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, 1997
[ ] 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)
835 Mason Street, Suite 200, 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, 1997 was 15,853,942.
2
NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
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PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1.
Consolidated Statements of Operations
Three and Six Months Ended
June 30, 1997 and 1996 3
Consolidated Statements of Financial Position
June 30, 1997 and December 31, 1996 4-5
Consolidated Statements of Cash Flows
Six Months Ended
June 30, 1997 and 1996 6
Notes to the Unaudited Consolidated Financial Statements 7
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6.
Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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PART 1-- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- -------------------------------------
1997 1996 1997 1996
------------ ----------- ----------- -------------
REVENUES
Call Center Services
Contract services.................... $ 8,467,435 $ 7,558,569 $ 17,436,070 $ 14,386,919
Foundation Platform licenses and
other............................. 200,000 -- 3,791,777 --
------------ ----------- ------------ -------------
Total Call Center Services................ 8,667,435 7,558,569 21,227,847 14,386,919
------------ ----------- ------------ -------------
Corporate Computer Services
Technical staffing................... 5,070,343 3,845,441 9,409,629 7,702,021
Systems integration.................. 2,852,210 2,511,436 5,224,998 5,003,288
Training programs.................... 1,860,837 1,915,781 3,304,033 3,140,557
------------ ----------- ------------ -------------
Total Corporate Computer Services......... 9,783,390 8,272,658 17,938,660 15,845,866
------------ ----------- ------------ -------------
TOTAL REVENUES................................ 18,450,825 15,831,227 39,166,507 30,232,785
COST OF SERVICES DELIVERED.................... 15,417,826 11,990,965 30,698,010 23,237,849
------------ ----------- ------------ -------------
GROSS PROFIT.................................. 3,032,999 3,840,262 8,468,497 6,994,936
------------ ----------- ------------ -------------
OTHER EXPENSES/(INCOME)
Selling, general and administrative....... 3,550,080 2,052,490 6,747,349 3,700,374
Interest expense.......................... -- 21,271 -- 45,661
Interest income........................... (771,747) (5,655) (1,495,345) (14,986)
------------ ----------- ------------ -------------
2,778,333 2,068,106 5,252,004 3,731,049
------------ ----------- ------------ -------------
INCOME BEFORE TAX PROVISIONS.................. 254,666 1,722,156 3,216,493 3,263,887
TAX PROVISIONS................................ 174,900 728,000 1,318,900 1,354,000
------------ ----------- ------------ -------------
NET INCOME.................................... $ 79,766 $ 1,044,156 $ 1,897,593 $ 1,909,887
============ =========== ============ =============
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE.. $ 0.01 $ 0.09 $ 0.12 $ 0.17
============ =========== ============ =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Primary................................... 15,482,926 11,722,525 15,478,963 11,531,069
Fully diluted............................. 15,490,766 11,754,737 15,478,963 11,541,861
- -------------
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
----------- -----------
CURRENT ASSETS
Cash and cash equivalents........................................ $43,385,111 $ 46,771,797
Securities available-for-sale.................................... 24,045,155 27,169,703
Accounts receivable (less allowances of $373,368 at June 30, 1997
and $225,000 at December 31, 1996).............................. 22,789,221 22,482,927
Refundable income tax............................................ 1,126,348 1,205,561
Inventories...................................................... 644,094 647,565
Advances to vendors.............................................. 2,565,891 --
Other............................................................ 183,643 622,865
----------- ------------
94,739,463 98,900,418
----------- ------------
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Office furniture and equipment................................... 15,523,783 12,214,673
Purchased software............................................... 2,248,617 1,742,007
Leasehold improvements........................................... 1,625,331 1,380,140
Transportation equipment......................................... 240,767 192,907
----------- ------------
19,638,498 15,529,727
Less -- Accumulated depreciation and amortization................ 7,033,318 5,101,211
----------- ------------
12,605,180 10,428,516
----------- ------------
OTHER ASSETS
Goodwill (less accumulated amortization of $1,217,642 at
June 30, 1997 and $551,081 at December 31, 1996)................ 6,616,831 1,509,437
Investment in WebCentric......................................... -- 804,516
Accounts receivable -- long term................................. 2,019,788 --
Other............................................................ 455,536 319,171
------------ ------------
9,092,155 2,633,124
------------ ------------
TOTAL ASSETS......................................................... $116,436,798 $111,962,058
============ ============
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
JUNE 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------ ------------
CURRENT LIABILITIES
Accounts payable.................................... $ 1,520,646 $ 3,574,363
Accrued payroll, related taxes and withholdings..... 3,217,712 3,382,612
Deferred income tax................................. 112,643 112,643
Deferred revenues and unapplied receipts............ 617,359 255,940
Accrued expenses and taxes.......................... 554,680 874,329
Other............................................... -- 141,072
------------ ------------
6,023,040 8,340,959
------------ ------------
LONG-TERM LIABILITIES
Deferred income tax................................. 87,813 87,813
Minority interest................................... 29,844 74,647
------------ ------------
117,657 162,460
------------ ------------
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:
15,401,799 shares at June 30, 1997........ 154,018
15,008,291 shares at December 31, 1996.... 150,083
Additional paid-in capital.......................... 98,065,178 93,189,700
Retained earnings................................... 12,754,197 10,856,604
------------ ------------
Total............................................... 110,973,393 104,196,387
Less -- Treasury stock (148,392 shares at June 30,
1997 and 161,983 shares at December 31, 1996)....... 677,292 737,748
------------ ------------
Total shareholders' equity.......................... 110,296,101 103,458,639
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $116,436,798 $111,962,058
============ ============
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED
JUNE 30,
1997 1996
----------- -----------
OPERATING ACTIVITIES
Net income......................................................... $ 1,897,593 $ 1,909,887
Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:
Depreciation and amortization................................... 2,827,455 1,111,358
Provision for uncollectible accounts receivable................. 148,368 79,569
Long-term accounts receivable from customer..................... (2,019,788) --
Treasury stock contributed to 401(k) plan....................... 60,456 101,614
Minority interest in net loss of subsidiary..................... (44,803) --
Changes in current assets and liabilities:
Accounts receivable......................................... (450,197) (2,400,919)
Inventories................................................. 3,471 75,400
Advances to vendors......................................... (2,565,891) --
Other current assets........................................ 463,600 (86,443)
Accounts payable............................................ (2,115,427) 653,780
Accrued payroll, related taxes and withholdings............. (191,998) 291,138
Federal income tax.......................................... 79,213 (109,000)
Deferred revenues and unapplied receipts.................... 361,419 260,338
Accrued expenses and taxes.................................. (319,649) --
Other current liabilities................................... (141,072) 98,286
----------- -----------
Net cash provided by/(used in) operating activities............. (2,007,250) 1,985,008
----------- -----------
INVESTING ACTIVITIES
Purchases of property, equipment and software...................... (3,309,675) (2,552,167)
Development of training manuals.................................... (284,767) (49,001)
Proceeds from sale of securities available-for-sale................ 3,124,548 --
Cash paid in conjunction with acquisitions, net of cash acquired... (1,645,086) --
Loss from sales of property and equipment and other assets......... (29,024) --
Other assets -- net................................................ (69,659) (63,211)
----------- -----------
Net cash (used in) investing activities......................... (2,213,663) (2,664,379)
----------- -----------
FINANCING ACTIVITIES
Proceeds from long-term borrowings................................. -- 480,212
Proceeds from issuance of common stock............................. 834,227 222,619
Payments on long-term borrowings................................... -- (79,542)
----------- -----------
Net cash provided by financing activities....................... 834,227 623,289
----------- -----------
(Decrease) in cash and cash equivalents......................... (3,386,686) (56,082)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 46,771,797 1,717,543
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $43,385,111 $ 1,661,461
=========== ===========
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 CLIENTS
Revenues from major clients were as follows:
1997 1996
---- ----
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
Three Months Ended June 30,
- ---------------------------
Hewlett-Packard Company $4,871,420 26.4% $5,214,133 32.9%
Ford Motor Company 3,877,079 21.0 4,039,155 25.5
Chrysler Corporation 2,321,759 12.6 1,483,806 9.4
United Parcel Service 1,466,799 8.0 13,000 0.1
1997 1996
---- ----
Amount Percent of Total Amount Percent of Total
------ ---------------- ------ ----------------
Six Months Ended June 30,
- ------------------------
Hewlett-Packard Company $9,967,456 25.4% $9,672,846 32.0%
Ford Motor Company 7,637,839 19.5 8,573,511 28.4
Chrysler Corporation 4,458,603 11.4 2,624,788 8.7
Capricorn Capital, Inc. 3,591,777 9.2 -- --
United Parcel Service 2,803,116 7.2 13,000 0.0
NOTE C -- RECENT PRONOUNCEMENT OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of earnings per share for the three and six month periods ended June 30, 1997
and 1996 is not expected to be material.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company originally commenced operations as a value added reseller of
computer hardware and software that also provided training for its computer
products. During the late 1980's the Company added IT staffing and systems
integration services as a complement to its existing training business. In
1993, as a result of the Company's growing expertise in providing IT staffing
of on-site help desks, TechTeam entered the call center industry. Today, the
Company's IT outsourcing services cover a broad range of IT, including
planning, design, implementation and support. Although the Company's services
are complementary, TechTeam has divided its service offerings into two
divisions, Call Center Services (contract services and Foundation Platform
licenses) and Corporate Computer Services (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
end-users of computer hardware, software products and services. Call Center
Services are billed on a fee per call, fee per time spent on calls or per agent
basis, each as negotiated with clients. Under the terms of certain Call Center
Services contracts, clients are required to pay certain amounts at the
commencement of the contract, which payments are non-refundable and as to which
the Company has no further service obligation. Amounts billed under this
provision of such contracts aggregated $618,100 for the three and six month
periods ended June 30, 1996. The Company has recognized these amounts as
revenues when they are billed. Absent unusual circumstances, in the future the
Company expects to negotiate these contracts so that the revenues are
recognized over the life of the contract. The Company has also licensed
customers to use its Foundation Platform, a software product developed by the
Company's wholly-owned subsidiary, WebCentric Communications, Inc. To date,
revenues from these licenses have been recognized either: (1) On a usage basis,
when the licenses are granted in connection with on-going services; or (2) as
lump sum fees when the customer acquires the rights to use the Foundation
Platform without any on-going services obligation by the Company. Usage based
revenues are reflected as contract services revenues for Call Center Services.
Lump sum fees are reflected as Foundation Platform licenses revenues for Call
Center Services.
Technical staffing includes a variety of technical services, including the
placement of computer personnel at client sites to support end-user
applications through on-site help desks, as well as selected programming and
consulting services. Systems integration consists of database design, computer
product sales 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,
computer-based training for word processing, spreadsheets, graphics, data
bases, desktop publishing, operating systems, and systems administration for
NetWare, JAVA, NT, Windows, OS/2 and UNIX and mainframe operating systems. For
training programs, clients 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.
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 clients. Selling, general and administrative costs consist of
sales, marketing and administrative personnel compensation, statutory and other
benefits associated with such personnel, facility and equipment costs and other
indirect costs associated with the sales, marketing and administrative
functions of the Company.
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The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------------ ------------------
Revenues
Call Center Services
Contract services........................... 45.9% 47.7% 44.5% 47.6%
Foundation Platform licenses and other 1.1 -- 9.7 --
------ ----- ------ ------
Total Call Center Services.................. 47.0 47.7 54.2 47.6
------ ----- ------ ------
Corporate Computer Services
Technical staffing.......................... 27.4 24.3 24.0 25.5
Systems integration......................... 15.5 15.9 13.3 16.5
Training programs........................... 10.1 12.1 8.5 10.4
------ ----- ------ ------
Total Corporate Computer Services................ 53.0 52.3 45.8 52.4
------ ----- ------ ------
Total revenues....................................... 100.0 100.0 100.0 100.0
Cost of services delivered........................... 83.6 75.7 78.4 76.9
------ ----- ------ ------
Gross profit......................................... 16.4 24.3 21.6 23.1
------ ----- ------ ------
Other expenses/(income)
Selling, general and administrative.............. 19.2 13.0 17.2 12.2
Interest expense................................. -- 0.1 -- 0.1
Interest income.................................. (4.2) -- (3.8) --
------ ----- ------ ------
15.0 13.1 13.4 12.3
------ ----- ------ ------
Income before tax provisions......................... 1.4 11.2 8.2 10.8
Tax provisions....................................... 1.0 4.6 3.4 4.5
------ ----- ------ ------
Net income........................................... 0.4% 6.6% 4.8% 6.3%
====== ===== ====== ======
Between 1994 and 1996, TechTeam's revenues increased at a compound annual
rate of 51.4%. The Company believes that its growth has benefited from the
trend among large corporations to outsource much of their information
technology needs and TechTeam's ability to provide services that address a
broad range of those needs. The Company believes that the outsourcing trend
will continue and will provide continuing opportunities for both of its service
lines. TechTeam further believes that its service offerings are influenced
substantially by its clients' desires to focus on their core businesses and to
leave information technology needs to the Company for which information
technology is its core business. TechTeam's training programs have encountered
cyclical enrollment trends, influenced by the timing and extent to which
clients are upgrading desk top software.
Comparative Performance -- Second Quarter 1997 versus Second Quarter 1996
National TechTeam earned net income of $79,766, or $0.01 per share, for
the second quarter 1997 as compared to a net income of $1,044,156 or $0.09 per
share, for the second quarter 1996.
Revenues -- National TechTeam's total revenues increased by $2,619,598 in
the second quarter 1997 to $18,450,825, a 16.5% increase over revenues in the
second quarter 1996. Changes in revenues resulted from the following:
Call Center Services -- Revenues from Call Center Services increased
by $1,108,866 in the second quarter 1997. This was a 14.7% increase over
Call Center Services revenues in the second quarter 1996. The increase
was due to an increase to 45 contracts in place at June 30, 1997 compared
to the 20 contracts at June 30, 1996 and fees of $200,000 related to
licensing of its Foundation Platform software to others and other
revenues.
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Technical staffing -- Revenues from technical staffing increased by
$1,224,902 in the second quarter 1997. This was a 31.8% increase over
technical staffing revenues in the second quarter 1996. The increase was
due to continued client demand for TechTeam's help desk and computer
services personnel at major accounts.
Systems integration -- Revenues from systems integration increased
by $340,774 in the second quarter 1997. This was a 13.6% increase over
systems integration revenues in the second quarter 1996. The increase was
due principally to a growing demand by existing clients from TechTeam's
networking services.
Training programs -- Revenues from training programs decreased by
$54,944 in the second quarter 1997. This was a 2.9% decrease over
training revenues in the second quarter 1996. The decrease was due to
non-reoccurrence of the sale of computer-based training materials which
accounted for $350,000 in revenue during the second quarter of 1996.
Cost of services delivered -- The cost of services delivered increased by
$3,426,861 in the second quarter 1997. This was a 28.6% increase over the cost
of services delivered in the second quarter 1996. The increase was due
principally to compensation costs for an increased number of technical
personnel, statutory and other benefits associated with such personnel,
facility and computer equipment costs, and other direct costs associated with
providing an increased volume of services to clients. These costs were 83.6%
and 75.7% of revenues in 1997 and 1996, respectively. The increase in these
rates is attributable to costs incurred in the development of the Company's
Foundation Platform and those related to the start-up of new projects that have
not yet commenced.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $1,497,590 in the second quarter 1997. This was a 73%
increase over selling, general and administrative expenses in the second
quarter 1996. The increase was due principally to compensation costs for an
increased number of sales and administrative personnel, statutory and other
benefits associated with such personnel, facility and equipment costs, and
other indirect costs needed to support the growth of the Company. These
expenses were 19.2% of revenues in 1997 compared with 13.0% of revenues in
1996. This increase was due primarily to expansion of National TechTeam's
administrative infrastructure to support the growth of the Company.
Interest income -- Commencing in October 1996, National TechTeam began
earning significant amounts of interest income on cash generated by the 1996
public stock offering.
Tax provisions -- TechTeam recognized $15,300 of Federal income tax in the
second quarter 1997, resulting in an effective tax rate of 6% compared to an
effective tax rate of 35.5% for 1996. The Federal effective tax rate is lower
in 1997 due to investments in tax exempt securities. The state income and
business taxes in the second quarter 1997 was $159,600, with an effective tax
rate of 62.7% compared to an effective tax rate of 9.3% in the second quarter
1996. These taxes are tied more closely to revenues than net income. This
inflates the effective tax rate when income is lower.
Comparative Performance -- First Six Months 1997 versus First Six Months 1996
National TechTeam earned net income of $1,897,593, or $0.12 per share, for
the first six months 1997 as compared to a net income of $1,909,887 or $0.17
per share, for the first six months 1996.
Revenues -- National TechTeam's total revenues increased by $8,933,722 in
the first six months 1997 to $39,166,507, a 29.5% increase over revenues in the
first six months 1996. Changes in revenues resulted from the following:
Call Center Services -- Revenues from Call Center Services increased
by $6,840,928 in the first six months 1997. This was a 47.5% increase
over Call Center Services revenues in the first six months 1996. The
increase was due to an increase to 45 contracts in place at June 30, 1997
compared to the 20 contracts at June 30, 1996 and fees of $3.8 million
related primarily to licensing of its Foundation Platform software to
others.
10
11
Technical staffing -- Revenues from technical staffing increased by
$1,707,608 in the first six months 1997. This was a 22.2% increase over
technical staffing revenues in the first six months 1996. The increase
was due to continued client demand for TechTeam's help desk and computer
services personnel at major accounts.
Systems integration -- Revenues from systems integration increased
by $221,710 in the first six months 1997. This was a 4.4% increase over
systems integration revenues in the first six months 1996. The increase
was due principally to a growing demand by existing clients for
TechTeam's networking services.
Training programs -- Revenues from training programs increased by
$163,476 in the first six months 1997. This was a 5.2% increase over
training revenues in the first six months 1996. The increase was due to
increased enrollments in the Company's training programs.
Cost of services delivered -- The cost of services delivered increased by
$7,460,161 in the first six months 1997. This was a 32.1% increase over the
cost of services delivered in the first six months 1996. The increase was due
principally to compensation costs for an increased number of technical
personnel, statutory and other benefits associated with such personnel,
facility and computer equipment costs, and other direct costs associated with
providing an increased volume of services to clients. These costs were 78.4%
and 76.8% of revenues in 1997 and 1996, respectively.
Selling, general and administrative -- Selling, general and administrative
expenses increased by $3,046,975 in the first six months 1997. This was a 81.3%
increase over selling, general and administrative expenses in the first six
months 1996. The increase was due principally to compensation costs for an
increased number of sales and administrative personnel, statutory and other
benefits associated with such personnel, facility and equipment costs, and
other indirect costs needed to support the growth of the Company. These
expenses were 17.2% of revenues in 1997 compared with 12.3% of revenues in
1996. This increase was due primarily to expansion of National TechTeam's
administrative infrastructure to support the growth of the Company.
Interest income -- Commencing in October 1996, National TechTeam began
earning significant amounts of interest income on cash generated by the 1996
public stock offering.
Tax provisions -- TechTeam recognized $1,011,300 of Federal income tax in
the first six months 1997, resulting in an effective tax rate of 31.4% compared
to an effective tax rate of 35.1% for 1996. The Federal effective tax rate is
lower in 1997 due to investments in tax exempt securities. The state income and
business taxes in the first six months 1997 was $307,600, with an effective tax
rate of 9.6% compared to an effective tax rate of 9.9% in the first six months
1996.
LIQUIDITY AND CAPITAL RESOURCES
Indicators of the Company's financial strength are summarized below:
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
Working capital................................ $ 88,716,423 $ 90,559,459
Current ratio.................................. 15.7 11.9
Debt as a percentage of total capitalization... 0.0% 0.0%
Shareholders' equity........................... $110,296,101 $103,458,639
TechTeam has a line-of-credit agreement with NBD Bank which provides for
short-term borrowings of up to $25,000,000; the credit is unsecured. Borrowings
in excess of $10,000,000 are limited to 75% of eligible accounts receivable and
100% of cash and cash equivalents. The line of credit is at the prime rate or
more favorable rates, depending on the term of any loans. There were no
borrowings under the credit agreement at June 30, 1997.
11
12
In the first quarter 1997, National TechTeam signed an agreement with
Capricorn Capital, Inc., a major distributor, to supply to TechTeam $28 million
of computer hardware and related services under a long-term contract. TechTeam
is responding to its customers' requests to become a single source provider for
technology services and equipment. This strategic relationship positions
TechTeam to take advantage of the best available pricing under a long-term
arrangement while at the same time meeting its customers' expectations. In the
future, National TechTeam will not have to warehouse or maintain an inventory
of this equipment. The key provisions of the contract are: (1) TechTeam may
acquire the computer hardware and services at the vendor's cost plus 15%. The
margin is payable annually at the beginning of each of the three contract
years. (2) Purchase obligations not met in any of the first three years may be
carried over to subsequent years up to a total of seven years.
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: None
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, 1997 By: /s/William F. Coyro Jr.
-------------------------
William F. Coyro Jr.
Chairman of the Board and
Chief Executive Officer
Date: August 12, 1997 By: /s/Lawrence A. Mills
----------------------------
Lawrence A. Mills
Senior Vice President,
Chief Financial Officer, Treasurer
and Secretary
12
13
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule