FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-8141
NORSTAN, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-0835746
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6900 WEDGWOOD ROAD, SUITE 150, MAPLE GROVE, MINNESOTA 55311
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612/420-1100
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(Registrant's telephone number, including area code)
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 .
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On March 6, 1995, there were 4,215,412 shares outstanding of the registrant's
common stock, par value $.10 per share, its only class of equity securities.
PART 1. FINANCIAL INFORMATION
ITEM 1.
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------------ ------------------------
January 28, January 29, January 28, January 29,
1995 1994 1995 1994
----------- ----------- ----------- -----------
REVENUES:
Sale of products and systems $45,203 $29,862 $119,941 $ 85,579
Telecommunications services 28,207 25,205 85,749 73,531
Financial services 1,202 1,151 3,744 3,220
------- ------- -------- --------
Total revenues 74,612 56,218 209,434 162,330
------- ------- -------- --------
COST OF SALES:
Products and systems 33,374 21,711 89,500 61,184
Telecommunications services 18,228 15,386 53,999 44,798
Financial services 589 471 1,718 1,267
------- ------- -------- --------
Total cost of sales 52,191 37,568 145,217 107,249
------- ------- -------- --------
GROSS MARGIN 22,421 18,650 64,217 55,081
Selling, General &
Administrative Expenses 18,897 15,767 54,912 47,325
------- ------- -------- --------
OPERATING INCOME 3,524 2,883 9,305 7,756
Interest Expense (406) (189) (1,122) (607)
Interest and Other Income
(Expense), Net - 32 54 (83)
------- ------- -------- ---------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE AND
PROVISION FOR INCOME TAXES 3,118 2,726 8,237 7,066
Provision for Income Taxes 1,247 1,118 3,295 2,897
------- ------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 1,871 1,608 4,942 4,169
Cumulative Effect of Change in
Accounting for Income Taxes - - - (375)
------- ------- -------- --------
NET INCOME $ 1,871 $ 1,608 $ 4,942 $ 3,794
------- ------- -------- --------
------- ------- -------- --------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Income before Cumulative Effect of
Accounting Change $ .43 $ .38 $ 1.14 $ .99
Cumulative Effect of Change in
Accounting for Income Taxes - - - (.09)
------- ------- -------- --------
INCOME PER SHARE $ .43 $ .38 $ 1.14 $ .90
------- ------- -------- --------
------- ------- -------- --------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,371 4,268 4,348 4,228
------- ------- -------- --------
------- ------- -------- --------
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 28, April 30,
1995 1994
----------- ---------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash $ 1,192 $ 755
Accounts receivable, net of allowances for
doubtful accounts of $1,077 and $685 49,970 43,255
Current lease receivables 14,284 14,245
Inventories 15,099 11,766
Costs and estimated earnings in excess of
billings of $12,751 and $14,731 13,982 15,040
Prepaid income taxes 3,134 2,835
Prepaid expenses, deposits and other 2,704 1,777
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TOTAL CURRENT ASSETS 100,365 89,673
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PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 59,229 50,768
Less-accumulated depreciation
and amortization (32,855) (26,573)
-------- --------
NET PROPERTY AND EQUIPMENT 26,374 24,195
-------- --------
OTHER ASSETS:
Lease receivables, net of current maturities 27,804 27,697
Franchise rights and other intangible assets,
net of amortization of $3,287 and $2,893 7,923 7,658
Other 569 439
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TOTAL OTHER ASSETS 36,296 35,794
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$163,035 $149,662
-------- --------
-------- --------
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
January 28, April 30,
1995 1994
----------- ---------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 227 $ 229
Current maturities of discounted lease rentals 12,478 11,470
Accounts payable 14,862 13,951
Accrued-
Salaries and wages 9,192 9,081
Deferred revenue 15,789 13,582
Warranty costs 1,791 1,501
Other liabilities 3,762 3,907
Income taxes payable 434 -
Billings in excess of costs and estimated
earnings of $10,665 and $6,092 4,579 2,991
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TOTAL CURRENT LIABILITIES 63,114 56,712
-------- --------
LONG-TERM DEBT, net of current maturities 18,970 18,218
DISCOUNTED LEASE RENTALS, net of current maturities 18,591 18,845
DEFERRED INCOME TAXES 8,418 8,229
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SHAREHOLDERS' EQUITY:
Common stock - $.10 par value;
20,000,000 authorized shares;
4,212,312 and 4,070,792 shares
issued and outstanding 421 407
Capital in excess of par value 25,583 24,132
Retained earnings 29,366 24,423
Unamortized cost of stock compensation (162) (291)
Foreign currency translation adjustments (1,266) (1,013)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 53,942 47,658
-------- --------
$163,035 $149,662
-------- --------
-------- --------
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
Nine Months Ended
------------------------
January 28, January 29,
1995 1994
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OPERATING ACTIVITIES:
Net income $ 4,942 $ 3,794
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 7,585 6,046
Deferred income taxes (110) (504)
Cumulative effect of change in accounting
for income taxes - 375
Changes in operating items,
net of effects from acquisition:
Accounts receivable (6,183) 1,380
Inventories (3,013) (6,412)
Costs and estimated earnings in excess
of billings 1,041 (4,749)
Prepaid expenses, deposits and other (903) (944)
Accounts payable 163 1,817
Accrued liabilities 2,175 64
Billings in excess of costs and estimated
earnings 1,599 (135)
Income taxes payable 715 1,166
-------- --------
Net Cash Provided By
Operating Activities 8,011 1,898
-------- --------
INVESTING ACTIVITIES:
Cash paid for acquisition (726) -
Additions to property and equipment, net (8,944) (5,063)
Investment in lease contracts (12,758) (15,656)
Collections from lease contracts 12,535 10,357
Other, net (99) 38
-------- --------
Net Cash Used For Investing
Activities (9,992) (10,324)
-------- --------
FINANCING ACTIVITIES:
Repayment of short-term debt (424) -
Borrowings under revolving credit agreements 89,660 77,665
Repayments under revolving credit agreements (88,815) (75,898)
Repayments of long-term debt (95) (145)
Borrowings on discounted lease rentals 9,059 12,791
Repayments of discounted lease rentals (8,273) (6,679)
Repurchase of common stock - (41)
Proceeds from sale of common stock 1,309 1,362
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Net Cash Provided By Financing Activities 2,421 9,055
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3) 4
-------- --------
NET INCREASE IN CASH 437 633
CASH, BEGINNING OF PERIOD 755 1,219
-------- --------
CASH, END OF PERIOD $ 1,192 $ 1,852
-------- --------
-------- --------
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 1995
UNAUDITED
The information furnished in this report is unaudited and reflects all
adjustments, which are normal recurring adjustments, and which in the opinion of
management, are necessary to present fairly the operating results for the
interim periods. The operating results for the interim periods presented are
not necessarily indicative of the operating results to be expected for the full
fiscal year. This report should be read in conjunction with the Company's most
recent "Annual Report on Form 10-K."
PRINCIPLES OF CONSOLIDATION -
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY -
For the Company's foreign operations, assets and liabilities are translated at
exchange rates as of the balance sheet date, and revenues and expenses are
translated at average exchange rates prevailing during the period. Translation
adjustments are recorded as a separate component of shareholders' equity.
NORSTAN FINANCIAL SERVICES, INC. (NFS) -
NFS provides financing for customers of the Company. Leases are accounted for
as sales-type leases for consolidated financial reporting purposes. Condensed
unaudited statements of operations of NFS are as follows (in thousands):
Nine Months Ended
-----------------------
January 28, January 29,
1995 1994
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Revenues $ 3,514 $ 3,112
Interest expense (1,526) (1,196)
Other expenses (920) (1,227)
------- -------
Income before provision
for income taxes 1,068 689
Provision for income taxes (427) (282)
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Net income $ 641 $ 407
------- -------
------- -------
SUPPLEMENTAL CASH FLOWS INFORMATION -
Supplemental disclosure of cash flows information is as follows (in thousands):
Nine Months Ended
-----------------------
January 28, January 29,
1995 1994
---------- ----------
Cash paid for:
Interest $2,733 $1,840
Income taxes 2,553 2,176
ACCOUNTING FOR INCOME TAXES -
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The Company adopted SFAS No. 109 as of May 1, 1993 and recorded a $375,000
charge to consolidated net income in fiscal year 1994 for the cumulative effect
of the change in method of accounting for income taxes.
STOCK OFFERING -
Effective November 16, 1994, the Company's Board of Directors authorized the
filing of a registration statement with the Securities and Exchange Commission
to register an anticipated offering of up to 1,000,000 shares of common stock
(excluding an over-allotment option of up to 150,000 shares to be granted to the
underwriters). Due to a decline in the market, this registration statement was
withdrawn from the Securities and Exchange Commission effective January 10,
1995. During the quarter ended January 28, 1995, the Company recorded
approximately $200,000 in expenses associated with this equity offering.
ACQUISITION -
In November 1994, the Company acquired certain assets and assumed certain
liabilities of Toronto-based Renaissance Investments Ltd. Renaissance, a
technology planning and integration services company, specializes in local and
wide area networks and graphical user interfaces, and has been operating under
the name of Renaissance Connects since 1990. The purchase price of the assets
was approximately $726,000, plus certain incentive payments contingent upon the
future operating performance of the acquired business. In addition, the Company
repaid approximately $424,000 of short-term bank obligations assumed in this
acquisition.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
During the quarter ended January 28, 1995, the Company's net income improved
compared to the quarter ended January 29, 1994, increasing 16.4% to $1,871,000,
or $.43 per common share, compared to $1,608,000, or $.38 per common share. For
the nine month period ended January 28, 1995, the Company's net income was
$4,942,000, or $1.14 per common share, compared to $3,794,000 or $.90 per common
share, for the same period last year. On May 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." As a result, the Company recorded a one-time charge of $375,000, or
$.09 per share, in fiscal year 1994 for the cumulative effect of the change in
method of accounting for income taxes.
RESULTS OF OPERATIONS
The Company's revenues consist of revenues from the sales of products and
systems, telecommunications services and financial services. Revenues from the
sale of products and systems result from the sale of new products and upgrades,
as well as refurbished equipment. Revenues from telecommunications services
result primarily from communications maintenance services, moves, adds and
changes and long distance service. Financial services revenues result primarily
from leasing activities. The following table sets forth, for the periods
indicated, certain items from the Company's consolidated statements of
operations.
SELECTED CONSOLIDATED FINANCIAL DATA
DOLLAR AMOUNTS AS A DOLLAR AMOUNTS AS A
PERCENTAGE OF REVENUES PERCENTAGE PERCENTAGE OF REVENUES PERCENTAGE
Three Months Ended INCREASE Nine Months Ended INCREASE
---------------------------- ---------------- ---------------------------- -------------
January 28, January 29, Fiscal January 28, January 29, Fiscal
1995 1994 1995 VS 1994 1995 1994 1995 VS 1994
------------- ------------- ---------------- ------------- ------------- -------------
REVENUES:
Sales of Products and Systems 60.6% 53.1% 51.4% 57.3% 52.7% 40.2%
Telecommunications Services 37.8% 44.8% 11.9% 40.9% 45.3% 16.6%
Financial Services 1.6% 2.1% 4.4% 1.8% 2.0% 16.3%
------------- ------------- ------------- -------------
Total Revenues 100.0% 100.0% 32.7% 100.0% 100.0% 29.0%
COST OF SALES 69.9% 66.8% 38.9% 69.3% 66.1% 35.4%
------------- ------------- ------------- -------------
GROSS MARGIN 30.1% 33.2% 20.2% 30.7% 33.9% 16.6%
"SELLING, GENERAL & ADMINISTRATIVE"
EXPENSES 25.4% 28.1% 19.9% 26.2% 29.1% 16.0%
------------- ------------- ------------- -------------
OPERATING INCOME 4.7% 5.1% 22.2% 4.5% 4.8% 20.0%
Interest Expense ( 0.5% ) ( 0.3% ) 114.8% ( 0.5% ) ( 0.4% ) 84.8%
Other, Net - - - - - -
------------- ------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE AND
PROVISION FOR INCOME TAXES 4.2% 4.8% 14.4% 4.0% 4.4% 16.6%
Provision for Income Taxes 1.7% 2.0% 11.5% 1.6% 1.8% 13.7%
------------- ------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 2.5% 2.8% 16.4% 2.4% 2.6% 18.5%
------------- ------------- ------------- -------------
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The following table sets forth, for the periods indicated, the gross margin
percentages for sales of products and systems, telecommunications services and
financial services.
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
January 28, January 29, January 28, January 29,
1995 1994 1995 1994
--------------- ---------------- --------------- ----------------
GROSS MARGIN PERCENTAGES
Sales of Products and Systems 26.2% 27.3% 25.4% 28.5%
Telecommunications Services 35.4% 39.0% 37.0% 39.1%
Financial Services 51.0% 59.1% 54.1% 60.7%
RESULTS OF OPERATIONS.
REVENUES. Revenues increased 32.7%, to $74,612,000 for the quarter
ended January 28, 1995 as compared to $56,218,000 for the similar period last
year. For the nine months ended January 28, 1995, revenues increased 29.0%, to
$209,434,000 as compared to $162,330,000 for the same period last year. Sales
of products and systems increased $15,341,000, or 51.4% and $34,362,000, or
40.2% in the comparable three and nine month periods ended January 28, 1995,
respectively, as a result of demand for the Company's telephone systems as
well as increased demand for the Company's newer product offerings. During the
nine months ended January 28, 1995 as compared to the nine months ended January
29, 1994, bookings of videoconferencing products increased 70%, bookings of
call processing products increased 38% and bookings of telephone systems
increased 13%. As part of the Company's efforts to broaden its product line to
provide integrated communications solutions to its customers, management's
strategy is to continue to shift the Company's product mix to newer products
such as call processing and videoconferencing equipment.
Revenues from telecommunications services increased $3,002,000, or
11.9% and $12,218,000, or 16.6% in the comparable three and nine month periods
ended January 28, 1995, respectively. Revenues from telecommunications services
have increased following the growth in the sales of telecommunications products
and systems in fiscal 1994 and 1993.
Revenues from financial services increased $51,000, or 4.4% and
$524,000, or 16.3% in the comparable three and nine month periods ended January
28, 1995. This resulted as the Company's net lease receivables increased to
$42,088,000 at January 28, 1995 as compared to $36,447,000 at January 29, 1994.
GROSS MARGIN. The Company's gross margin increased $3,771,000, or
20.2%, to $22,421,000 for the three months ended January 28, 1995 as compared to
$18,650,000 for the three months ended January 29, 1994. For the nine month
period ended January 28, 1995, gross margin increased $9,136,000, or 16.6%, to
$64,217,000 as compared to $55,081,000 for the nine months ended January 29,
1994. As a percent of total revenues, gross margin declined to 30.1% and 30.7%
for the three and nine month periods ended January 28, 1995 as compared to 33.2%
and 33.9% for the three and nine month periods ended January 29, 1994. The
decrease in the gross margin percentage in fiscal 1995 is a result of market
conditions, as well as the changing mix of products which results from the
Company's expanded line of product offerings. The Company expects its gross
margin, as a percentage of total revenues, for the remainder of fiscal 1995 to
continue to be lower than fiscal 1994.
Gross margin as a percent of revenues for the sale of products and
systems was 26.2% and 25.4% for the three and nine month periods ended January
28, 1995 as compared to 27.3% and 28.5% for the comparable periods ended January
29, 1994. These decreases are primarily the result of market conditions and the
Company's changing mix of products.
Gross margin as a percent of revenues for telecommunications services
was 35.4% and 37.0% for the three and nine month periods ended January 28, 1995
as compared to 39.0% and 39.1% for the comparable periods ended January 29,
1994. These decreases result primarily from changes in the mix of services and
decreased margins applicable to long distance services.
Gross margin as a percent of revenues for financial services was 51.0%
and 54.1% for the three and nine month periods ended January 28, 1995 as
compared to 59.1% and 60.7% for the three and nine month periods ended January
29, 1994. These decreases result primarily from increased borrowing costs in a
rising interest rate environment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3,130,000, or 19.9% for the quarter ended
January 28, 1995 as compared to the quarter ended January 29, 1994. For the
nine months ended January 28, 1995, selling, general and administrative expenses
increased $7,587,000, or 16.0% as compared to the similar period last year.
These increases resulted primarily from increased expenses necessary to support
the increased revenues. As a percent of revenues, selling, general and
administrative expenses declined to 25.4% and 26.2% for the three and nine month
periods ended January 28, 1995 as compared to 28.1% and 29.1% for the similar
periods ended January 29, 1994. These decreases in selling, general and
administrative expenses as a percent of revenues resulted from volume related
efficiencies, as sales volume increased without a proportional increase in
expenses. The Company expects its selling, general and administrative expenses,
as a percent of revenues, for the remainder of fiscal 1995 to continue to be
lower than fiscal 1994, although there can be no assurance that this trend will
continue.
OPERATING INCOME. Operating income increased $641,000, or 22.2%, to
$3,524,000 for the quarter ended January 28, 1995 as compared to $2,883,000 for
the quarter ended January 29, 1994. For the nine months ended January 28, 1995,
operating income increased $1,549,000, or 20.0%, to $9,305,000, as compared to
$7,756,000 for the similar period last year. These increases resulted primarily
from increased overall sales volume and improved performance by the Company's
Canadian operations. As a percent of revenues, operating income declined to
4.7% and 4.5% for the three and nine month periods ended January 28, 1995 as
compared to 5.1% and 4.8% for the similar periods ended January 29, 1994. These
decreases resulted from a decline in the Company's gross margin as a percent of
revenue, which was partially offset by selling, general and administrative
expense efficiencies. In addition, the Company invested approximately
$1,000,000, or 0.5% of revenues, during the first nine months of fiscal 1995 in
the start-up of its cabling and data communications businesses.
OTHER COSTS AND EXPENSES. Interest expense increased to $406,000 and
$1,122,000 for the three and nine month periods ended January 28, 1995 as
compared to $189,000 and $607,000 for the similar periods ended January 29,
1994. These increases resulted primarily from increased overall borrowing
requirements and the rising interest rate environment. Average month end
revolving credit balances (excluding amounts borrowed to finance NFS leasing
activities) were approximately $21,000,000 for the nine months ended January 28,
1995 as compared to approximately $14,400,000 for the nine months ended January
29, 1994.
The Company's effective tax rate was 40% for the three and nine month
periods ended January 28, 1995 as compared to an effective tax rate of 41% for
the similar periods ended January 29, 1994. The Company's effective tax rate
differs from the federal statutory rate primarily due to state income taxes.
The provisions for income tax have been recorded based upon management's
estimate of the annualized effective tax rate.
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Income before
the cumulative effect of the change in accounting for income taxes was
$1,871,000, or $.43 per common share, and $1,608,000, or $.38 per common share,
for the quarters ended January 28, 1995 and January 29, 1994. Income before the
cumulative effect of the change in accounting for income taxes was $4,942,000,
or $1.14 per common share, and $4,169,000, or $.99 per common share, for the
nine month periods ended January 28, 1995 and January 29, 1994.
ACCOUNTING CHANGE. On May 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." As a
result, the Company recorded a one-time charge of $375,000, or $.09 per share,
in the first quarter of fiscal 1994 for the cumulative effect of the change in
method of accounting for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. Working capital increased to $37,251,000 at
January 28, 1995 from $32,961,000 at April 30, 1994. The current ratio was 1.59
to 1.0 as of January 28, 1995 as compared to 1.58 to 1.0 as of April 30, 1994.
Net cash provided by operating activities was $8,011,000 for the nine months
ended January 28, 1995. For the nine months ended January 28, 1995, net income
of $4,942,000, depreciation and amortization of $7,585,000, decreased costs and
estimated earnings in excess of billings of $1,041,000, increased accrued
liabilities of $2,175,000 and increased billings in excess of costs and
estimated earnings of $1,599,000, more than offset increased accounts receivable
of $6,183,000 and increased inventories of $3,013,000. For the nine months
ended January 28, 1995, the general increase in balance sheet items resulted
from increased business activity and revenues over the prior period.
CAPITAL RESOURCES. In October 1994, the Company entered into a
$35,000,000 unsecured revolving long-term credit agreement with certain banks.
