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: June 30, 1996
/ / 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 Identification No.)
incorporation or organization)
22000 Garrison Avenue, Dearborn, MI 48124
-----------------------------------------------------------
(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 August 8, 1996 was 11,423,280.
2
NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1.
Consolidated Statements of Operations
Three and Six Months Ended
June 30, 1996 and 1995 3
Consolidated Statements of Financial Position
June 30, 1996 and December 31, 1995 4-5
Consolidated Statements of Cash Flows
Six Months Ended
June 30, 1996 and 1995 6
Notes to the Unaudited Consolidated Financial Statements 7
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
ITEM 6.
Exhibits and Reports on Form 8-K 11
SIGNATURES 11
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3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
--------------- ---------------- --------------- ----------------
REVENUES
Call center services $ 7,558,569 $ 2,810,745 $ 14,386,919 $ 5,140,511
--------------- ---------------- --------------- ----------------
Corporate computer services
Technical staffing 3,845,441 3,790,523 7,702,021 7,288,603
Systems integration 2,511,436 1,962,591 5,009,341 3,590,259
Training programs 1,915,781 1,046,403 3,140,557 2,051,750
--------------- ---------------- --------------- ----------------
8,272,658 6,799,517 15,851,919 12,930,612
--------------- ---------------- --------------- ----------------
TOTAL REVENUES 15,831,227 9,610,262 30,238,838 18,071,123
LESS - COST OF SERVICES DELIVERED 11,990,965 7,169,932 23,237,849 13,446,426
--------------- ---------------- --------------- ----------------
GROSS MARGIN 3,840,262 2,440,330 7,000,989 4,624,697
OTHER EXPENSES
Selling, general and administrative 2,052,490 1,173,786 3,700,374 2,447,887
Interest 15,616 1,650 36,728 3,250
--------------- ---------------- --------------- ----------------
2,068,106 1,175,436 3,737,102 2,451,137
--------------- ---------------- --------------- ----------------
INCOME BEFORE TAX PROVISIONS 1,772,156 1,264,894 3,263,887 2,173,560
TAX PROVISIONS 728,000 489,785 1,354,000 859,220
--------------- ---------------- --------------- ----------------
NET INCOME $ 1,044,156 $ 775,109 $ 1,909,887 $ 1,314,340
=============== ================ =============== ================
PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE $ 0.09 $ 0.07 $ 0.17 $ 0.11
=============== ================ =============== ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING
Primary 11,722,525 11,656,738 11,531,069 11,539,650
Fully diluted 11,754,737 11,672,855 11,541,861 11,676,154
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
ASSETS June 30 December 31
1996 1995
--------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 1,661,461 $ 1,717,543
Accounts receivable (less allowances of
$279,569 at June 30, 1996 and
$200,000 at December 31, 1995) 15,590,622 13,269,272
Note receivable - current portion 66,666 53,333
Inventories 694,145 769,545
Other 468,194 381,751
--------------- --------------
Total current assets 18,481,088 16,191,444
--------------- --------------
PROPERTY AND EQUIPMENT
Office furniture and equipment 8,880,107 6,622,953
Leasehold improvements 976,242 681,223
Transportation equipment 154,395 154,395
--------------- --------------
10,010,744 7,458,571
Less - Accumulated depreciation and amortization 3,846,974 2,898,257
--------------- --------------
6,163,770 4,560,314
--------------- --------------
OTHER ASSETS
Goodwill (less accumulated amortization of $444,370 at
June 30, 1996 and $354,512 at December 31, 1995) 1,440,408 1,252,585
Note receivable - long-term 75,556 102,222
Other 226,714 178,958
--------------- --------------
1,742,678 1,533,765
--------------- --------------
TOTAL ASSETS $ 26,387,536 $ 22,285,523
=============== ==============
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY June 30 December 31
1996 1995
---------------- ---------------
CURRENT LIABILITIES
Current portion of long-term debt $ 181,104 $ 96,884
Accounts payable 1,547,745 893,965
Accrued payroll, related taxes and withholdings 2,328,584 2,037,446
Deferred income tax 89,839 89,839
Federal income tax payable 51,116 160,116
Deferred revenues and unapplied receipts 692,305 431,967
Other 226,598 128,312
---------------- ---------------
Total current liabilities 5,117,291 3,838,529
---------------- ---------------
LONG-TERM LIABILITIES
Deferred income tax 116,066 116,066
Long-term debt, less current portion 755,412 438,962
---------------- ---------------
871,478 555,028
---------------- ---------------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01
Authorized -- 5,000,000 shares
None issued
Common stock, par value $.01
Authorized -- 45,000,000 shares
Issued:
11,561,141 shares at June 30, 1996 115,611
11,407,666 shares at December 31, 1995 114,077
Additional paid-in capital 13,095,691 12,601,925
Retained earnings 7,992,859 6,082,972
---------------- ---------------
Total 21,204,161 18,798,974
Less - Treasury stock (177,063 shares at
June 30, 1996 and 200,000 shares at
December 31, 1995) 805,394 907,008
---------------- ---------------
Total shareholders' equity 20,398,767 17,891,966
---------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,387,536 $ 22,285,523
================ ===============
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended June 30
1996 1995
---------------- ---------------
OPERATING ACTIVITIES
Net income $ 1,909,887 $ 1,314,340
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization 1,111,358 523,548
Provision for uncollectible accounts receivable 79,569 13,143
Treasury stock contributed to 401(k) plan 101,614 -
Changes in current assets and liabilities:
Accounts receivable (2,400,919) (4,122,731)
Inventories 75,400 (23,624)
Advances to officers and employees - (270,081)
Other current assets (86,443) (137,736)
Accounts payable 653,780 (26,306)
Accrued payroll, related taxes and withholdings 291,138 307,206
Federal income tax (109,000) 392,970
Deferred revenues and unapplied receipts 260,338 340,628
Other current liabilities 98,286 110,075
---------------- ---------------
Net cash provided by/(used in) operating activities 1,985,008 (1,578,568)
---------------- ---------------
INVESTING ACTIVITIES
Purchases of property and equipment (2,552,167) (694,184)
Development of training manuals (49,001) (17,196)
Purchases of temporary investments - (450,000)
Proceeds from sales of temporary investments - 3,950,000
Other-net (63,211) -
---------------- ---------------
Net cash provided by/(used in) investing activities (2,664,379) 2,788,620
---------------- ---------------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 480,212 -
Proceeds from issuance of common stock 222,619 249,900
Purchase of Company common stock - (907,008)
Payments on long-term borrowings (79,542) (122,700)
---------------- ---------------
Net cash provided by/(used in) financing activities 623,289 (779,808)
---------------- ---------------
Increase/(decrease) in cash and cash equivalents (56,082) 430,244
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,717,543 412,559
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,661,461 $ 842,803
================ ===============
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
National TechTeam, Inc. ("TechTeam" or "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations.
The information provided in this report reflects all adjustments consisting of
normal recurring accruals which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. The results of
operations for these periods are not necessarily indicative of the results
expected for the full year.
NOTE A -- EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consists of stock options and are calculated using the treasury stock method.
NOTE B -- REVENUES FROM MAJOR CUSTOMERS
Revenues from major customers were as follows:
1996 1995
---- ----
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
Three Months Ended June 30
- --------------------------
Hewlett-Packard Company $5,214,133 32.9% $ 955,229 9.9%
Ford Motor Company 4,039,155 25.5 4,114,148 42.8
Chrysler Corporation 1,483,806 9.4 1,116,503 11.6
Corel Corporation 24,129 0.2 790,363 8.2
Six Months Ended June 30
- ------------------------
Hewlett-Packard Company $9,672,846 32.0% $1,609,375 8.9%
Ford Motor Company 8,573,511 28.4 7,877,077 43.6
Chrysler Corporation 2,624,788 8.7 2,031,761 11.2
Corel Corporation 268,459 0.9 1,600,447 8.9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
National TechTeam, Inc. (the "Company" or "TechTeam") is a leading provider of
information technology support services to large national and multi-national
corporations, government agencies and service organizations. The Company offers
its services through two global business units, call center services and
corporate computer services, which combine and provide a comprehensive range of
integrated solutions for clients with the need for a cost-effective way to
manage their information technology, support their products and train their
employees. TechTeam's client base is comprised of best-in-class companies such
as Hewlett-Packard Company, Ford Motor Company and Chrysler Corporation.
The Company derives its revenues by providing call center services and
corporate computer services, which includes technical staffing, systems
integration and training programs. Revenues from all service offerings are
recognized as services are performed. Call center services consist of
international telephone support for computer hardware, computer software and
other products and services. Call center services are billed on a fee per call,
fee per time spent on calls or per agent basis, as negotiated with the
customers. Under the terms of certain call center services contracts, customers
are required to pay certain amounts at the commencement of the contract.
Amounts billed under this provision of such contracts aggregated $618,100 in
the three months ended June 30, 1996, and $430,000 and $618,100 for the six
months ended June 30, 1995 and 1996, respectively. All such amounts are
recognized as revenues when billed. Technical staffing includes a variety of
technical services, including consulting, programming services, and the
placement of computer personnel at customer sites to support end-user
applications via on-site help desks and telephone hotline services. Systems
integration consists of database design and networking services. Contracts for
technical staffing and systems integration are generally negotiated on an
hourly rate basis or are priced on a project basis. Training programs consist
of instructor led training for word processing, spreadsheets, graphics,
databases, desktop publishing, operating systems, and systems administration
for NetWare, JAVA, NT, Windows, OS/'2 and UNIX and mainframe operating systems.
For training programs, customers pay a fee per student trained or a fee for
classes offered, in some cases with an advance payment for the cost of the
necessary training materials.
The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
Three Months Ended June 30 Six Months Ended June 30
-------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
REVENUES
Call center services 47.7 29.2 47.6 28.4
----- ----- ----- -----
Corporate computer services
Technical staffing 24.3 39.5 25.5 40.3
Systems integration 15.9 20.4 16.5 19.9
Training programs 12.1 10.9 10.4 11.4
----- ----- ----- -----
52.3 70.8 52.4 71.6
----- ----- ----- -----
TOTAL REVENUES 100.0 100.0 100.0 100.0
LESS - COST OF SERVICES DELIVERED 75.7 74.6 76.8 74.4
----- ----- ----- -----
GROSS MARGIN 24.3 25.4 23.2 25.6
----- ----- ----- -----
OTHER EXPENSES
Selling, general and administrative 13.0 12.2 12.3 13.6
Interest 0.1 0.0 0.1 0.0
----- ----- ----- -----
13.1 12.2 12.4 13.6
----- ----- ----- -----
INCOME BEFORE TAX PROVISIONS 11.2 13.2 10.8 12.0
TAX PROVISIONS 4.6 5.1 4.5 4.7
----- ----- ----- -----
NET INCOME 6.6% 8.1% 6.3% 7.3%
===== ===== ===== =====
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OVERVIEW (CONTINUED)
Cost of services delivered consists of direct personnel compensation, statutory
and other benefits associated with such personnel, facility and computer
equipment costs, and other direct costs associated with providing services to
customers. Selling, general and administrative costs consist of sales,
marketing and administrative compensation, statutory and other benefits
associated with such personnel, facility and equipment costs and other indirect
costs associated with the sales and administrative functions of the Company.
The Company believes that its growth has been a manifestation of the trend
among large corporations to outsource much of their information technology
needs and the Company's ability to provide services that address a broad range
of those needs. The Company believes that the outsourcing trend is a continuing
one and will provide continuing opportunities for both of its service lines.
The Company further believes that its service offerings are influenced
substantially by its customer' desires to focus on their core business and to
leave information technology needs to the Company for which information
technology is its core business. The Company's training programs have
encountered cyclical enrollment trends, influenced by the timing and extent to
which customers are upgrading desk top software. Additionally, the Company's
operating results are affected by the extent to which new business activities
require substantial initial investments and how quickly new business grows to
profitable levels.
COMPARATIVE PERFORMANCE - SECOND QUARTER 1996 VERSUS SECOND QUARTER 1995
TechTeam earned net income of $1,044,156, or $.09 per share, for the second
quarter 1996 as compared to a net income of $775,109, or $.07 per share, for
the second quarter 1995.
Revenues - TechTeam's total revenues increased by $6,220,965 in the second
quarter of 1996 to $15,831,227, a 64.7% increase over second quarter 1995
revenues. Changes in revenues resulted from the following:
Call center services - Revenues from call center operations increased by
$4,747,824 in the second quarter of 1996. This was a 168.9% increase over
call center revenues in the second quarter of 1995. The increase was due to
an increase to 20 contracts in place at June 30, 1996 compared to the 14
contracts at June 30, 1995 and increased business with existing customers,
primarily Hewlett-Packard. .
Technical staffing - There was a $54,918 (1.4%) increase in revenues
generated from providing technical staffing.
Systems integration - There was a $548,845 (28.0%) increase in revenues
in this service offering between the second quarter of 1995 and the second
quarter of 1996. The increased revenues reflect a growing demand for
TechTeam's networking services.
Training programs - Revenues for the second quarter of 1996 increased
$869,318 (83.1%) as compared to the second quarter of 1995, due to increased
enrollment in the Company's training programs and the sale of $350,000 of
computer based training materials to a new customer.
Cost of services delivered - These costs were relatively unchanged at 75.7% and
74.6% of revenues for the three months ended June 30, 1996 and 1995,
respectively.
Selling, general and administrative - These expenses, as a percent of revenues,
were 13.0% in the second quarter of 1996 compared with 12.2% in the second
quarter of 1995. This increase was due to increased sales personnel in the
second quarter 1996 hired to support continued growth in future years.
Tax provisions - TechTeam recognized $563,000 of Federal income tax in the
second quarter of 1996, resulting in an effective tax rate of 35.5% for the
second quarter of 1996 compared to 33.3% for the second quarter of 1995. In
1995, TechTeam reversed $25,000 of Federal income tax cushion, resulting in the
reduced effective tax rate. The Michigan Single Business Tax in the second
quarter of 1996 was $165,000, with an effective tax rate of 9.3% compared to
8.9% for the second quarter of 1995.
COMPARATIVE PERFORMANCE - FIRST SIX MONTHS OF 1996 VERSUS FIRST SIX MONTHS OF
1995
TechTeam earned net income of $1,909,887, or $.17 per share, for the first six
months of 1996 as compared to a net income of $1,314,340, or $.11 per share,
for the first six months of 1995.
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COMPARATIVE PERFORMANCE - FIRST SIX MONTHS OF 1996 VERSUS FIRST SIX MONTHS OF
1995 (CONTINUED)
Revenues - TechTeam's total revenues increased by $12,167,715 in the first six
months of 1996 to $30,238,838, a 67.3% increase over the first six months 1995
revenues. Changes in revenues resulted from the following:
Call center services - Revenues from call center operations increased by
$9,246,408 in the first six months of 1996. This was a 179.9% increase over
call center revenues in the first six months of 1995. The increase was due
to an increase to 20 contracts in place at June 30, 1996 compared to 14
contracts at June 30, 1995 and increased business with existing customers,
primarily Hewlett-Packard.
Technical staffing - There was a $413,418 (5.7%) increase in revenues
generated from providing technical staffing. The increase in technical
staffing revenues resulted from continued customer demand for TechTeam's
help desk and computer services personnel at Ford and other major accounts.
Systems integration - There was a $1,419,082 (39.5%) increase in
revenues in this service offering between the first six months of 1995 and
the first six months of 1996. The increased revenues reflect a growing
demand for TechTeam's networking services.
Training programs - Revenues for the first six months of 1996 increased
$1,088,867 (53.1%) as compared to the first six months of 1995, due to
increased enrollment in the Company's training programs and the sale of
$350,000 of computer based training materials to a new customer.
Cost of services delivered - These costs were relatively unchanged at 76.8% and
74.4% of revenues for the six months ended June 30, 1996 and 1995,
respectively.
Selling, general and administrative - These expenses, as a percent of revenues,
were 12.3% in the first six months of 1996 compared with 13.6% in the first six
months of 1995. This decline was due to TechTeam's ability to increase
significantly revenues without a corresponding increase in general and
administrative expenses.
Tax provisions - TechTeam recognized $1,031,000 of Federal income tax in the
first six months of 1996, resulting in an effective tax rate of 35.1% compared
to 33.6% for the first six months of 1995. In 1995, TechTeam reversed $25,000
of Federal income tax cushion, resulting in the reduced effective tax rate.
The Michigan Single Business Tax in the first six months of 1996 was $323,000,
with an effective tax rate of 9.9% compared to 8.9% in the first six months of
1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, TechTeam had working capital of $13,363,797. This is an
increase in working capital of $1,010,882 since December 31, 1995, due
primarily to an increase in receivable balances which were due to increased
revenues for the first six months of 1996.
TechTeam has a line-of-credit agreement with NBD Bank which provides for
short-term borrowings of up to $6,000,000; the credit is unsecured. The
line-of-credit is at the prime rate. There were no borrowings under the credit
agreement at June 30, 1996. The Company expects to borrow under this
arrangement to finance anticipated increases in accounts receivable balances.
10
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PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
11. Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1996.
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: August 12, 1996 By: /s/William F. Coyro Jr.
--------------------------------
William F. Coyro Jr.
Chairman of the Board and
Chief Executive Officer
Date: August 12, 1996 By: /s/Lawrence A. Mills
--------------------------------
Lawrence A. Mills
Senior Vice President,
Chief Financial Officer and Treasurer
11
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Computation of Earnings Per Share
27 FINANCIAL DATA SCHEDULE