UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED NOVEMBER 1, 2003
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.
| Minnesota | 41-0835746 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
5101 Shady Oak Road, Minnetonka, Minnesota 55343-4100
Telephone: (952) 352-4000 Fax: (952) 352-4949 Internet: www.norstan.com
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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
On December 1, 2003, there were 13,101,477 shares outstanding of the registrant’s common stock, par value $0.10 per share, its only class of equity securities.
INDEX
| Page | ||||||||||||
| PART I | FINANCIAL INFORMATION |
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| Item 1. | Financial Statements |
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Consolidated Statements of Operations for the comparable
three and six months ended November 1, 2003 and October
26, 2002 (Unaudited) |
1 | |||||||||||
Consolidated Balance Sheets as of November 1, 2003 and
April 30, 2003 (Unaudited) |
2 | |||||||||||
Consolidated Statements of Cash Flows for the six months
ended November 1, 2003 and October 26, 2002 (Unaudited) |
4 | |||||||||||
Notes to Consolidated Financial Statements (Unaudited) |
5 | |||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
13 | ||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
22 | ||||||||||
| Item 4. | Controls and Procedures |
23 | ||||||||||
| PART II | OTHER INFORMATION |
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| Item 1. | Legal Proceedings |
23 | ||||||||||
| Item 2. | Changes in Securities and Use of Proceeds |
23 | ||||||||||
| Item 3. | Defaults Upon Senior Securities |
23 | ||||||||||
| Item 4. | Submission of Matters to a Vote of Security Holders |
24 | ||||||||||
| Item 5. | Other Information |
24 | ||||||||||
| Item 6. | Exhibits and Reports on Form 8-K |
25 | ||||||||||
| SIGNATURES | 26 | |||||||||||
i
PART I. FINANCIAL INFORMATION
ITEM 1.
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share amounts)
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| November 1, | October 26, | November 1, | October 26, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
REVENUES |
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Communications Technology Solutions and Services |
$ | 48,167 | $ | 48,732 | $ | 97,221 | $ | 92,559 | |||||||||||
Resale Services |
7,898 | 7,429 | 15,164 | 14,828 | |||||||||||||||
Financial Services |
381 | 916 | 945 | 1,773 | |||||||||||||||
Total Revenues |
56,446 | 57,077 | 113,330 | 109,160 | |||||||||||||||
COST OF SALES |
|||||||||||||||||||
Communications Technology Solutions and Services |
34,988 | 34,404 | 71,129 | 64,991 | |||||||||||||||
Resale Services |
4,972 | 4,622 | 9,830 | 9,516 | |||||||||||||||
Financial Services |
(134 | ) | 55 | (215 | ) | 149 | |||||||||||||
Total Cost of Sales |
39,826 | 39,081 | 80,744 | 74,656 | |||||||||||||||
GROSS MARGIN |
|||||||||||||||||||
Communications Technology Solutions and Services |
13,179 | 14,328 | 26,092 | 27,568 | |||||||||||||||
Resale Services |
2,926 | 2,807 | 5,334 | 5,312 | |||||||||||||||
Financial Services |
515 | 861 | 1,160 | 1,624 | |||||||||||||||
Total Gross Margin |
16,620 | 17,996 | 32,586 | 34,504 | |||||||||||||||
Selling, General & Administrative Expenses |
17,469 | 16,816 | 36,316 | 32,555 | |||||||||||||||
Restructuring and Other Charges |
4,180 | — | 4,180 | — | |||||||||||||||
OPERATING INCOME (LOSS) |
(5,029 | ) | 1,180 | (7,910 | ) | 1,949 | |||||||||||||
Interest Expense |
(553 | ) | (487 | ) | (1,001 | ) | (1,179 | ) | |||||||||||
Other Income (Expense), Net |
18 | (1 | ) | 24 | (7 | ) | |||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
(5,564 | ) | 692 | (8,887 | ) | 763 | |||||||||||||
Income Tax Provision (Benefit) |
(2,169 | ) | 263 | (3,466 | ) | 290 | |||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS |
(3,395 | ) | 429 | (5,421 | ) | 473 | |||||||||||||
DISCONTINUED OPERATIONS: |
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Income from operations of discontinued
operations, net of tax provision of $13 in 2002 |
— | — | — | 20 | |||||||||||||||
Gain (loss) on disposal of discontinued operations,
net of tax benefit of $3 and provision of $94 in 2003
and provision of $95 and $419 in 2002 |
(5 | ) | 155 | 150 | 2,284 | ||||||||||||||
NET INCOME (LOSS) |
$ | (3,400 | ) | $ | 584 | $ | (5,271 | ) | $ | 2,777 | |||||||||
NET INCOME (LOSS) PER SHARE - BASIC |
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CONTINUING OPERATIONS |
$ | (0.26 | ) | $ | 0.04 | $ | (0.42 | ) | $ | 0.04 | |||||||||
DISCONTINUED OPERATIONS |
0.00 | 0.01 | 0.01 | 0.19 | |||||||||||||||
NET INCOME (LOSS) PER SHARE - BASIC |
$ | (0.26 | ) | $ | 0.05 | $ | (0.41 | ) | $ | 0.23 | |||||||||
NET INCOME (LOSS) PER SHARE – DILUTED |
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CONTINUING OPERATIONS |
$ | (0.26 | ) | $ | 0.03 | $ | (0.42 | ) | $ | 0.03 | |||||||||
DISCONTINUED OPERATIONS |
0.00 | 0.01 | 0.01 | 0.18 | |||||||||||||||
NET INCOME (LOSS) PER SHARE – DILUTED |
$ | (0.26 | ) | $ | 0.04 | $ | (0.41 | ) | $ | 0.21 | |||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING |
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BASIC |
12,984 | 12,348 | 12,939 | 12,327 | |||||||||||||||
DILUTED |
12,984 | 12,817 | 12,939 | 12,966 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In thousands, except share amounts)
| November 1, | April 30, | |||||||||
| 2003 | 2003 | |||||||||
ASSETS |
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CURRENT ASSETS |
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Cash |
$ | 1,693 | $ | 1,185 | ||||||
Accounts receivable, net of allowances for doubtful
accounts of $1,198 and $965 |
32,090 | 33,523 | ||||||||
Lease receivables |
5,867 | 6,846 | ||||||||
Inventories |
8,255 | 7,248 | ||||||||
Costs and estimated earnings in excess of billings of
$10,268 and $10,344 |
5,161 | 5,746 | ||||||||
Prepaid expenses, deposits and other |
5,723 | 5,216 | ||||||||
TOTAL CURRENT ASSETS |
58,789 | 59,764 | ||||||||
PROPERTY AND EQUIPMENT |
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Furniture, fixtures and equipment |
92,751 | 89,988 | ||||||||
Less-accumulated depreciation and amortization |
(76,388 | ) | (72,304 | ) | ||||||
NET PROPERTY AND EQUIPMENT |
16,363 | 17,684 | ||||||||
OTHER ASSETS |
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Lease receivables, net of current portion |
2,782 | 5,503 | ||||||||
Deferred income taxes |
16,356 | 12,564 | ||||||||
Net non-current assets of discontinued operations |
623 | 693 | ||||||||
Goodwill |
4,524 | 4,379 | ||||||||
Intangible and other assets |
2,438 | 2,735 | ||||||||
TOTAL OTHER ASSETS |
26,723 | 25,874 | ||||||||
TOTAL ASSETS |
$ | 101,875 | $ | 103,322 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In thousands, except share amounts)
| November 1, | April 30, | ||||||||||
| 2003 | 2003 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Current maturities of long-term debt |
$ | 3,403 | $ | 1,641 | |||||||
Current maturities of discounted lease rentals |
3,835 | 4,897 | |||||||||
Accounts payable |
17,147 | 14,465 | |||||||||
Deferred revenue |
19,589 | 21,521 | |||||||||
Accrued - |
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Salaries and wages |
2,871 | 5,171 | |||||||||
Other liabilities |
8,130 | 5,860 | |||||||||
Net current liabilities of discontinued operations |
63 | 150 | |||||||||
Billings in excess of costs and estimated earnings of $19,170
and $13,832 |
7,738 | 6,827 | |||||||||
TOTAL CURRENT LIABILITIES |
62,776 | 60,532 | |||||||||
LONG-TERM DEBT, net of current maturities |
18,100 | 15,600 | |||||||||
DISCOUNTED LEASE RENTALS, net of current maturities |
1,822 | 3,600 | |||||||||
SHAREHOLDERS’ EQUITY |
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Common stock - $.10 par value; 40,000,000 authorized shares;
13,092,612 and 12,784,122 shares issued and outstanding |
1,309 | 1,278 | |||||||||
Capital in excess of par value |
57,613 | 56,891 | |||||||||
Accumulated deficit |
(37,791 | ) | (32,520 | ) | |||||||
Unamortized cost of stock |
(97 | ) | (134 | ) | |||||||
Accumulated other comprehensive loss |
(1,857 | ) | (1,925 | ) | |||||||
TOTAL SHAREHOLDERS’ EQUITY |
19,177 | 23,590 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 101,875 | $ | 103,322 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
| Six Months Ended | |||||||||||
| November 1, | October 26, | ||||||||||
| 2003 | 2002 | ||||||||||
OPERATING ACTIVITIES |
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Net income (loss) from continuing operations |
$ | (5,421 | ) | $ | 473 | ||||||
Adjustments to reconcile net income (loss) from continuing
operations to net cash used for continuing operating
activities: |
|||||||||||
Restructuring and other charges |
4,180 | — | |||||||||
Depreciation and amortization |
4,391 | 5,066 | |||||||||
Deferred income taxes |
(3,805 | ) | 474 | ||||||||
Changes in operating items: |
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Accounts receivable |
1,683 | (6,970 | ) | ||||||||
Inventories |
(888 | ) | (1,593 | ) | |||||||
Costs and estimated earnings in excess of billings |
616 | (1,516 | ) | ||||||||
Prepaid expenses, deposits and other |
(477 | ) | (1,034 | ) | |||||||
Accounts payable |
2,544 | 1,920 | |||||||||
Deferred revenue |
(2,136 | ) | (653 | ) | |||||||
Income taxes payable/receivable |
— | 7,876 | |||||||||
Accrued liabilities |
(4,399 | ) | (8,877 | ) | |||||||
Billings in excess of costs and estimated earnings |
842 | 2,107 | |||||||||
Net cash used for operating activities |
(2,870 | ) | (2,727 | ) | |||||||
INVESTING ACTIVITIES |
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Additions to property and equipment |
(2,666 | ) | (2,159 | ) | |||||||
Cash paid for acquisition |
(1,100 | ) | — | ||||||||
Investment in lease contracts |
(18 | ) | (224 | ) | |||||||
Proceeds from lease contracts |
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