1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
|_| 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 0-16284
NATIONAL TECHTEAM, INC.
-------------------------
(Name of issuer in its charter)
DELAWARE 38-2774613
--------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
835 Mason Street, Suite 200, Dearborn, MI 48124
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 277-2277
---------------
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.
|X| Yes |_| No
The number of shares of the registrant's only class of common stock
outstanding at July 31, 2000 was 12,688,766.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD
DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS DESCRIBED HEREIN INCLUDING THOSE SET FORTH UNDER "FACTORS
AFFECTING FUTURE RESULTS" UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS REPORT.
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NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
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PAGE
INDEX NUMBER
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PART I - FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Statements of Operations (Unaudited) 3
Three and Six Months Ended
June 30, 2000 and 1999
Condensed Consolidated Statements of Financial Position (Unaudited) 4 - 5
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 6
Six Months Ended
June 30, 2000 and 1999
Notes to the Condensed Consolidated Financial Statements - June 30, 1999 (Unaudited) 7 - 11
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 14
PART II - OTHER INFORMATION
ITEM 1.
Legal Proceedings 15
ITEM 4.
Submission of Matters to a Vote of Security Holders 15
ITEM 5.
Other Information 15
ITEM 6.
Exhibits and Reports on Form 8-K 16
Signatures 16
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PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES
Corporate Services
Corporate help desk services.................. $ 11,267 $ 9,478 $ 22,462 $ 18,492
Technical staffing............................ 4,573 5,419 9,028 11,889
Systems integration........................... 3,834 5,654 8,146 10,650
Training programs............................. 953 1,386 1,772 2,781
---------- ----------- ---------- ----------
Total Corporate Services......................... 20,627 21,937 41,408 43,812
---------- ----------- ---------- ----------
OEM Call Center Services......................... 3,716 6,684 8,581 14,894
Leasing Operations............................... 8,616 5,647 14,947 9,649
---------- ----------- ---------- ----------
TOTAL REVENUES....................................... 32,959 34,268 64,936 68,355
COST OF SERVICES DELIVERED........................... 25,004 27,606 50,748 56,010
---------- ----------- ---------- ----------
GROSS PROFIT......................................... 7,955 6,662 14,188 12,345
---------- ----------- ---------- ----------
OTHER EXPENSES
Selling, general and administrative.............. 5,406 5,368 10,619 10,438
Michigan Single Business Tax and other........... 200 182 375 413
---------- ----------- ---------- ----------
TOTAL OTHER EXPENSES................................. 5,606 5,550 10,994 10,851
---------- ----------- ---------- ----------
Operating income..................................... 2,349 1,112 3,194 1,494
---------- ----------- ---------- ----------
Interest income...................................... 153 108 313 300
Interest expense..................................... 430 219 797 451
---------- ----------- ---------- ----------
NET INTEREST EXPENSE................................. 277 111 484 151
---------- ----------- ---------- ----------
Income before income taxes........................... 2,072 1,001 2,710 1,343
Income tax expense................................... 961 341 1,258 457
---------- ----------- ---------- ----------
NET INCOME........................................... $ 1,111 $ 660 $ 1,452 $ 886
========== =========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE................. $ 0.08 $ 0.05 $ 0.11 $ 0.07
========== =========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Basic............................................ 13,188 13,193 13,164 13,337
Net effect of dilutive stock options............. 23 13 31
---------- ----------- ---------- ----------
Diluted.......................................... 13,188 13,216 13,177 13,368
========== =========== ========== ==========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- ----------------------------------------------------------------------------------------------------------------
NET INCOME, AS SET FORTH ABOVE....................... $ 1,111 $ 660 $ 1,452 $ 886
Foreign currency translation adjustments............. (15) (104) (68) (165)
--------- ----------- ---------- ----------
COMPREHENSIVE INCOME................................. $ 1,096 $ 556 $ 1,384 $ 721
========= =========== ========== ==========
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
- --------------------------------------------------------------------------- -------------- ---------------
(IN THOUSANDS)
CURRENT ASSETS
Cash and cash equivalents ............................................. $ 12,616 $ 14,192
Accounts receivable (less allowances of $250,000 at
June 30, 2000 and $225,000 at December 31, 1999) ................... 25,355 23,649
Refundable income tax ................................................. 804 1,039
Inventories ........................................................... 323 1,388
Prepaid expenses and other ............................................ 1,596 1,816
Deferred income tax ................................................... 327 327
-------- --------
41,021 42,411
-------- --------
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Computer Equipment and office furniture ................................ 20,071 19,572
Purchased software ..................................................... 6,576 5,340
Leasehold improvements ................................................. 2,710 1,870
Transportation equipment ............................................... 286 286
-------- --------
29,643 27,068
Less-- Accumulated depreciation and amortization ....................... 21,112 19,249
-------- --------
8,531 7,819
-------- --------
OTHER ASSETS
Leased equipment and other investments in leases ....................... 52,326 49,500
Intangibles (less accumulated amortization of $12,781,000 at
June 30, 2000 and $10,831,000 at December 31, 1999) ................. 7,337 9,287
Investment in GE Joint Venture ......................................... 258 568
Deferred income tax .................................................... 1,263 1,263
Other .................................................................. 2,327 1,459
-------- --------
63,511 62,077
-------- --------
TOTAL ASSETS ............................................................... $113,063 $112,307
======== ========
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
- ----------------------------------------------------------------------- ----------- -------------
(IN THOUSANDS)
CURRENT LIABILITIES
Accounts payable................................................... $ 1,691 $ 2,442
Accrued payroll, related taxes and withholdings.................... 3,236 3,285
Deferred revenues and unapplied receipts........................... 679 838
Accrued expenses and taxes......................................... 1,841 784
Current portion of long term debt.................................. 12,078 10,568
Other.............................................................. 644 152
------------- ------------
20,169 18,069
------------- ------------
LONG-TERM DEBT......................................................... 8,683 10,030
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01, 5,000,000 shares authorized,
none issued
Common stock, par value $.01, 45,000,000 shares authorized, issued --
16,723,000 and 16,717,400 shares at
June 30, 2000 and December 31, 1999, respectively............... 167 167
Additional paid-in capital......................................... 110,854 111,092
Retained earnings.................................................. 3,724 2,271
Accumulated other comprehensive loss............................... (117) (49)
------------- -----------
114,628 113,481
Less -- Treasury stock 3,856,389 and 3,451,323 shares
at June 30, 2000 and December 31, 1999, respectively............ 30,417 29,273
------------- -----------
Total shareholders' equity......................................... 84,211 84,208
------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 113,063 $ 112,307
============= ===========
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
---------------------------------
2000 1999
--------------- ---------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income........................................................ $ 1,452 $ 886
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization............................... 13,186 9,984
Treasury stock contributed to 401(k) plan and other......... 419 574
Changes in operating assets and liabilities................. 798 (2,859)
----------- ----------
Net cash provided by operating activities................... 15,855 8,585
----------- ----------
INVESTING ACTIVITIES
Purchase of leased equipment, net................................. (11,545) (9,522)
Investment in direct financing leases and residuals............... (907) 681
Purchase of property, equipment and software, net................. (2,321) (1,270)
Other ............................................................ (953) (133)
----------- ----------
Net cash used in investing activities.......................... (15,726) (9,447)
----------- ----------
FINANCING ACTIVITIES
Purchase of Company common stock.................................. (1,827) (2,497)
Proceeds (payments) on notes payable, net......................... 163 (6,438)
Proceeds from issuance of common stock............................ 26 34
Other............................................................. (67) (165)
----------- ----------
Net cash used in financing activities.......................... (1,705) (9,066)
------------ ----------
Decrease in cash and cash equivalents.......................... (1,576) (9,928)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 14,192 22,696
------------ ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 12,616 $ 12,768
============ ==========
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited consolidated financial statements have been prepared
by National TechTeam, Inc. ("TechTeam" or "Company") in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six-month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant Company and
Subsidiaries' annual report on Form 10-K for the year ended December 31, 1999.
Certain reclassifications have been made to the 1999 financial statements in
order to conform to the 2000 financial statement presentation.
NOTE A -- EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consist of stock options and are calculated using the treasury stock method.
NOTE B -- REVENUES FROM MAJOR CLIENTS
Revenues from clients which represented ten percent or more of total revenue are
as follows:
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------------
(IN THOUSANDS)
------------------------------------------------------------------------------
AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL
------------- ---------------- -------------- -----------------
Ford Motor Company.................. $ 10,365 $ 31.4% $ 3,506 $ 10.2%
DaimlerChrysler..................... 5,557 16.9% 5,370 15.7%
GE TechTeam, L.P.................... 3,716 11.3% 6,684 19.5%
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B-- REVENUES FROM MAJOR CLIENTS (continued)
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------
2000 1999
---------------------------------- --------------------------------------
(IN THOUSANDS)
------------------------------------------------------------------------------
AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL
------------- ---------------- -------------- -----------------
Ford Motor Company ................. $ 19,303 29.7% $ 8,043 11.8%
DaimlerChrysler..................... 11,757 18.1% 12,870 18.8%
GE TechTeam, L.P.................... 8,581 13.2% 14,894 21.8%
NOTE C -- LEGAL PROCEEDINGS
Refer to Part II, Item 1 for a description of legal proceedings.
NOTE D -- STOCK REPURCHASES
In May 2000, the Company announced a fourth stock repurchase program to purchase
up to an additional 2,000,000 shares of common stock during the period ending
May 2, 2001, unless extended. During the second quarter, the Company repurchased
484,100 shares for $1,827,000.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E -- SEGMENT REPORTING
- ----------------------------------------------------------------------------------------------------------------------------
CORPORATE SERVICES
----------------------------------------------------------
CORPORATE OEM CALL
HELP DESK TECHNICAL SYSTEMS TRAINING CENTER LEASING
SERVICES STAFFING INTEGRATION PROGRAMS TOTAL SERVICES OPERATIONS TOTAL
---------- --------- ----------- --------- ---------- --------- ----------- ----------
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------
Three months ended
June 30, 2000
Revenues............ $ 11,267 $ 4,573 $ 3,834 $ 953 $ 20,627 $ 3,716 $ 8,616 $ 32,959
Gross profit........ 3,373 366 1,594 166 5,499 98 2,358 7,955
Depreciation and
amortization.... 316 159 28 38 541 67 5,224 5,832
Three months ended
June 30, 1999
Revenues............ $ 9,478 $ 5,419 $ 5,654 $ 1,386 $ 21,937 $ 6,684 $ 5,647 $ 34,268
Gross profit........ 2,311 1,270 1,316 304 5,201 63 1,398 6,662
Depreciation and
amortization.... 882 45 35 133 1,095 0 3,555 4,650
Six months ended
June 30, 2000
Revenues............ $ 22,462 $ 9,028 $ 8,146 $ 1,772 $ 41,408 $ 8,581 $ 14,947 $ 64,936
Gross profit........ 6,918 1,042 2,029 218 10,207 263 3,718 14,188
Depreciation and
amortization.... 510 231 35 51 827 134 10,195 11,156
Six months ended
June 30, 1999
Revenues............ $ 18,492 $ 11,889 $ 10,650 $ 2,781 $ 43,812 $ 14,894 $ 9,649 $ 68,355
Gross profit........ 3,854 3,006 2,182 245 9,287 737 2,321 12,345
Depreciation and
amortization.... 1,815 94 75 272 2,256 0 6,542 8,798
Segment Assets
June 30, 2000 $ 13,624 $ 5,947 $ 5,197 $ 1,261 $ 26,029 $ 1,861 $ 64,522 $ 92,412
December 31, 1999 9,023 4,735 6,142 948 20,848 4,841 64,608 90,297
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E-- SEGMENT REPORTING (continued)
A reconciliation of the totals reported for the operating segments to the
applicable line item in the consolidated financial statements is as follows:
- -------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
---------------------------------
2000 1999
--------------- ---------------
(IN THOUSANDS)
Depreciation and amortization
Total for reportable segments................. $ 11,156 $ 8,798
Corporate assets.............................. 2,030 1,186
--------------- ---------------
Total depreciation and amortization........ $ 13,186 $ 9,984
=============== ===============
JUNE 30, DECEMBER 31,
2000 1999
--------------- ---------------
(IN THOUSANDS)
Assets
Total assets for reportable segments.......... $ 92,412 $ 90,297
Corporate assets.............................. 20,651 22,010
--------------- ---------------
Total assets............................... $ 113,063 $ 112,307
=============== ===============
NOTE F -- GE TECHTEAM, L.P.
During 1997, the Company formed GE TechTeam, L.P. (the "GE Joint Venture"), a
joint venture between TechTeam and a unit of General Electric Appliances
Division ("GEA"). The GE Joint Venture was formed to market and service extended
warranty contracts for the personal computer industry. The GE Joint Venture,
headquartered in Dallas, Texas, is operated by TechTeam and by GE Service
Management, an operating unit of GEA.
GE Service Management is a leading provider of extended service plans and
warranty administration for products ranging from major appliances and consumer
electronics to personal computers. GE Service Management offers extended service
plans that cover numerous manufacturers, makes, and models, and it provides
comprehensive service coverage for post-warranty products and service needs. The
GE Joint Venture provides call taking and service contract administration
services for GE Service Management. TechTeam shares in the profits, if any, (up
to an agreed upon limit) of this portion of the GE Joint Venture's business pro
rata based on it's partnership interest 49.45%. Losses, if any, are reimbursed
to the GE Joint Venture by GEA. Operations for this portion of the business have
not been profitable to date.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F-- GE TECHTEAM, L.P. (continued)
The GE Joint Venture also provides call center services to original equipment
manufacturers of personal computer products. TechTeam shares in the profits and
losses of this portion of the GE Joint Venture's business pro rata based on its
partnership interest. Such losses amounted to $499,000 for the quarter ended
June 30, 2000 and $610,000 for the six-month period ended June 30, 2000.
Summarized financial data for the GE Joint Venture follows:
-------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
Statement of Operations 2000 1999 2000 1999
--------------- -------------- --------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Revenues..................................... $ 4,397 $ 7,042 $ 9,666 $ 15,323
Expenses..................................... (5,998) (8,067) (13,512) (17,699)
Cost reimbursement - GE Appliances........... 1,102 1,071 3,236 2,562
--------------- -------------- --------------- --------------
Pre-tax income (loss)........................ $ (499) $ 46 $ (610) $ 186
=============== ============== =============== ==============
NOTE G -- LEASING OPERATIONS
The Company has restructured its leasing operations. The restructuring occurred,
in part, through a series of agreements with former employees and officers of
TechTeam Capital Group, L.L.C., signed April 3, 2000, and effective as of March
31, 2000. These employees and officers, and a company formed by some of them,
have purchased certain assets of TechTeam Capital Group, L.L.C., and assumed
certain liabilities, such as the sublease of the Company's Farmington Hills,
Michigan facility. The new company will perform services for the management of
the lease portfolio, and will be paid fees aggregating $675,000 for these
services over a four-year period. Should the new company remarket the off lease
equipment for the Company, the new company will receive 100% of the amount
received in excess of the recorded residual values of said equipment. The
agreements included a Separation and Release Agreement with the employees and
officers. One of the agreements increased the period, to four years from three
years, for determining the amount of the contingent payment provided in the
original purchase of TechTeam Capital Group. The reorganization has resulted in
a reduction of staff and overhead costs, and will appreciably reduce TechTeam
Capital Group's future leasing transactions. The Company expects that the
run-out of the lease portfolio will provide a substantial amount of cash after
the repayment of related outstanding notes payable.
In the second quarter, the Company recorded revenue related to the sale of
certain leasing operation assets. Former officers and employees of TechTeam
Capital Group have made claim on these revenues based on the service agreement
discussed above. Management of Company vigorously disagrees with the claims of
these former employees and believe that this claim will not have a material
adverse affect on the Company's financial position or results of operations.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain of the statements contained in this report that are not historical facts
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Our actual results may differ materially from those
included in the forward-looking statements. We caution readers not to place
undue reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. We do not undertake an obligation to revise
or publicly release the results of any revisions to these forward-looking
statements. You should carefully review the risk factors described in other
documents the Company files from time to time with the SEC, including the Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
COMPANY OVERVIEW
National TechTeam, Inc. ("TechTeam" or "Company") is a leading provider of
information technology ("IT") outsourcing support services to large national and
multinational corporations, government agencies, and service organizations. The
Company offers its services through three global units: (1) Corporate Services,
which provides corporations with help desk support, technical staffing, systems
integration, and custom training; (2) OEM Call Center Services, which provides
end user customers of its clients with inbound telephone support for their
computer products; and (3) Leasing Operations, which consists primarily of
leasing computer-related hardware and integrated services to corporate
customers.
