EX-99.1 2 a4714831ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 Norstan Reports First Quarter Fiscal 2005 Results; Operating Income Totaled $2.4 Million EPS of $0.09 Per Share MINNEAPOLIS--(BUSINESS WIRE)--Sept. 7, 2004--Norstan, Inc. (Nasdaq:NRRD), a leading provider of communications solutions and services, today reported revenues of $54.4 million for the first quarter ended July 31, 2004, versus $56.9 million reported in the first quarter of fiscal 2004. First quarter operating income totaled $2.4 million compared with an operating loss of $2.9 million in the first quarter of fiscal 2004. The company reported first quarter net income of $1.2 million, or $0.09 per share, versus a first quarter net loss of $1.9 million, or $0.15 per share. Gross margin of 29.6 percent improved from 28.1 percent one year ago. During the quarter, Norstan sold the assets and intellectual property related to Norstan CDG to IPcelerate, Inc., a privately held developer of Voice over IP (VoIP) applications, for $2.5 million in cash and promissory notes, and the assumption by the purchaser of approximately $400,000 in liabilities. Pursuant to the terms of the purchase agreement, the company received $1.25 million at closing and $1.25 million evidenced by non-interest promissory notes in favor of Norstan ($1.05 million due January 30, 2005 and $200,000 due February 28, 2005). Norstan recorded a pre-tax gain of $88,000 from the sale in the first quarter of fiscal 2005. The company believes it can continue to offer its customers access to VoIP applications without the development expenses associated with the on-going operations of the CDG business. "We are pleased with our first quarter performance," said Scott G. Christian, Norstan's president and CEO. "While our revenues were down modestly over last year, the quality of our revenues has improved, as reflected in higher gross margins. Our efforts to properly size our business have continued to improve results; our operating profitability has strengthened and cash flow has improved steadily." The company's expense structure continued to improve in the first quarter of fiscal 2005. SG&A expenses decreased 3.1 percent sequentially and 27.2 percent year-over-year as a result of the company's fiscal 2004 restructuring initiatives. This significant reduction in spending was somewhat offset by the recording of $1.5 million in incentive compensation costs accrued during the first quarter of fiscal 2005. EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations for the first quarter of fiscal 2005 totaled $4.3 million, an improvement from negative EBITDA of $691,000 reported in the first quarter of last year. Sequentially, EBITDA remained steady as compared to the $4.4 million reported in the fourth quarter of fiscal 2004, excluding restructuring and other charges. Sequential Results First quarter fiscal 2005 revenues declined modestly from the $57.5 million reported in the fourth quarter of fiscal 2004. Gross margin totaled 29.6 percent compared to the 29.2 percent reported last quarter. Operating income of $2.4 million showed significant improvement from the $6.8 million operating loss reported last quarter. Net income also improved from the $4.6 million loss, or $0.35 per share, reported last quarter. Norstan recorded $9.4 million in pre-tax restructuring and other charges during the fourth quarter of fiscal 2004. Fiscal 2005 Outlook Norstan's management believes it prudent not to provide forward-looking financial guidance for fiscal 2005. However, as the company's strategic focus has changed from one of higher revenue through aggressive growth, Norstan is focusing in fiscal 2005 on profitability through several initiatives, such as improving gross margins, delivering advanced business applications, driving additional sales to its existing customer base, selectively developing new business in certain technologies and continued development of our Resale Services business. This change in strategic focus may result in lower revenues but deliver higher profitability and cash flow in fiscal 2005 than in fiscal 2004. Conference Call and Webcast Norstan will discuss its first quarter fiscal year results on a conference call scheduled today, September 7, at 5 p.m. Eastern time. The conference call can be accessed toll-free by callers at (888) 333-4519 or on the Internet at www.norstan.com. Starting today at approximately 7:00 p.m. Eastern time, the replay of the call can be accessed toll-free until midnight, September 15, by dialing (866) 518-1010 (ID number P516079N) or on the Internet at www.norstan.com. 2004 Annual Shareholders' Meeting Norstan will hold its 2004 Annual Shareholders' Meeting on Wednesday, September 15, 2004, at 2:00 p.m. central time, at the Minneapolis Marriott Southwest, 5801 Opus Parkway in Minnetonka, Minnesota. About Norstan, Inc. Norstan, Inc. (Nasdaq:NRRD) is a full-service communications solutions company that delivers voice and data technologies and services, and remanufactured equipment to corporate end-users and public sector companies. Norstan offers a full range of integrated technologies for converged solutions, customer contact solutions and ProtectNet(R) Life Cycle services. The company has offices located throughout the U.S. and Canada. To learn more, visit the Norstan website at www.norstan.com. GAAP to Non-GAAP Reconciliation To comply with Regulation G promulgated pursuant to the Sarbanes-Oxley Act, Norstan has attached to this news release and will post to the company's investor relations web site (www.norstan.com) reconciliations of differences between non-GAAP and GAAP financial information that may be required in connection with issuing the company's quarterly and full-year financial results. Form 8-K Concurrent with this news release, Norstan filed a Form 8-K with the SEC as required by Item 2.02 of the instructions to Form 8-K. This Form 8-K is available on Norstan's Investor Relations web site (www.norstan.com) and on the SEC's web site (www.sec.gov). Cautionary Statement Under the Private Securities Litigation Reform Act of 1995 This news release may contain forward-looking statements within the meaning of the Private Securities Litigation Acts of 1995. A number of factors should be considered in conjunction with the above forward-looking statements, including changes in economic and market conditions, factors related to the development of new technologies, product pricing and margins, labor costs, industry regulation, management of growth, integration of acquisitions, funding and sourcing of adequate inventory, access to adequate financing and other factors set forth in cautionary statements included in Norstan's Annual Report on Form 10-K and other documents as filed with the Securities and Exchange Commission from time to time. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date of this release. The company undertakes no obligation to update these forward-looking statements to reflect events and circumstances that may arise after the date of this release. Disclosure of revenue dollars are not intended to reflect materiality, and are subject to confidentiality provisions and customer consent. Norstan and associated product names are trademarks or registered trademarks of Norstan, Inc. in the United States and/or other countries. All other products and services mentioned in this document may be trademarks of the companies with which they are associated. NORSTAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) For the Quarter Ended --------------------- July 31, August 2, 2004 2003 ---------- ---------- Revenues Communications Solutions and Services $46,023 $49,618 Resale Services 8,378 7,266 ---------- ---------- Total revenues 54,401 56,884 ---------- ---------- Cost of sales 38,305 40,918 ---------- ---------- Gross margin Communications Solutions and Services 13,211 13,558 Resale Services 2,885 2,408 ---------- ---------- Total gross margin 16,096 15,966 ---------- ---------- SG and A expenses 13,725 18,847 ---------- ---------- Operating income (loss) 2,371 (2,881) Interest expense (621) (448) Other income, net 120 7 ---------- ---------- Net income (loss) from continuing operations before taxes 1,870 (3,322) Income tax provision (benefit) 710 (1,296) ---------- ---------- Net income (loss) from continuing operations 1,160 (2,026) Discontinued operations (net of tax): Gain from disposal of discontinued operations, net of tax 87 154 ---------- ---------- Net income (loss) $1,247 $(1,872) ========== ========== Net income (loss) per diluted share: Continuing operations $0.08 $(0.16) Discontinued operations 0.01 0.01 ---------- ---------- Net income (loss) per diluted share $0.09 $(0.15) ========== ========== Weighted average diluted shares outstanding 13,662 12,856 ========== ========== NORSTAN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts) July 31, April 30, 2004 2004 -------- --------- ASSETS ------ CURRENT ASSETS Cash $4,520 $2,724 Accounts receivable, net 33,864 32,795 Current lease receivables 3,273 4,603 Inventories 8,941 8,999 Costs and estimated earnings in excess of billings 4,992 4,786 Deferred income taxes 5,985 5,985 Prepaid expenses, deposits and other 6,157 5,770 Net current assets of discontinued operations 737 627 -------- --------- Total current assets 68,469 66,289 -------- --------- PROPERTY AND EQUIPMENT Furniture, fixtures and equipment 77,165 84,423 Less accumulated depreciation and amortization (65,227) (71,242) -------- --------- Net property and equipment 11,938 13,181 -------- --------- OTHER ASSETS Lease receivables, net 1,280 1,020 Deferred income taxes 12,216 12,979 Goodwill 4,123 4,477 Other 1,591 2,498 -------- --------- Total other assets 19,210 20,974 -------- --------- $99,617 $100,444 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Current maturities of long-term debt $4,000 $4,400 Current maturities of discounted lease rentals 2,290 2,802 Accounts payable 11,687 11,990 Deferred revenue 23,254 21,769 Accrued liabilities 15,525 14,951 Billings in excess of costs and estimated earnings 6,711 8,291 -------- --------- - - Total current liabilities 63,467 64,203 -------- --------- LONG-TERM DEBT, NET 16,000 16,833 DISCOUNTED LEASE RENTALS, NET 412 750 NET NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS 80 100 OTHER LIABILITIES 2,535 3,003 -------- --------- Total liabilities 82,494 84,889 -------- --------- SHAREHOLDERS' EQUITY Common stock - $0.10 par value: 40,000,000 authorized shares: 13,554,237 and 13,365,326 shares issued and outstanding 1,355 1,337 Capital in excess of par value 58,906 58,474 Accumulated deficit (40,669) (41,916) Unamortized cost of stock (552) (372) Accumulated other comprehensive loss (1,917) (1,968) -------- --------- Total shareholders' equity 17,123 15,555 -------- --------- $99,617 $100,444 ======== ========= NORSTAN, INC. AND SUBSIDIARIES Reconciliation of Non-GAAP Financial Measures (In thousands) Earnings before interest, taxes, depreciation and amortization (EBITDA) - continuing operations ---------------------------------------------------------------------- For the Quarter Ended ---------------------------- July 31, April 30, August 2, 2004 2004 2003 -------- --------- --------- Net Income - Continuing Operations 1,160 (4,652) (2,026) Interest 621 618 448 Taxes 710 (2,717) (1,296) Depreciation/Amortization 1,834 1,807 2,183 -------- --------- --------- EBITDA - Continuing Operations 4,325 (4,944) (691) Restructuring and other charges - 9,368 - -------- --------- --------- EBITDA - Continuing Operations before restructuring and other charges 4,325 4,424 (691) ======== ========= ========= CONTACT: Norstan, Inc., Minneapolis Jan W. Drymon, 952-352-4292 jan.drymon@norstan.com or The Carideo Group Tony Carideo, 612-317-2880 tony@carideogroup.com