<PAGE>
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 October 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
------------ ------------
Commission File Number 0-8141
NORSTAN, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0835746
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
605 North Highway 169, Twelfth Floor, Plymouth, Minnesota 55441
---------------------------------------------------------------
612/420-1100
----------------------------------------------------
(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 .
----- -----
On December 4, 1995, there were 4,246,236 shares outstanding of the registrant's
common stock, par value $.10 per share, its only class of equity securities.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- -----------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Sale of Products and Systems $ 43,351 $ 40,551 $ 84,020 $ 74,738
Telecommunications Services 33,812 30,112 64,248 57,542
Financial Services 1,542 1,335 2,838 2,542
------------ ------------ ------------- ------------
Total Revenues 78,705 71,998 151,106 134,822
------------ ------------ ------------- ------------
COST OF SALES:
Products and Systems 32,414 30,265 62,871 56,126
Telecommunications Services 23,402 19,114 44,356 35,771
Financial Services 583 559 1,155 1,129
------------ ------------ ------------- ------------
Total Cost of Sales 56,399 49,938 108,382 93,026
------------ ------------ ------------- ------------
GROSS MARGIN 22,306 22,060 42,724 41,796
Selling, General
& Administrative Expenses 18,303 18,611 35,983 36,015
------------ ------------ ------------- ------------
OPERATING INCOME 4,003 3,449 6,741 5,781
Interest Expense (450) (365) (848) (716)
Interest and Other Income, Net 27 31 76 55
------------ ------------ ------------- ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 3,580 3,115 5,969 5,120
Provision for Income Taxes 1,432 1,246 2,388 2,048
------------ ------------ ------------- ------------
NET INCOME $ 2,148 $ 1,869 $ 3,581 $ 3,072
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .48 $ .43 $ .80 $ .71
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,495 4,346 4,485 4,337
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
October 28, April 30,
1995 1995
--------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,318 $ 1,308
Accounts receivable, net of allowances for doubtful
accounts of $1,134 and $804 54,577 51,779
Current lease receivables 15,513 14,122
Inventories 11,248 11,137
Costs and estimated earnings in excess of billings of
$16,958 and $16,691 11,258 10,926
Prepaid income taxes 3,707 3,634
Prepaid expenses, deposits and other 2,403 2,331
--------------- ---------------
TOTAL CURRENT ASSETS 101,024 95,237
--------------- ---------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 67,530 64,652
Less-accumulated depreciation and amortization (34,335) (32,885)
--------------- ---------------
NET PROPERTY AND EQUIPMENT 33,195 31,767
--------------- ---------------
OTHER ASSETS:
Lease receivables, net of current maturities 25,478 26,381
Franchise rights and other intangible assets,
net of amortization of $3,714 and $3,435 7,614 7,904
Other 508 420
--------------- ---------------
TOTAL OTHER ASSETS 33,600 34,705
--------------- ---------------
$ 167,819 $ 161,709
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
October 28, April 30,
1995 1995
---------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 24 $ 93
Current maturities of discounted lease rentals 10,057 11,449
Accounts payable 13,893 16,467
Accrued -
Salaries and wages 7,800 10,841
Deferred revenue 15,866 15,045
Warranty costs 1,689 1,756
Other liabilities 6,673 5,118
Income taxes payable 1,022 158
Billings in excess of costs and estimated earnings of $8,013
and $10,121 1,804 2,127
---------------- ---------------
TOTAL CURRENT LIABILITIES 58,828 63,054
---------------- ---------------
LONG-TERM DEBT, net of current maturities 27,250 16,465
DISCOUNTED LEASE RENTALS, net of current maturities 11,972 16,313
DEFERRED INCOME TAXES 9,081 8,893
---------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock - $.10 par value; 20,000,000 authorized shares;
4,224,541 and 4,215,441 shares issued and outstanding 422 422
Capital in excess of par value 26,213 26,031
Retained earnings 35,068 31,486
Unamortized cost of stock (162) (149)
Foreign currency translation adjustments (853) (806)
---------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 60,688 56,984
---------------- ---------------
$ 167,819 $ 161,709
---------------- ---------------
---------------- ---------------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
October 28, October 29,
1995 1994
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 3,581 $ 3,072
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,533 4,614
Deferred income taxes 113 15
Changes in operating items:
Accounts receivable (2,818) (6,936)
Inventories (117) (3,529)
Costs and estimated earnings in excess of billings (338) (1,117)
Prepaid expenses, deposits and other (72) (453)
Accounts payable (2,565) 5,655
Accrued liabilities (718) (894)
Billings in excess of costs and estimated earnings (322) 1,965
Income taxes payable 864 724
--------------- ---------------
Net cash provided by operating activities 3,141 3,116
--------------- ---------------
INVESTING ACTIVITIES:
Additions to property and equipment, net (6,631) (5,717)
Investment in lease contracts (9,321) (7,981)
Collections from lease contracts 8,817 8,084
Other, net (81) 25
--------------- ---------------
Net cash used for investing activities (7,216) (5,589)
--------------- ---------------
FINANCING ACTIVITIES:
Borrowings under revolving credit agreements 62,330 62,890
Repayments under revolving credit agreements (51,545) (56,015)
Repayments of long-term debt (69) (63)
Borrowings on discounted lease rentals -- 1,698
Repayments of discounted lease rentals (5,729) (5,393)
Proceeds from sale of common stock 101 --
--------------- ---------------
Net cash provided by financing activities 5,088 3,117
--------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3) 11
--------------- ---------------
NET INCREASE IN CASH 1,010 655
CASH, BEGINNING OF PERIOD 1,308 755
--------------- ---------------
CASH, END OF PERIOD $ 2,318 $ 1,410
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
<PAGE>
NORSTAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 28, 1995
UNAUDITED
The information furnished in this report is unaudited and reflects all adjust-
ments, 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):
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
October 28, October 29,
1995 1994
------------- -------------
<S> <C> <C>
Revenues $ 2,577 $ 2,394
Interest Expense (956) (1,012)
Other Expenses (646) (641)
------------- -------------
Income before provision for
income taxes 975 741
Provision for income taxes 390 296
------------- -------------
Net Income $ 585 $ 445
------------- -------------
------------- -------------
</TABLE>
<PAGE>
SUPPLEMENTAL CASH FLOWS INFORMATION -
Supplemental disclosure of cash flows information is as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
October 28, October 29,
1995 1994
------------- -------------
<S> <C> <C>
Cash paid for:
Interest $ 1,881 $ 1,707
Income taxes $ 1,419 $ 1,264
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS -
Financial Accounting Standards Board (FASB) Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (Statement 121), issued in March 1995 and effective for fiscal years
beginning after December 15, 1995, establishes accounting standards for the
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill either to be held or disposed of.
Management believes the adoption of Statement 121 will not have a material
impact on the Company's financial position or results of operations.
FASB Statement No. 123, "Accounting for Stock-Based Compensation" (Statement
123), issued in October 1995 and effective for fiscal years beginning after
December 15, 1995, encourages, but does not require a fair value based method of
accounting for employee stock options or similar equity instruments. It also
allows an entity to elect to continue to measure compensation cost under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25), but requires pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied. The Company expects to adopt Statement 123 in 1996. While the Company
is still evaluating Statement No. 123, it currently expects to elect to continue
to measure compensation cost under APB No. 25 and comply with the pro forma
disclosure requirements. If the Company makes this election, this statement
will have no impact on the Company's results of operations or financial position
because the Company's plans are fixed stock option plans are fixed stock option
plans which have no intrinsic value at the grant date under APB No. 25.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY -
During the quarter ended October 28, 1995, the Company's net income improved
compared to the quarter ended October 29, 1994, increasing 14.9% to $2,148,000,
or $.48 per common share, compared to $1,869,000, or $.43 per common share. For
the six month period ended October 28, 1995, the Company's net income was
$3,581,000, or $.80 per common share, compared to $3,072,000 or $.71 per common
share, for the same period last year.
RESULTS OF OPERATIONS -
The Company's revenues consist of revenues from the sale 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 opera-
tions.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
DOLLAR AMOUNTS AS A DOLLAR AMOUNTS AS A
PERCENTAGE OF REVENUE PERCENTAGE PERCENTAGE OF REVENUES PERCENTAGE
Three Months Ended INCREASE Six Months Ended INCREASE
--------------------------- ------------- --------------------------- -------------
October 28, October 29, Fiscal October 28, October 29, Fiscal
1995 1994 1996 vs. 1995 1995 1994 1996 vs. 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales of Products and Systems 55.1% 56.3% 6.9% 55.6% 55.4% 12.4%
Telecommunications Services 43.0% 41.8% 12.3% 42.5% 42.7% 11.7%
Financial Services 1.9% 1.9% 15.5% 1.9% 1.9% 11.6%
------------- ------------- ------------- ------------- ------------- -------------
Total Revenues 100.0% 100.0% 9.3% 100.0% 100.0% 12.1%
COST OF SALES 71.7% 69.4% 12.9% 71.7% 69.0% 16.5%
------------- ------------- ------------- ------------- ------------- -------------
GROSS MARGIN 28.3% 30.6% 1.1% 28.3% 31.0% 2.2%
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 23.2% 25.8% (1.7%) 23.8% 26.7% --
------------- ------------- ------------- ------------- ------------- -------------
OPERATING INCOME 5.1% 4.8% 16.1% 4.5% 4.3% 16.6%
Interest Expense and Other (0.6%) (0.5%) 23.3% (0.5%) (0.5%) 18.4%
------------- ------------- ------------- ------------- ------------- -------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 4.5% 4.3% 14.9% 4.0% 3.8% 16.6%
Provision for Income Taxes 1.8% 1.7% 14.9% 1.6% 1.5% 16.6%
------------- ------------- ------------- ------------- ------------- -------------
NET INCOME 2.7% 2.6% 14.9% 2.4% 2.3% 16.6%
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The following table sets forth, for the periods indicated, the gross margin
percentages for sales of products and systems, telecommunications services
and financial services.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
GROSS MARGIN PERCENTAGES:
Sales of Products and Systems 25.2% 25.4% 25.2% 24.9%
Telecommunications Services 30.8% 36.5% 31.0% 37.8%
Financial Services 62.2% 58.1% 59.3% 55.6%
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
REVENUES. Revenues increased 9.3%, to $78,705,000 for the quarter ended
October 28, 1995 as compared to $71,998,000 for the similar period last year.
For the six months ended October 28, 1995, revenues increased 12.1%, to
$151,106,000 as compared to $134,822,000 for the same period last year. Sales
of products and systems increased $2,800,000, or 6.9% and $9,282,000, or 12.4%
during the comparable three and six month periods ended October 28, 1995,
respectively.
Revenues from telecommunications services increased $3,700,000, or 12.3%
and $6,706,000, or 11.7% in the comparable three and six month periods ended
October 28, 1995, respectively. Revenues from telecommunications services
generally have increased following the growth in the sales of
telecommunications products and systems in fiscal 1995 and 1994. Revenues
from financial services increased $207,000, or 15.5% and $296,000, or 11.6%
during the comparable three and six month periods ended October 28, 1995,
respectively.
GROSS MARGIN. The Company's gross margin increased $246,000, or 1.1%, to
$22,306,000 for the three months ended October 28, 1995 as compared to
$22,060,000 for the three months ended October 29, 1994. For the six month
period ended October 28, 1995, gross margin increased $928,000, or 2.2%, to
$42,724,000 as compared to $41,796,000 for the six months ended October 29,
1994. As a percent of total revenues, gross margin declined to 28.3% for
both the three and six month periods ended October 28, 1995 as compared to
30.6% and 31.0% for the three and six month periods ended October 29, 1994.
Gross margin as a percent of revenues for the sale of products and
systems was 25.2% for both the three and six month periods ended October 28,
1995 as compared to 25.4% and 24.9% for the comparable periods ended October
29, 1994, respectively. Gross margin as a percent of revenues for
telecommunications services was 30.8% and 31.0% for the three and six month
periods ended October 28, 1995 as compared to 36.5% and 37.8% for the
comparable periods ended October 29, 1994, respectively. These decreases
result from changes in the mix of services, increased service support costs,
additional training and development costs required to support the Company's
expanded line of product offerings, as well as decreased margins attributable
to moves, adds and changes. Gross margin as a percent of revenues for
financial services was 62.2% and 59.3% for the three and six month periods
ended October 28, 1995 as compared to 58.1% and 55.6% for the three and six
month periods ended October 29, 1994, respectively.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $308,000, or 1.7% for the quarter ended
October 28, 1995 as compared to the quarter ended October 29, 1994. For the six
months ended October 28, 1995, selling, general and administrative expenses
decreased $32,000, or less than 1% as compared to the similar period last year.
These decreases result from a continued effort to contain costs, as well as
from a shift in administrative resources to an operational and product line
support function. As a percent of revenues, selling, general and administrative
expenses declined to 23.2% and 23.8% for the three and six month periods ended
October 28, 1995 as compared to 25.8% and 26.7% for the similar periods ended
October 29, 1994, respectively. 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, as well as the factors discussed above.
OPERATING INCOME. Operating income increased $554,000, or 16.1%, to
$4,003,000 for the quarter ended October 28, 1995 as compared to $3,449,000 for
the quarter ended October 29, 1994. For the six months ended October 28, 1995,
operating income increased $960,000, or 16.6%, to $6,741,000, as compared to
$5,781,000 for the similar period last year. As a percent of revenues, operat-
ing income increased to 5.1% and 4.5% for the three and six month periods ended
October 28, 1995 as compared to 4.8% and 4.3% for the similar periods ended
October 29, 1994, respectively.
OTHER COSTS AND EXPENSES. Interest expense increased to $450,000 and
$848,000 for the three and six month periods ended October 28, 1995 as compared
to $365,000 and $716,000 for the similar periods ended October 29, 1994,
respectively. These increases resulted primarily from increased interest
rates (8.75% and 7.75% at October 29, 1995 and October 28, 1994
respectively). Average month end revolving credit balances (excluding
amounts borrowed to finance leasing activities) were approximately
$23,000,000 for the six months ended October 28, 1995 as compared to
approximately $21,000,000 for the six months ended October 29, 1994.
The Company's effective tax rate was 40% for the three and six month
periods ended October 28, 1995 and October 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.
NET INCOME. Net income was $2,148,000, or $.48 per common share, and
$1,869,000, or $.43 per common share, for the quarters ended October 28, 1995
and October 29, 1994, respectively. Net income was $3,581,000, or $.80 per
common share, and $3,072,000, or $.71 per common share, for the six month
periods ended October 28, 1995 and October 29, 1994, respectively.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. Working capital increased to $42,196,000 at October 28,
1995 from $32,183,000 at April 30, 1995. The current ratio was 1.72 to 1.0 at
October 28, 1995 as compared to 1.51 to 1.0 at April 30, 1995. Net cash
provided by operating activities was $3,141,000 for the six months ended October
28, 1995 as compared to $3,116,000 for the six months ended October 29, 1994.
For the six months ended October 28, 1995, net income of $3,581,000, deprecia-
tion and amortization of $5,533,000 and increased taxes payable of $864,000 more
than offset decreased accrued liabilities of $718,000, increased accounts
receivable of $2,818,000, and decreased accounts payable of $2,565,000. For the
six months ended October 29, 1994, net income of $3,072,000, depreciation and
amortization of $4,614,000, increased accounts payable of $5,655,000, increased
billings in excess of costs of $1,965,000, and increased taxes payable of
$724,000 more than offset decreased accrued liabilities of $894,000, and
increased accounts receivable, inventories and costs and estimated earnings in
excess of billings of $6,936,000, $3,529,000 and $1,117,000, respectively.
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 31, 1995. As of October 28, 1995, the total
capacity of the credit facility was $32,000,000. Borrowings under this agree-
ment are due May 2, 1998 and bear interest at the banks' reference rate (8.75%
and 9.00% at October 28, 1995 and April 30, 1995, 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 $27,250,000 and $16,465,000 at October 28, 1995 and
April 30, 1995, respectively. There was $3,393,000 borrowed for the account of
NFS at October 28, 1995, and $322,000 borrowed for the account of NFS at
April 30, 1995. Borrowings by the Company in fiscal 1996 and 1995 have been
for working capital and general corporate purposes, to invest in property and
equipment, as well as to borrow funds for NFS.
Net capital expenditures for the six months ended October 28, 1995 were
$6,631,000 and $5,717,000 for the similar period last year. These
expenditures were primarily used for telecommunications equipment used as
spare parts, computer equipment and facility expansion. At October 28, 1995,
there were no outstanding material commitments for future capital
expenditures. The Company has also made a significant investment in lease
contracts with its customers. The investment made in lease contracts totaled
$9,321,000 for the six months ended October 28, 1995 and $7,981,000 for the
similar period last year. Net lease receivables increased to $40,991,000 at
October 28, 1995 as compared to $40,503,000 at April 30, 1995.
<PAGE>
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 consisted of the following (in thousands):
<TABLE>
<CAPTION>
October 28, April 30,
1995 1995
------------ ------------
<S> <C> <C>
Nonrecourse borrowings $ 19,036 $ 24,712
Recourse borrowings 2,993 3,050
------------ ------------
Total discounted lease rentals 22,029 27,762
Less-current maturities (10,057) (11,449)
------------ ------------
$ 11,972 $ 16,313
------------ ------------
------------ ------------
</TABLE>
In addition to the recourse as described previously, recourse to Norstan,
Inc. relative to discounted lease rentals was limited to $929,000 as of October
28, 1995 and $986,000 as of April 30, 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.
<PAGE>
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 finan-
cial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On September 20, 1995, the annual meeting of shareholders of the
Company (the "Annual Meeting") was held.