CORPORATE SERVICES
As a provider of Single Point of Contact help desk and desktop management
programs, TechTeam provides centralized delivery of IT technical support
services. TechTeam's Corporate Services consists of corporate help desk
services, technical staffing, systems integration, and training programs.
Corporate Help Desk Services
TechTeam provides help desk services to assist major companies in managing their
internal IT systems. The Company's technical staff uses its experience and
knowledge in launching and delivering corporate help desk programs to define and
execute corporate IT support solutions to meet its clients' specific needs. The
Company's help desk solutions include numerous options for call tracking,
Internet-based callback support, telecommunications systems, product knowledge
bases, statistical reporting, real-time scheduling, and forecasting.
Systems Integration
TechTeam's systems integration team performs all phases of network
implementations, from project planning and management, to full-scale network
server and workstation installations. After the implementation, the systems
integration team performs a wide range of maintenance services to the client
ranging from desk-side support to network monitoring.
Technical Staffing
TechTeam maintains a staff of trained technical personnel to provide computer
and technical support to its clients at the clients' facilities. Services most
often provided are on-site help desk, programming, consulting, and systems
implementation and maintenance. The Company's adaptive management and proactive
methodology enables its staff to work closely with its clients, understand their
computing environments, and work together to design and install technology to
meet their business needs.
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Training Programs
Training programs include a wide array of applications within the office
automation, network, and client-server marketplace. Clients are offered a full
spectrum of delivery options including course catalogs, registration services,
computer equipment, networks, course materials, certified trainers, evaluation
options, desk-side tutorials, testing, feedback to help desks, and reporting.
OEM CALL CENTER SERVICES
TechTeam offers OEM call center services through the GE Joint Venture. TechTeam
provides the Joint Venture with technicians to answer support calls related to
extended warranty contracts for the personal computer industry. See Note F in
the notes to the consolidated financial statements for additional information on
the GE TechTeam Joint Venture.
LEASING OPERATIONS
TechTeam Capital Group previously wrote leases for computer, telecommunications,
and many forms of capital equipment ranging in lease terms from 2 - 5 years. As
discussed in Note G to the Condensed Consolidated Financial Statements, the
Company restructured its leasing operations and as a result the leasing business
will be significantly reduced.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999
Revenues decreased 3.8% to $33.0 million from $34.3 million. The decrease
resulted primarily from revenue decreases in OEM call center services of $3.0
million and systems integration services of $1.8 million, technical staffing of
$0.9 million and training programs of $0.4 million offset by increases in
leasing operations of $3.0 million and corporate help desk services of $1.8
million. OEM call center services decreased due to discontinuing business with a
large customer at the GE TechTeam joint venture. Systems integration revenues
decreased due to reduction in revenue related to Year 2000 remediation services
which were provided to a local government agency in 1999. Technical staffing
revenues decreased due to non-recurring revenue related to the implementation of
a quality system program for a major client which took place in 1999. Training
revenues decreased due to the completion of non-recurring training programs at
two large customers. The Leasing operations revenue increase was due to the sale
of $1.8 million of certain lease assets to a third party combined with increased
equipment lease sales with existing customers. Corporate help desk services
increased due to expanding services to several major existing clients.
Gross profit increased as a percentage of sales to 24.1% from 19.4%. The
increase resulted primarily from corporate help desk services margins increasing
through expansion of ongoing projects while at the same time containing related
incremental costs, and systems integration margins increasing due to not
repeating certain low margin business that took place in 1999.
Selling, General and Administrative expense remained constant at $5.4 million.
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RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999
Revenues decreased 5.0% to $65.0 million from $68.4 million. The decrease
resulted primarily from revenue decreases in OEM call center services of $6.3
million, technical staffing services of $2.8 million, systems integration
services of $2.5 million and training programs of $1.0 million offset by
increased revenue in leasing operations of $5.3 million and Corporate help desk
services of $4.0 million. OEM call center services decreased due to
discontinuing business with a large customer at the GE TechTeam joint venture.
Technical staffing decreased due to non-recurring revenue related to the
implementation of a quality system program for a major client which took place
in 1999. Systems integration revenues decreased due to non-recurring revenue
related to a large contract with a local government agency to replace
workstations and upgrade internal networks in 1999. The Leasing operations
revenue increase was due to the sale of $1.8 million of certain lease assets to
a third party combined with increased equipment lease sales with existing
customers. Corporate help desk services increased due to expanding services to
several major existing clients and additional revenues generated by new business
in Belgium related to the European Commission help desk.
Gross profit increased as a percentage of sales to 21.9 % from 18.1%. The
increase resulted primarily from corporate help desk services margins increasing
through expansion of ongoing projects while at the same time containing related
incremental costs, and systems integration margins increasing due to not
repeating certain low margin business that took place in 1999. Gross margins for
the other segment lines of business for the six-month period ended June 30, 2000
remained consistent with those of the same period in 1999.
Selling, General and Administrative expense was comparable for the six month
period at $10.6 million in 2000 and $10.4 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided from Operations
Cash flow provided from operating activities was $15.9 million for the six
months ended June 30, 2000. Cash flow provided was primarily due to earnings,
combined with $13.2 million of non-cash depreciation and amortization expense
mainly related to the leasing operations and a net change of $0.8 million in
operating assets and liabilities.
Cash Flow Used by Investing Activities
Cash flow used by investing activities was $15.7 million. The Company used $11.5
million to purchase equipment to be leased to customers for the leasing
operations and $2.3 million to purchase assets to be used on help desk service
projects.
Cash Flow Used in Financing Activities
Cash flow used in financing activities was $1.7 million, principally used to
repurchase Company stock in accordance with the stock repurchase program (see
notes to the financial statements for more discussion on the stock repurchase
program).
The Company's working capital position at June 30, 2000 was $20.9 million
compared to $24.3 million at December 31, 1999.
The Company has a line-of-credit agreement with Bank One which provides for
short-term borrowings of up to $25 million at the prime rate. The line-of-credit
is unsecured. There were no borrowings under this line at June 30, 2000.
The Company believes that cash flows from operations, together with current
short-term assets and borrowings available under the Company's lines-of-credit
will continue to be sufficient to meet its ongoing working capital needs.
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PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is a party to legal proceedings, which are routine, and incidental
to its business. Although the consequences of these proceedings are not
presently determinable, in the opinion of management, they will not have a
material adverse affect on the Company's liquidity, financial position or
results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 10, 2000. The holders
of 10,502,389 shares were present in person or by proxy, representing attendance
by at least 79% of the outstanding shares. The following is a summary of the
matters voted on at that meeting.
(a) The following persons were elected to the Company's Board of
Directors. The number of shares cast in favor and withheld were as
follows:
Name For Withheld
---------- --------
Kim A. Cooper 10,364,029 138,360
Peter T. Kross 10,332,364 170,025
Harry A. Lewis 10,360,447 141,942
Wallace D. Riley 10,358,629 143,760
Richard G. Somerlott 10,340,234 162,155
Ronald T. Wong 10,363,750 138,639
Jerome B. York 10,365,029 137,360
ITEM 5. OTHER INFORMATION
SHAREHOLDER PROPOSALS OR NOMINATIONS
In accordance with the Company's Bylaws, any shareholder proposal or nomination
of a person for election to the Board of Directors must be submitted in writing
to the Secretary of the Company not less than 90 nor more than 120 days in
advance of the date specified in the Company's proxy statement in connection
with the previous year's Annual Meeting of shareholders. The submission must
include certain specified information concerning the proposal or nominee, as the
case may be, and information about the proponent's ownership of the Company's
common stock. Proposals or nominations not meeting these requirements will not
be entertained at the Annual Meeting. A proponent should contact the Secretary
regarding the proper form and content of submissions.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
1. Reports on Form 8-K. No reports were filed during the quarter ended
June 30, 2000.
ITEMS 2 AND 3 ARE NOT APPLICABLE AND HAVE BEEN OMITTED
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.
National TechTeam, Inc.
(Registrant)
Date: 8/14/00 By: /s/ Harry A. Lewis
----------------------------
Harry A. Lewis
Chief Executive Officer
and President
Date: 8/14/00 By: /s/ M. Anthony Tam
----------------------------
M. Anthony Tam
Vice President,
Chief Financial Officer and Treasure
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Exhibit Index
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Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule