<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended November 30, 1996
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number 0-200600
NORAND CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 42-1323151
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
550 Second Street S.E.
Cedar Rapids, Iowa 52401
(Address of principal executive offices)(Zip Code)
Telephone Number (319) 369-3100
(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
--- ---
As of January 6, 1997, there were 7,842,905 shares of the Registrant's
Common Stock, $0.01 par value, outstanding.
<PAGE> 2
NORAND CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Fincancial Statements:
Consolidated Balance Sheets
November 30, 1996 and August 31, 1996 3
Consolidated Statements of Operations
Three Months Ended November 30, 1996
and December 2, 1995 4
Consolidated Statements of Stockholders' Equity
November 30, 1996, August 31, 1996
and August 31, 1995 5
Consolidated Statements of Cash Flows
Three Months Ended November 30, 1996
and December 2, 1995 6 - 7
Notes to Consolidated Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NORAND CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION> NOVEMBER 30, AUGUST 31,
1996 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,199 $ 3,604
Accounts receivable, net of allowances for doubtful
accounts and estimated sales returns of $9,332
(unaudited) and $9,278 60,978 69,841
Inventories 32,497 33,565
Deferred tax assets 8,947 8,523
Prepaid expenses and other current assets 7,329 8,011
----------- -----------
Total current assets 112,950 123,544
Noncurrent assets:
Property, plant and equipment, net 25,236 25,601
Deferred tax assets 9,318 9,318
Patents and intellectual properties, net 5,836 6,157
Goodwill, net 3,074 3,112
Other noncurrent assets 4,463 4,333
----------- -----------
Total assets $160,877 $172,065
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 49,443 $ 52,460
Accounts payable 18,477 23,195
Accrued payroll and employee benefits 9,850 9,809
Other accrued liabilities 30,775 33,449
Deferred income 9,696 10,418
----------- -----------
Total current liabilities 118,241 129,331
----------- -----------
Stockholders' equity:
Common stock, $.01 par value: Authorized 15,000,000
shares; issued and outstanding 7,665,546 shares
(unaudited) and 7,664,535 shares 77 77
Additional paid-in capital 75,242 75,237
Accumulated deficit (28,715) (28,482)
Equity adjustment from foreign currency translation (3,968) (4,098)
----------- -----------
Total stockholders' equity 42,636 42,734
----------- -----------
Total liabilities and stockholders' equity $160,877 $172,065
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
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NORAND CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
NOVEMBER 30, DECEMBER 2,
1996 1995
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Product sales revenue $44,836 $39,231
Customer service revenue 10,600 10,575
------------ ------------
Total revenues 55,436 49,806
Cost of products and services 31,692 30,966
------------ ------------
Gross profit 23,744 18,840
Operating expenses:
Product development and
engineering expenses 5,174 7,020
Selling expenses 12,996 13,126
General and administrative expenses 4,167 4,201
------------ ------------
Total operating expenses 22,337 24,347
------------ ------------
Income (loss) from operations 1,407 (5,507)
Interest and other expenses 1,740 1,112
Litigation settlement - 300
------------ ------------
Loss before income taxes (333) (6,919)
Income tax benefit (100) (2,076)
------------ ------------
Net loss $ (233) $(4,843)
============ ============
Net loss per common share $ (0.03) $ (0.63)
============ ============
Average number of common and common
equivalent shares outstanding 7,664,865 7,663,691
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 5
NORAND CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
ADDITIONAL FROM FOREIGN
COMMON STOCK PAID-IN ACCUMULATED CURRENCY
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, August 31, 1994 7,350,574 $73 $69,594 $(10,606) $(2,084)
Exercises of stock options 174,455 2 2,737 - -
Tax benefit from exercise of stock
options - - 382 - -
Acquisition of subsidiary 9,817 - 437 - -
Foreign currency translation - - - - (1,558)
Net loss - - - (3,706) -
----------- ----------- ----------- ----------- ---------------
Balances, August 31, 1995 7,534,846 75 73,150 (14,312) (3,642)
Exercises of stock options 129,689 2 2,087 - -
Foreign currency translation - - - - (456)
Net loss - - - (14,170) -
----------- ----------- ----------- ----------- ---------------
Balances, August 31, 1996 7,664,535 77 75,237 (28,482) (4,098)
Exercises of stock options (unaudited) 1,011 - 5 - -
Foreign currency translation (unaudited) - - - - 130
Net loss (unaudited) - - - (233) -
----------- ----------- ----------- ----------- ---------------
Balances, November 30, 1996 (unaudited) 7,665,546 $77 $75,242 $(28,715) $(3,968)
=========== =========== =========== =========== ================
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 6
NORAND CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION> THREE MONTHS PERIOD ENDED
-------------------------------
NOVEMBER 30, DECEMBER 2,
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from Operating Activities:
Net loss $(233) $(4,843)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 1,746 1,590
Amortization 1,119 845
Amortization of deferred royalty income - (542)
Deferred tax assets (424) (2,076)
Provision for doubtful accounts and sales returns 1,389 1,757
Changes in assets and liabilities:
Accounts receivable 7,751 2,031
Inventories 1,278 (3,041)
Prepaid expenses and other assets 753 (76)
Deferred income (721) (468)
Accounts payable and accrued liabilities (7,539) (9,144)
----------- -----------
Total adjustments 5,352 (9,124)
----------- -----------
Net cash provided by (used in) operating activities 5,119 (13,967)
----------- -----------
Cash flows from Investing Activities:
Additions to property, plant and equipment (1,310) (2,977)
Additions to software, patents, and intellectual properties (411) (935)
----------- -----------
Net cash used in investing activities (1,721) (3,912)
----------- -----------
Cash flows from Financing Activities:
Net borrowings under line of credit agreement (3,040) 21,360
Issuances of common stock 5 5
Payments of refinancing expenses (466) (45)
----------- -----------
Net cash provided by (used in) financing activities (3,501) 21,320
----------- -----------
Effect of exchange rate changes on cash (302) (126)
----------- -----------
Net increase (decrease) in cash and cash equivalents (405) 3,315
Cash and cash equivalents:
Beginning of period 3,604 3,809
----------- -----------
End of period $3,199 $7,124
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 7
NORAND CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS PERIOD ENDED
-------------------------------
NOVEMBER 30, DECEMBER 2,
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid on all debt obligations $1,668 $803
=========== ===========
Income taxes refunded, net $99 $911
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 8
NORAND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements include all necessary adjustments (consisting of
normal recurring accruals) to present fairly the Company's financial
position as of November 30, 1996, and the results of its operations and
cash flows for the three months ended November 30, 1996 and December 2,
1995, in conformity with generally accepted accounting principles applied
on a consistent basis. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is subject to various potential risks and uncertainties
which include, without limitation, continued pressures in the marketplace,
the Company's ability to realize the benefits of the implemented
restructuring, the future need for restructuring, the Company's ability to
achieve increased revenues from new products and achieve lower operating
expenses as a percent of revenues, the Company's ability to obtain debt
financing, remain in compliance with debt covenants and maintain
liquidity. Additionally, the Company is subject to potential risks and
uncertainties related to foreign operations, the effect of technological
changes on the carrying value of inventories and specialized manufacturing
equipment, the estimated realization of deferred tax assets, the potential
for additional third party claims against the Company's Italian subsidiary
and the possible adverse effects of certain pending litigation.
The results of operations for the three months ended November 30,
1996 are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report
on Form 10-K for the year ended August 31, 1996.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market, and consist of the following:
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
------- -------
<S> <C> <C>
Parts and materials $15,522 $16,383
Work in process 2,256 1,671
Finished goods 11,008 11,957
Field service and
sales supplies 3,711 3,554
------- -------
Total $32,497 $33,565
======= =======
</TABLE>
3. SHORT-TERM DEBT
At August 31, 1996, the Company had $52.0 million of borrowings
outstanding under a credit facility (the "Agreement") with a group of
lending banks. In November 1996, as a result of noncompliance
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<PAGE> 9
with certain covenants under the Agreement due to losses incurred for
the year ended August 31, 1996, the Company and its lenders amended the
Agreement (the "Amended Agreement") wherein the lending group agreed to
waive any defaults under or violations of the Agreement occurring on or
before August 31, 1996. The Amended Agreement provides for maximum
borrowings of $60.5 million. Maximum allowable borrowings decline to
$59.5 million on December 16, 1996 and then decline periodically to $48.25
million on September 15, 1997. Obligations under the Amended Agreement
will mature on September 30, 1997. Obligations under the Amended
Agreement will continue to be secured by substantially all of the assets
of the Company. No foreign currency borrowings are permitted under the
Amended Agreement. The effective interest rate increases periodically
from the agent's alternate base rate (ABR) plus 1.75% for all borrowings
up to $57.4 million and ABR plus 2.75% for borrowings above $57.4 million
on September 15, 1996 to ABR plus 4% on December 31, 1996 for all
borrowings. The Amended Agreement will continue to contain financial
covenants relating to tangible net worth, capital additions, earnings and
cash flows. At November 30, 1996, the Company had $49.0 million of
borrowings outstanding under the Amended Agreement.
In addition to a fee amounting to $0.3 million which was paid on
September 15, 1996 to maintain the aggregate borrowing capacity under the
Agreement, the Company paid additional fees to maintain aggregate
borrowings under the Amended Agreement amounting to 0.1% of the total
facility due at closing, and will be required to pay 0.1% of the total
facility due monthly from January 31, 1997 to April 30, 1997, and 0.25% of
the total facility due June 30, 1997.
Concurrently with entering into the Amended Agreement, the Company
issued to its lending group Series A Warrants exercisable for an aggregate
of 250,000 shares of the Company's common stock (the "Series A Warrants")
and Series B Warrants exercisable for an aggregate of 300,000 shares of
the Company's common stock (the "Series B Warrants"), in each case at an
exercise price of $21.15. The Series A Warrants and Series B Warrants are
not exercisable until May 31, 1997 and August 31, 1997, respectively, and
may be repurchased by the Company for an aggregate of one dollar ($1) for
the Series A Warrants and an aggregate of one dollar ($1) for the Series B
Warrants in the event that, with respect to each of the Series A Warrants
and Series B Warrants, prior to such dates, all indebtedness under the
Amended Agreement has been repaid in full. Additionally, with respect to
the Series B Warrants, the Company may repurchase such Warrants before
August 31, 1997, for an aggregate of one dollar ($1) if it has received at
least $20 million in net cash proceeds from additional equity.
The Company is currently seeking alternative sources of capital which
will be more advantageous to the Company. Management believes that they
will be able to replace the Amended Agreement with such sources during
fiscal 1997, although there can be no assurances that such sources will be
available.
4. LITIGATION
On December 19, 1996, the settlement announced on August 28, 1996 of
the securities class action lawsuit against the Company and certain of its
officers was given final approval by the Federal District Court in Cedar
Rapids. Under the settlement, shareholders who are members of the class
certified by the Court will receive $4.5 million in cash and $4.5 million
worth of Norand stock, plus interest from October 17, 1996, less attorneys
fees and certain other expenses. The cash portion of the settlement is
covered by insurance. The Company has the option to pay $4.5 million in
cash instead of issuing stock.
The Company is also subject to certain legal proceedings and claims
which have arisen in the ordinary course of its business and have not been
finally adjudicated. In management's opinion, the ultimate resolution of
these matters will not be material to the Company's consolidated financial
position or results of operations.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS AS A PERCENTAGE OF TOTAL REVENUES (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------
NOVEMBER 30, DECEMBER 2,
1996 1995
(UNAUDITED) (UNAUDITED)
------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales revenue $44,836 80.9% $39,231 78.8%
Customer service revenue 10,600 19.1% 10,575 21.2%
-------- ------ -------- ------
Total revenues 55,436 100.0% 49,806 100.0%
Cost of products and services 31,692 57.2% 30,966 62.2%
-------- ------ -------- ------
Gross profit 23,744 42.8% 18,840 37.8%
Operating expenses:
Product development and
engineering expenses 5,174 9.3% 7,020 14.1%
Selling expenses 12,996 23.4% 13,126 26.4%
General and administrative expenses 4,167 7.5% 4,201 8.4%
-------- ------ -------- ------
Total operating expenses 22,337 40.2% 24,347 48.9%
-------- ------ -------- ------
Income (loss) from operations 1,407 2.6% (5,507) (11.1%)
Interest and other expenses 1,740 3.2% 1,112 2.2%
Litigation settlement - - 300 0.6%
-------- ------ -------- ------
Loss before income taxes (333) (0.6%) (6,919) (13.9%)
Income tax benefit (100) (0.2%) (2,076) (4.2%)
-------- ------ -------- ------
Net loss $(233) (0.4%) $(4,843) (9.7%)
======== ====== ======== ======
</TABLE>
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<PAGE> 11
INTRODUCTION
Norand designs, manufactures, and markets mobile computing systems
and wireless data communication networks using radio frequency technology.
Norand systems allow businesses worldwide to apply information technology
to industrial and field automation settings. Typical applications include
route accounting, field sales automation, and inventory database
management in manufacturing, warehouse and retail settings. Norand
provides hardware, application software, systems integration and support
to thousands of customers in dozens of industries to improve
accountability, productivity and management control.
SAFE HARBOR STATEMENT
Except for the historical information contained herein, certain of
the matters discussed herein are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995, which involve
risks and uncertainties. Potential risks and uncertainties include,
without limitation, continued pressures in the marketplace, the Company's
ability to realize the benefits of the implemented restructuring of the
Company, the future need for additional restructuring, the Company's
ability to achieve increased revenues from new products and achieve lower
operating expenses, and other factors that may affect future results as
described below.
Product shipments made during any particular quarter generally
represent orders received either during that quarter or shortly before the
beginning of that quarter. Shipments for orders received in a fiscal
quarter are generally from products manufactured in that quarter. It is
the Company's objective to maintain sufficient levels of inventories to
facilitate meeting delivery requirements of its customers. However, there
can be no assurance that during any given quarter the Company has or can
procure the appropriate mix of raw materials in order to accommodate any
given order. The Company's financial performance in any quarter is
dependent to a significant degree upon obtaining orders in that quarter
which can be manufactured and delivered to its customers in that quarter.
As such, financial performance for any given quarter cannot be known or
fully assessed until near the end of that quarter.
A substantial portion of the Company's total revenues is from
customers located outside of the United States. Foreign sales are subject
to the normal risk of foreign operations such as global and regional
economic conditions, trade protection measures, regulatory acceptance of
the Company's products, longer accounts receivable collection patterns,
and other considerations peculiar to the conduct of international
business. Additionally, the majority of the Company's foreign sales are
billed in foreign currencies which are subject to fluctuations. The
Company is subject to similar risks in its procurement of certain of its
materials and components from foreign sources.
Traditionally, the selling price of the Company's products decreases
over the life of the product. The Company endeavors to reduce
manufacturing costs of existing products and to introduce new products,
functions and other price/performance-enhancing features in order to
mitigate the effect of such decreases. To the extent that such cost
reductions, product enhancements and new product introductions do not
occur in a timely manner or do not achieve market acceptance, the
Company's operating results could be materially, adversely affected.
The business in which the Company is engaged is highly competitive
and influenced by advances in technology, product improvements and new
product introduction, and price competition. Failure to keep pace with
product and technological advances could adversely affect the Company's
competitive position and prospects for growth.
There can be no assurance that the Company's research and development
activities will lead to the
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<PAGE> 12
successful introduction of new or improved products or that the Company
will not encounter delays or problems in connection therewith. The cost
of completing new technologies to satisfy customer design, quality and
delivery expectations may exceed original estimates and could adversely
affect operating profits during any financial period. There can be no
assurance that newly designed technologies and products will ever result
in volume production and shipments. In addition, products under
development are frequently announced before introduction and such
announcements may cause customers to delay purchases of existing products
in anticipation of new or improved versions of those products.
The Company seeks to protect its proprietary information and
technology through reliance on contractual confidentiality provisions and
the application of patent, trademark and copyright laws. There can be no
assurance that such applications will result in the issuance of patents,
trademarks or copyrights or that third parties will not seek to challenge,
invalidate or circumvent such applications or resulting patents,
trademarks or copyrights. Moreover, competitors may independently develop
equivalent or superior, non-infringing technologies which could adversely
effect the Company's ability to market its products and deliver revenue
growth.
Many of the Company's products incorporate technologies licensed from
third parties. There can be no assurance that the Company will be able to
license needed technologies in the future. Additionally, the Company
believes that its products, processes and trademarks do not infringe on
the rights of third parties; however, there can be no assurance that third
parties will not assert claims of infringement of intellectual property
rights against the Company and that such claims will not lead to
litigation and/or require the Company to significantly modify or even
discontinue sales of certain of its products.
The Company has in the past, and may in the future, encounter
shortages of supplies and delays in deliveries of necessary components
from both domestic and foreign suppliers. While past shortages and delays
have not had a material adverse effect on the Company, shortages and
delays could have such effect in the future. Certain components,
subassemblies and products are sourced from a single supplier or a limited
number of suppliers. The loss of any such supplier may cause the Company
to incur additional set-up costs and delays in manufacturing and delivery
of products.
Certain of the Company's products operate through the transmission of
radio signals. These products are subject the regulation by the Federal
Communications Commission of the United States and corresponding
authorities in other countries. Currently, operation of such products in
specified frequency bands does not require licensing by such regulatory
authorities. Regulatory changes restricting the use of such bands or
allocating frequencies could have a materially adverse effect on the
Company's business and its results of operations.
The Company procures certain components and subassemblys subject to
long lead times and extended sales forecasts that may be affected by rapid
technological obsolescence. The effect of technological obsolescence has
resulted in previous material inventory writedowns and may result in
future writedowns which could adversely effect results of operations.
It is the Company's policy to depreciate specialized manufacturing
equipment over its remaining useful life using the units of production
method and to evaluate the remaining life and recoverability of such
equipment based on unit sales projections of underlying products. Given
the rapid changes in technology, there can be no assurance that the
Company's estimate that it will recover the carrying amount of this
equipment from future operations will not change in the near term.
The Company has recorded deferred tax assets totaling $18.3 million
at November 30, 1996, which include $7.6 million of domestic net operating
loss (NOL) carryforwards. Realization of the benefit of the NOL
carryforwards is dependent on generating sufficient taxable income prior
to the expiration of the loss carryforwards. Although realization is not
assured, management believes it is more likely than not that all of the
deferred assets will be realized. The amount of the deferred tax asset
considered realizable, however,
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<PAGE> 13
could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.
As a result of losses in fiscal 1995, the Company was not in
compliance with certain covenants under its credit facility.
Additionally, in November 1996, as a result of noncompliance with certain
covenants due to losses recorded in fiscal 1996, the Company and its
lenders amended its credit facility. Although management believes that the
Company will comply with the covenants under the amended facility, there
can be no assurance that the Company will comply with any or all of the
covenants under the amended credit facility in future periods. Future
noncompliance with covenants under the amended credit facility could
adversely impact the Company's ability to secure adequate borrowings at a
reasonable cost to fund future operations and working capital
requirements.
The Company recorded charges in its 1995 and 1994 financial
statements related to irregularities discovered at its Italian subsidiary.
Although management believes that the aggregate charges relating to the
irregularities will not exceed the amounts already recorded, there can be
no assurance that additional third party claims against the Italian
subsidiary will be discovered in future periods which will result in
further losses which could have an adverse financial impact on the
Company.
The Company has in the past and may in the future acquire businesses
as a way of expanding its product offerings and acquiring new technology.
Failure of the Company to identify future acquisition opportunities and/or
to integrate effectively businesses that it may acquire could have a
material adverse effect on the Company's growth.
The Company's future depends in large part on the continued
recruitment and retention of key technical, marketing and management
personnel, particularly those highly skilled design, process and test
engineers involved in the manufacture of existing products and the
development of new products and processes. The competition for such
personnel is intense, and the loss of key employees could have a
materially adverse effect on the Company's business, financial condition
and results of operations.
In addition to factors described above, the Company's future
financial results are subject to possible adverse effects of certain
pending litigation as discussed in Note 4 of the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
Revenues
Consolidated revenues for the quarter ended November 30, 1996
increased $5.6 million or 11.3% compared to revenues for the same period
in the prior fiscal year. Product revenues increased $5.6 million or
14.3% from the comparable prior period. The growth in product revenue was
supported by continued demand for the Company's new products, progress in
penetrating new vertical markets, particularly home services,
transportation, package trucking and field services; and growth in the
Systems Integration business. Customer service revenues remained flat at
$10.6 million from the comparable prior period. Growth in customer
service revenues compared to the first quarter of fiscal 1996 has been
slowed due to the expiration of certain long-term maintenance contracts
for the Company's legacy products combined with an increase in the
standard warranty period for the Company's new products.
Gross Profit
The Company's gross profit for the quarter November 30, 1996
increased $4.9 million or 26.0% from the comparable prior period. Gross
profit as a percent of total revenues increased from 37.8% to
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<PAGE> 14
42.8% for the quarter ended November 30, 1996. The increase in gross
profits is due primarily to the achievement of certain cost reduction
initiatives combined with decreases in costs for ongoing product
enhancements.
The Company expects gross margins to remain in the range of gross
margin percentages recorded in the three month period ended November 30,
1996.
Operating Expenses
Product Development and Engineering. Product development and
engineering expenses for the quarter ended November 30, 1996 decreased
$1.8 million or 26.3% from the comparable prior period due primarily to
the timing of costs incurred in the completion of development projects
combined with $0.6 million of reimbursed expenses. Product development
and engineering expenses as a percent of total revenue were 9.3% for the
quarter ended November 30, 1996, compared with 14.1% for the comparable
prior period.
Selling. Selling expenses for the quarter ended November 30, 1996
decreased $0.1 million or 0.1% from the comparable prior period due
primarily to the effects of the fiscal 1996 restructuring and continued
control over expenses, partially offset by higher commissions on higher
revenues. Selling expenses as a percent of total revenues were 23.4% for
the quarter ended November 30, 1996, compared to 26.4% for the comparable
period in the prior year.
General and Administrative. General and administrative expenses for
the quarter ended November 30, 1996 remained flat at $4.2 million from
the comparable prior period due primarily to the effects of restructuring
and continued control over expenses. General and administrative expenses
as a percent of total revenues were 7.5% for the quarter ended November
30, 1996, compared to 8.4% for the comparable period in the prior year.
Interest and Other Expenses
Interest and other expenses for the quarter ended November 30, 1996
increased $0.6 million due primarily to higher interest rates.
Income Taxes
The Company's effective tax rate was 30.0% for the quarter ended
November 30, 1996. The effective tax rate for the quarter ended November
30, 1996 is comparable to the same period in fiscal 1995.
Net Income
Net loss of $0.2 million for the quarter ended November 30, 1996
improved from a net loss of $4.8 million for the comparable period in
fiscal 1995. The improvement is due to higher revenues, and improved
gross margins and operating expenses as a percentage of revenues,
partially offset by higher interest and other expenses.
- 14 -
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $5.1 million for the
three months ended November 30, 1996, compared to cash flows used in
operating activities of $14.0 million for the three months ended December
2, 1995.
The Company invested $1.7 million and $3.9 million in capital
equipment and intellectual properties in the three month periods ended
November 30, 1996 and December 2, 1995, respectively. Capital equipment
investments were primarily concentrated in production machinery, tooling
and equipment, office automation tools, continued investment in the
implementation of SAP business systems software, and sales and product
development equipment to support continued business growth.
At August 31, 1996, the Company had $52.0 million of borrowings
outstanding under a credit facility (the "Agreement") with a group of
lending banks. In November 1996, as a result of noncompliance with
certain covenants under the Agreement due to losses incurred for the year
ended August 31, 1996, the Company and its lenders amended the Agreement
(the "Amended Agreement") wherein the lending group agreed to waive any
defaults under or violations of the Agreement occurring on or before
August 31, 1996. The Amended Agreement provides for maximum borrowings of
$60.5 million. Maximum allowable borrowings decline to $59.5 million on
December 16, 1996 and then decline periodically to $48.25 million on
September 15, 1997. Obligations under the Amended Agreement will mature
on September 30, 1997. Obligations under the Amended Agreement will
continue to be secured by substantially all of the assets of the Company.
No foreign currency borrowings are permitted under the Amended Agreement.
The effective interest rate increases periodically from the agent's
alternate base rate (ABR) plus 1.75% for all borrowings up to $57.4
million and ABR plus 2.75% for borrowings above $57.4 million on September
15, 1996 to ABR plus 4% on December 31, 1996 for all borrowings. The
Amended Agreement will continue to contain financial covenants relating to
tangible net worth, capital additions, earnings and cash flows. At
November 30, 1996, the Company had $49.0 million of borrowings outstanding
under the Amended Agreement.
In addition to a fee amounting to $0.3 million which was paid on
September 15, 1996 to maintain the aggregate borrowing capacity under the
Agreement, the Company paid additional fees to maintain aggregate
borrowings under the Amended Agreement amounting to 0.1% of the total
facility due at closing, and will be required to pay 0.1% of the total
facility due monthly from January 31, 1997 to April 30, 1997, and 0.25% of
the total facility due June 30, 1997.
Concurrently with entering into the Amended Agreement, the Company
issued to its lending group Series A Warrants exercisable for an aggregate
of 250,000 shares of the Company's common stock (the "Series A Warrants")
and Series B Warrants exercisable for an aggregate of 300,000 shares of
the Company's common stock (the "Series B Warrants"), in each case at an
exercise price of $21.15. The Series A Warrants and Series B Warrants are
not exercisable until May 31, 1997 and August 31, 1997, respectively, and
may be repurchased by the Company for an aggregate of one dollar ($1) for
the Series A Warrants and an aggregate of one dollar ($1) for the Series B
Warrants in the event that, with respect to each of the Series A Warrants
and Series B Warrants, prior to such dates, all indebtedness under the
Amended Agreement has been repaid in full. Additionally, with respect to
the Series B Warrants, the Company may repurchase such Warrants before
August 31, 1997, for an aggregate of one dollar ($1) if it has received at
least $20 million in net cash proceeds from additional equity.
The Company is currently seeking alternative sources of capital which
will be more advantageous to the Company. Management believes that they
will be able to replace the Amended Agreement with such sources during
fiscal 1997, although there can be no assurances that such sources will be
available.
The Company believes that projected capital equipment and systems
additions and working capital requirements can be funded from
operations or by existing borrowing capacity under the Company's current
credit facility.
- 15 -
<PAGE> 16
NORAND CORPORATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
See Exhibit Index which is incorporated herein by reference.
-16-
<PAGE> 17
SIGNATURES:
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.
NORAND CORPORATION
(Registrant)
Dated: January 10, 1997
----------------
/s/ N. Robert Hammer
--------------------
N. Robert Hammer
Chairman, President and Chief Executive
Officer
Dated: January 10, 1997
----------------
/s/ Robert A. Hurd
------------------
Robert A. Hurd
Controller, Chief Accounting Officer and
Assistant Treasurer
-17-
<PAGE> 18
NORAND CORPORATION
EXHIBIT INDEX
Exhibit No. Description Page Number
- ----------- ----------- -----------
11 Computation of Per-Share Income 19
27 Financial Data Schedule 20
-18-
<PAGE> 1
EXHIBIT 11
NORAND CORPORATION
COMPUTATION OF PER SHARE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
NOVEMBER 30, 1996 DECEMBER 2, 1995
--------------------- -------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Net loss to common shareholders (in thousands) $(233) $(233) $(4,843) $(4,843)
========= ======== ========== =========
Earnings Per Share Pursuant to APB 15
Weighted average common shares outstanding 7,664,865 7,664,865 7,663,691 7,663,691
Incremental shares outstanding assuming exercise of weighted
average common stock options granted pursuant to APB 15 0 0 0 0
--------- -------- ---------- ---------
Average common and common equivalent shares outstanding
pursuant to APB 15 7,664,865 7,664,865 7,663,691 7,663,691
========= ======== ========== =========
Loss per common share pursuant to APB 15 $(0.03) $(0.03) $(0.63) $(0.63)
========= ======== ========== =========
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 3,199
<SECURITIES> 0
<RECEIVABLES> 70,310
<ALLOWANCES> 9,332
<INVENTORY> 32,497
<CURRENT-ASSETS> 112,950
<PP&E> 62,092
<DEPRECIATION> 36,856
<TOTAL-ASSETS> 160,877
<CURRENT-LIABILITIES> 118,241
<BONDS> 0
77
0
<COMMON> 0
<OTHER-SE> 42,559
<TOTAL-LIABILITY-AND-EQUITY> 160,877
<SALES> 55,436
<TOTAL-REVENUES> 55,436
<CGS> 31,692
<TOTAL-COSTS> 31,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 443
<INTEREST-EXPENSE> 1,740
<INCOME-PRETAX> (333)
<INCOME-TAX> (100)
<INCOME-CONTINUING> (233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (233)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