(b) At the Annual Meeting, the following directors were elected:
Paul Baszucki Winston E. Munson
Richard Cohen Gerald D. Pint
Sidney Cohen Stanley Schweitzer
Arnold Lehrman Dr. Jagdish N. Sheth
Connie M. Levi Herbert F. Trader
Max A. Mayer
(c) The following items were voted upon at the Annual Meeting:
(1) Election of Directors:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Paul Baszucki 3,560,449 169,438
Richard Cohen 3,555,847 174,040
Sidney Cohen 3,557,984 171,903
Arnold Lehrman 3,586,985 142,902
Connie M. Levi 3,586,775 143,112
Max A. Mayer 3,558,239 171,648
Winston E. Munson 3,559,337 170,550
Gerald D. Pint 3,586,950 142,937
Stanley Schweitzer 3,587,085 142,802
Dr. Jagdish N. Sheth 3,584,921 144,966
Herbert F. Trader 3,587,550 142,337
</TABLE>
Abstentions and Broker non-votes relating to the Election of
Directors - 86,317
<PAGE>
(2) The Norstan, Inc. 1995 Long-Term Incentive Plan was
approved. A total of 2,313,498 shares were voted for ap-
proval of the Norstan, Inc. 1995 Long-Term Incentive Plan,
774,503 shares were voted against, and there were a total of
728,203 abstentions and/or broker non-votes.
(3) The Norstan, Inc. Restated Non-Employee Directors' Stock
Plan was approved. A total of 2,831,348 shares were voted
for approval of the Norstan, Inc. Restated Non-Employee
Directors' Stock Plan, 282,837 shares were voted against,
and there were a total of 702,019 abstentions and/or broker
non-votes.
(4) The shareholders approved the appointment of Arthur Andersen
LLP as independent auditors for the fiscal year ending April
30, 1996. A total of 3,713,074 shares were voted for the
appointment of Arthur Andersen LLP, 6,396 shares were voted
against, and there were a total of 96,734 abstentions and/or
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
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.
<PAGE>
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.
NORSTAN, INC.
-------------------------
Registrant
Date: December 11, 1995 By /s/ Paul Baszucki
-------------------------
Paul Baszucki
Co-Chairman of the Board
and Chief Executive Officer
Date: December 11, 1995 By /s/ Richard Cohen
----------------------------
Richard Cohen
Vice Chairman of the Board
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
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.
NORSTAN, INC.
-----------------------
Registrant
Date: December 11, 1995 By
-------------------------
Paul Baszucki
Co-Chairman of the Board
and Chief Executive Officer
Date: December 11, 1995 By
-------------------------
Richard Cohen
Vice Chairman of the Board
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT 11
NORSTAN, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- --------------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary earnings per share
Weighted average number of
issued shares outstanding 4,222 4,071 4,220 4,071
Effect of:
1986 Long-Term Incentive Plan 218 227 212 220
Restated Non-Employee Directors'
Stock Option Plan 49 42 48 40
Employee Stock Purchase Plan 6 6 5 6
------------ ------------ ------------ ------------
Shares outstanding used to compute
primary earnings per share 4,495 4,346 4,485 4,337
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income $ 2,148 $ 1,869 $ 3,581 $ 3,072
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Primary earnings per share $ .48 $ .43 $ .80 $ .71
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully diluted earnings per share -
Weighted average number of shares
used for primary earnings per share 4,495 4,346 4,485 4,337
Effect of:
1986 Long-Term Incentive Plan --- 5 5 3
Restated Non-Employee Directors'
Stock Option Plan --- 1 1 1
Employee Stock Purchase Plan --- 2 1 1
------------ ------------ ------------ ------------
Shares outstanding used to compute
fully diluted earnings per share 4,495 4,354 4,492 4,342
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income $ 2,148 $ 1,869 $ 3,581 $ 3,072
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully diluted earnings per share $ .48 $ .43 $ .80 $ .71
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-28-1995
<CASH> 2,318
<SECURITIES> 0
<RECEIVABLES> 55,711
<ALLOWANCES> 1,134
<INVENTORY> 11,248
<CURRENT-ASSETS> 101,024
<PP&E> 67,530
<DEPRECIATION> 34,335
<TOTAL-ASSETS> 167,819
<CURRENT-LIABILITIES> 58,828
<BONDS> 39,222
<COMMON> 422
0
0
<OTHER-SE> 60,266
<TOTAL-LIABILITY-AND-EQUITY> 167,819
<SALES> 84,020
<TOTAL-REVENUES> 151,106
<CGS> 62,871
<TOTAL-COSTS> 108,382
<OTHER-EXPENSES> 35,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 848
<INCOME-PRETAX> 5,969
<INCOME-TAX> 2,388
<INCOME-CONTINUING> 3,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,581
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