Under this agreement, the total credit facility of $35,000,000 is reduced by
$750,000 per fiscal quarter effective January, 1995. As of January 28, 1995,
the total capacity of the credit facility was $34,250,000. Borrowings under
this agreement are due May 2, 1998 and bear interest at a bank's reference rate
(8.50% and 6.75% at January 28, 1995 and April 30, 1994, respectively), except
for LIBOR, CD and commercial paper based options which generally bear interest
at a rate lower than the bank's reference rate. The Company is able to borrow
up to $15,000,000 of this credit facility in the form of commercial paper. In
addition, Norstan Financial Services, Inc. (NFS) is able to borrow up to
$8,000,000 of this facility from Norstan, Inc. Total consolidated borrowings
under this agreement were $18,970,000 and $18,125,000 at January 28, 1995 and
April 30, 1994, respectively. There were no borrowings on the account of NFS at
January 28, 1995, as compared to $431,000 borrowed on the account of NFS at
April 30, 1994. Borrowings by the Company in fiscal 1995 and 1994 have been for
working capital and general corporate purposes, to invest in property and
equipment, as well as to borrow funds for NFS, while borrowings for NFS have
been used to invest in additional lease contracts.
Capital expenditures for the nine months ended January 28, 1995
were $8,944,000 as compared to $5,063,000 for the similar period last year.
These expenditures were primarily for telecommunications equipment used as
spare parts, computer equipment and facility expansion. The Company has also
made a significant investment in lease contracts with its customers. The
investment made in lease contracts totaled $12,758,000 for the nine months
ended January 28, 1995 as compared to $15,656,000 for the similar period last
year. Net lease receivables increased to $42,088,000 at January 28, 1995 as
compared to $41,942,000 at April 30, 1994.
Norstan Financial Services, Inc. (NFS) and Norstan Canada Inc. utilize
their lease receivables and corresponding underlying equipment to borrow funds
from financial institutions at fixed rates on a nonrecourse or recourse basis by
discounting the stream of future lease payments. Proceeds
from discounting are presented on the consolidated balance sheet as discounted
lease rentals. Interest rates on these credit agreements range from 6% to 10%,
and payments are generally due in varying monthly installments through October
2000. Payments due financial institutions on a monthly basis are made from
monthly collections of lease receivables from customers.
Discounted lease rentals as of January 28, 1995 and April 30, 1994
consisted of the following (in thousands):
January 28, April 30,
1995 1994
----------- ---------
Nonrecourse borrowings $28,001 $25,918
Recourse borrowings 3,068 4,397
------- -------
Total discounted lease rentals 31,069 30,315
Less-current maturities (12,478) (11,470)
------- -------
$18,591 $18,845
------- -------
------- -------
In addition to the recourse as described previously, recourse to
Norstan, Inc. relative to discounted lease rentals was limited to $1,004,000 as
of January 28, 1995 and $782,000 as of April 30, 1994.
Effective November 16, 1994, the Company's Board of Directors
authorized the filing of a registration statement with the Securities and
Exchange Commission to register an anticipated offering of up to 1,000,000
shares of common stock (excluding an over-allotment option of up to 150,000
shares to be granted to the underwriters). Due to a decline in the market,
this registration statement was withdrawn from the Securities and Exchange
Commission effective January 10, 1995.
Management of the Company believes that a combination of cash to be
generated from operations, existing bank facilities and available borrowing
capacity, in aggregate, are adequate to meet the anticipated liquidity and
capital resource requirements of its business. Sources of additional financing,
if needed, may include further debt financing or the sale of equity or other
securities.
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal actions in the ordinary course of its
business. Although the outcomes of any such legal actions cannot be
predicted, in the opinion of management there is no legal proceeding
pending against or involving the Company for which the outcome is
likely to have a material adverse effect upon the consolidated
financial position or results of operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10. Employment Agreement between Norstan, Inc. and Max Mayer.
Exhibit 11. Statement Regarding Computation of Earnings Per Share.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
[ta]NORSTAN, INC.
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Registrant
Date: March 13, 1995 By /s/ Paul Baszucki
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Paul Baszucki
Vice Chairman of the Board
and Chief Executive Officer
Date: March 13, 1995 By /s/ Richard Cohen
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Richard Cohen
Vice Chairman of the Board
and Chief Financial Officer
(Principal Financial and
Accounting Officer)