separate account and the annual
contribution by the Company to an employee's account is not permitted to
exceed the lesser of $30,000 (or such other limit as may be the maximum
permissible pursuant to the provisions of Section 415 of the 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.
Page 24
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Employee Stock Ownership Plan (Continued):
All contributions to the Plan are invested in the Company's securities
(except for temporary investments), the Trustees having the right to
purchase the Company's securities on behalf of employees. The Trustees are
considered the stockholder for the purpose of exercising all owners' and
stockholders' rights, with respect to the Company's securities held in the
Plan, except for voting rights which 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, 1988 the
Company, on behalf of the ESOP, entered into a revolving credit agreement
with its bank which provides for a $2,000,000 revolving line of credit at a
percentage of 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 28, 1997 the ESOP owned 341,017 shares at an
average price of approximately $2.45 per share.
401(k) Savings Plan
The Company sponsors a retirement plan intended to be qualified under
Section 401(k) of the Code. All non-union employees over age 21 who have
been employed by the Company for at least six months are eligible to
participate in the plan. Employees may contribute to the plan on a tax
deferred basis up to 15% of their total annual salary, but in no event more
than the maximum permitted by the Code ($9,500 in calendar 1996). Company
contributions are discretionary. Effective with the plan year ended
February 28, 1995, 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, 1997
approximately 211 employees had elected to participate in the plan. For the
fiscal year ended February 28, 1997, the Company contributed approximately
$111,585 to the plan, of which $6,000 was a matching contribution of $1,500
for each of Mr. Lubman, Mr. Nadata, Mr. Schuster and Mr. Durando.
Page 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth, as of May 19, 1997, certain
information with regard to the record and beneficial ownership of the
Company's Common Stock by (i) each shareholder owning of record or
beneficially 5% or more of the Company's Common Stock, (ii) each
director individually, and (iii) all officers and directors of the
Company as a group:
NAME SHARES PERCENT
- ---------------------------------- ------------------- --------
Paul Durando 19,518 (1) (2) *
Herbert M. Gardner 32,862 (3) *
Harvey R. Blau 27,075 (3) *
Irving Lubman 138,931 (4) (5) 1.3%
Arthur Nadata 397,585 (4) (5) (6) 3.7%
Richard S. Schuster 416,503 (4) (5) 3.8%
All officers and directors
as a group (7 persons) 1,032,474 9.5%
NOTES:
- -----
(*) Less than 1% of the Company's outstanding stock.
(1) Includes options exercisable within 60 days for 15,000 shares of common
stock under the Company's Key Employees Stock Option Plan and the 1994
Stock Option Plan.
(2) Includes 4,518 shares of fully vested common stock owned through the
Employee's Stock Ownership Plan, which include voting power.
(3) Includes options exercisable within 60 days for 26,667 shares of common
stock under the Company's Outside Director Stock Option Plan.
(4) Includes options exercisable within 60 days for 111,488 shares of common
stock under the Company's Key Employees Stock Option Plan and the 1994
Stock Option Plan.
(5) Includes 14,399 shares of fully vested common stock owned through the
Employees Stock Ownership Plan, which include voting power. These Officers
are also Trustees of the Plan.
(6) Includes 45,398 shares held by his children as to which Mr. Nadata
disclaims beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Harvey R. Blau, a Director of the Company, is a member of Blau, Kramer,
Wactlar & Lieberman, P.C., general counsel to the Company. For the fiscal
year ended February 28, 1997, the Company paid $67,906 in legal fees to
Blau, Kramer, Wactlar & Lieberman, P.C.
For the fiscal year ended February 28, 1997, the Company received an
aggregate $2,889,449 in respect to 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, 1997, the Company received an
aggregate $647,992 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.
Page 26
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(a) (1) The following consolidated financial statements of the registrant
and its subsidiaries are filed as a part of this report:
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of February 28, 1997
and February 29, 1996 F-2
Consolidated Statements of Income for the three
years in the period ended February 28, 1997 F-3
Consolidated Statements of Changes in Shareholders'
Equity for the three years in the period ended
February 28, 1997 F-4
Consolidated Statements of Cash Flows for the three
years in the period ended February 28, 1997 F-5
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts and Reserves 33
(a) (3) See exhibits required - Item (c) below
(b) No reports were filed by the Company on Form 8-K during the last
quarter of the fiscal year.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
---------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended (Incorporated by
Reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended February 29, 1988)
3.2 By-laws, as amended (Incorporated by Reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year
ended February 29, 1988)
3.3 Certificate of Amendment to Certificate of Incorporation
(Incorporated by Reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended August
31, 1994)
4.1 Specimen Common Stock Certificate (Incorporated by Reference
as Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 2-89176).
Page 27
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(c) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------
10.1 The Registrant's Key Employee Incentive Stock Option Plan, as
amended (Incorporated by Reference to the Company's
Registration statement on form S-8 Registration No. 33-
20661).
10.2 Agreement between the Company and Trustees relating to the
Company's Employee Stock Ownership Plan (Incorporated by
Reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended February 28, 1987)
10.3 Employment Agreements, as amended, between the Company and
Messrs. Lubman, Nadata and Schuster. (Incorporated by
Reference to Exhibit 10.7 to the Company's annual report on
Form 10-K for the year ended February 28, 1994).
10.4 Amended and restated Revolving Credit Agreement with National
Westminster Bank USA dated as of April 29, 1994 (Incorporated
by Reference to Exhibit 10 to the Company's Report on Form 8-
K dated April 29, 1994).
10.5 Asset Purchase Agreement dated April 29, 1994 between Nu
Horizons/Merit Electronics Corp., Merit Electronics, Inc. and
Robert G. Pipkin (Incorporated by Reference to Exhibit 2 to
the Company's Report on Form 8-K dated April 29, 1994).
10.6 Note Agreement dated August 15, 1994 between the Company and
Massachusetts Mutual Life Insurance Company (Incorporated by
Reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 31, 1994).
10.7 Amendment No. 1 to Amended and Restated Revolving Credit
Agreement dated as of August 24, 1994 between the Company and
National Westminster Bank USA (Incorporated by Reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 31, 1994).
10.8 1994 Stock Option Plan (Incorporated by Reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1994).
10.9 Outside Director Stock Option Plan (Incorporated by Reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-
Q for the quarter ended August 31, 1994).
10.10 Agreement dated September 22, 1995 between the Company and
Paul Durando (Incorporated by Reference to Exhibit 10.13 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended August 31, 1995).
Page 28
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(c) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------
10.11 Amendment No. 2 to Amended and Restated Revolving Credit
Agreement and Tenth Amendment to Revolving Credit and Term
Loan Agreement dated as of November 29, 1995 between the
Company and National Westminster Bank, USA (Incorporated by
Reference to Exhibit 10.14 to the Company's Quarterly Report
on Form 10Q for the quarter ended November 30, 1995).
10.12 Amendment No. 3 to Amended and Restated Revolving Credit
Agreement and Eleventh Amendment to Revolving Credit and Term
Loan Agreement dated as of November 30, 1995 between the
Company and National Westminster Bank, USA (Incorporated by
Reference to Exhibit 10.15 to the Company's Quarterly Report
on Form 10Q for the quarter ended November 30, 1995).
10.13 Amendment No. 4 to Amended and Restated Revolving Credit
Agreement and Twelfth Amendment to Revolving Credit and Term
Loan Agreement dated as of April 8, 1996 between the Company
and NatWest Bank N.A. (formerly known as National Westminster
Bank, USA) (Incorporated by Reference to Exhibit 10.13 to
the Company's Annual Report on Form 10K for the fiscal year
ended February 29, 1996).
10.14 Amendment No. 5 to Amended and Restated Revolving Credit
Agreement and Thirteenth Amendment to Revolving Credit and
Term Loan Agreement dated as of June 10, 1996 between the
Company and Fleet Bank, N.A., formerly known as NatWest Bank
N.A., formerly known as National Westminster Bank USA.
(Incorporated by Reference to Exhibit 10.14 to the Company's
Quarterly Report on Form 10Q for the quarter ended May 31,
1996).
10.15 Employment and Change of Control Agreements dated September
13, 1996, between and Company and Irving Lubman.
(Incorporated by Reference to Exhibit 10.15 to the Company's
Quarterly Report on Form 10Q for the quarter ended August 31,
1996).
10.16 Employment and Change of Control Agreements dated September
13, 1996, between and Company and Irving Lubman.
(Incorporated by Reference to Exhibit 10.16 to the Company's
Quarterly Report on Form 10Q for the quarter ended August 31,
1996).
10.17 Employment and Change of Control Agreements dated September
13, 1996, between and Company and Irving Lubman.
(Incorporated by Reference to Exhibit 10.17 to the Company's
Quarterly Report on Form 10Q for the quarter ended August 31,
1996).
Page 29
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(c) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------
10.18 Revolving Credit Agreement dated May 23, 1997 between the
Company and two banks, Mellon Bank, N.A. and KeyBank National
Association.
11. Computation of Per Share Earnings
22. The following is a list of the Company's subsidiaries:
State of
Name Incorporation
------------------------------ -------------
NIC Components Corp. New York
Nu Horizons International Corp. New York
Nu Visions Manufacturing, Inc. Massachusetts
Nu Horizons/Merit Electronics Corp. Delaware
23. Accountant's Consent
27. Financial Data Schedule
99. Additional Exhibit
Page 30
24. Accountants' Consent
--------------------
We consent to the incorporation by reference in Registration Statement
numbers 33-11032, 33-20661, 33-88952 and 33-88958 on Form S-8 of our
opinion dated May 22, 1997 on the consolidated financial statements of Nu
Horizons Electronics Corp. and subsidiaries included in the Corporation's
annual report on Form 10-K for the fiscal year ended February 28, 1997.
/s/ LAZAR, LEVINE & COMPANY LLP
-------------------------------
LAZAR, LEVINE & COMPANY LLP
Certified Public Accountants
New York, New York
May 22, 1997
Page 31
99. Additional Exhibit:
------------------
The following undertakings are incorporated by reference into the
Company's Registration Statement on Form S-8 (Registration Nos. 33-11032,
33-20661, 33-88952 and 33-88958).
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a) (1) (i) and (a) (1)
(ii) do not apply if the registration statement is on Form
S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
Page 32
99. Additional Exhibit (Continued):
------------------
(f) (1) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus to each employee to whom
the prospectus is sent or given a copy of the registrant's annual
report to stockholders for its last fiscal year, unless such employee
otherwise has received a copy of such report, in which case the
registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of
the employee. If the last fiscal year of the registrant has ended
within 120 days prior to the use of the prospectus, the annual report
for the fiscal year will be furnished to each such employee.
(2) The undersigned registrant hereby undertakes to transmit or
cause to be transmitted to all employees participating in the
plan who do not otherwise receive such material as stockholders
of the registrant, at the time and in the matter such material
is sent to its stockholders, copies of all reports, proxy
statements and other communications distributed to its
stockholders generally.
(3) Where interests in a plan are registered herewith, the
undersigned registrant and plan hereby undertake to transmit or
cause to be transmitted promptly, without charge, to any
participant in the plan who makes a written request, a copy of
the then latest annual report of the plan filed pursuant to
section 15(d) of the Securities Exchange Act of 1934 (Form 11-
K). If such report is filed separately on Form 11-K, such form
shall be delivered upon written request. If such report is
filed as a part of the registrant's annual report to
stockholders delivered pursuant to paragraph (1) or (2) of this
undertaking, additional delivery shall not be required.
(4) If the registrant is a foreign private issuer, eligible to
use Form 20-F, then the registrant shall undertake to deliver or
cause to be delivered with the prospectus to each employee to
whom the prospectus is sent or given, a copy of the registrant's
latest filing on Form 20-F in lieu of the annual report to
stockholders.
(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
act and will be governed by the final adjudication of such issue.
Page 33
SCHEDULE II
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
SCHEDULE II--VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
Three Years Ended February 28, 1997
Additions
Balance at charged to Balance at
beginning costs and end of
Description of period expenses Deductions (A) period
- ----------- ---------- ---------- -------------- -----------
Valuation account
deducted in the
balance sheet from
the asset to which
it applies:
Allowance for
doubtful accounts-
accounts receivable
1997 $1,509,802 $701,500 $19,223 $2,192,079
========== ======== ======= ==========
1996 $ 898,359 $635,000 $23,557 $1,509,802
========== ======== ======= ==========
1995 $ 500,463 $442,500 $44,604 $ 898,359
========== ======== ======= ==========
(A) Accounts written off.
Page 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NU HORIZONS ELECTRONICS CORP.
(Registrant)
By:/s/ ARTHUR NADATA
------------------------
Arthur Nadata,
President (Principal
Operating Officer)
By:/s/ PAUL DURANDO
------------------------
Paul Durando,
Vice President, Finance
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
SIGNATURE CAPACITY DATE
- ------------------------- ----------------------- ------------
By:/s/ IRVING LUBMAN Chairman of The Board, May 27, 1997
- ------------------------- Chief Operating Officer
Irving Lubman
By:/s/ ARTHUR NADATA President, Chief Executive May 27, 1997
- ------------------------- Officer and Director
Arthur Nadata
By:/s/ RICHARD SCHUSTER Vice President, Secretary May 27, 1997
- ------------------------- and Director
Richard Schuster
By:/s/ PAUL DURANDO Vice President, Finance, May 27, 1997
- ------------------------- Treasurer and Director
Paul Durando
By:/s/ HERBERT M. GARDNER Director May 27, 1997
- -------------------------
Herbert M. Gardner
By:/s/ HARVEY R. BLAU Director May 27, 1997
- -------------------------
Harvey R. Blau
Page 35
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBIT INDEX
to
FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
NU HORIZONS ELECTRONICS CORP.
(Exact Name of Registrant as Specified in Its Charter)
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------
10.18 Revolving Credit Agreement dated May 23, 1997 between
the Company and two banks, Mellon Bank, N.A. and
KeyBank National Association
11 Computation of Per Share Earnings
27 Financial Data Schedule