1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
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Commission file number 0-9950
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TEAM, INC.
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(Exact name of registrant as specified in its charter)
Texas 74-1765729
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Hermann Drive, Alvin, Texas 77511
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 331-6154
--------------------------
--------------------
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.
Yes X No
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On October 6, 2000, there were 8,110,054 shares of the Registrant's common
stock outstanding.
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TEAM, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
August 31, 2000 (Unaudited) and May 31, 2000 1
Consolidated Condensed Statements of Operations (Unaudited) --
Three Months Ended August 31, 2000 and 1999 2
Consolidated Condensed Statements of Cash Flows (Unaudited) --
Three Months Ended August 31, 2000 and 1999 3
Notes to Unaudited Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AUGUST 31, MAY 31,
2000 2000
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 839,000 $ 327,000
Accounts receivable, net of allowance for doubtful
accounts of $264,000 and $251,000 13,818,000 13,580,000
Inventories 8,304,000 7,821,000
Prepaid expenses and other current assets 1,562,000 1,017,000
------------ ------------
Total Current Assets 24,523,000 22,745,000
Property, Plant and Equipment, net of accumulated
depreciation of $14,777,000 and $15,076,000 13,299,000 13,249,000
Goodwill, net of accumulated amortization
of $440,000 and $373,000 10,547,000 10,616,000
Other Assets 1,755,000 1,878,000
------------ ------------
Total Assets $ 50,124,000 $ 48,488,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,595,000 $ 1,611,000
Accounts payable 2,376,000 1,979,000
Other accrued liabilities 2,942,000 3,040,000
Income taxes payable 775,000 1,102,000
------------ ------------
Total Current Liabilities 7,688,000 7,732,000
Long-term debt 17,774,000 15,728,000
Other long-term liabilities 1,808,000 2,060,000
Stockholders' Equity:
Preferred stock, 500,000 shares authorized, none issued
Common stock, par value $.30 per share, 30,000,000 shares
authorized, 8,281,954 and 8,256,954 shares issued at
August 31 and May 31, 2000, respectively 2,485,000 2,477,000
Additional paid-in capital 32,146,000 32,103,000
Accumulated deficit (11,269,000) (11,488,000)
Unearned compensation (21,000) (27,000)
Treasury stock at cost, 147,550 and 9,700 shares (487,000) (97,000)
------------ ------------
Total Stockholders' Equity 22,854,000 22,968,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 50,124,000 $ 48,488,000
============ ============
See notes to unaudited consolidated condensed financial statements.
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TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
AUGUST 31,
2000 1999
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Revenues $ 16,776,000 $ 15,410,000
Operating expenses 10,184,000 8,915,000
------------ ------------
Gross Margin 6,592,000 6,495,000
Selling, general and administrative expenses 5,809,000 6,045,000
Earnings before interest and taxes 783,000 450,000
Interest 416,000 377,000
------------ ------------
Earnings before income taxes 367,000 73,000
Provision for income taxes 147,000 27,000
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Net income $ 220,000 $ 46,000
============ ============
Net income per common share:
Basic $ 0.03 $ 0.01
============ ============
Diluted $ 0.03 $ 0.01
============ ============
Weighted average number of shares outstanding:
Basic 8,231,000 8,221,000
============ ============
Diluted 8,284,000 8,351,000
============ ============
See notes to unaudited consolidated condensed financial statements.
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TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
AUGUST 31,
2000 1999
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Cash Flows from Operating Activities:
Net income (loss) $ 220,000 $ 46,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and other 762,000 771,000
Change in assets and liabilities
(Increase) decrease:
Accounts receivable (238,000) (794,000)
Inventories (483,000) 145,000
Prepaid expenses and other current assets (545,000) (311,000)
Increase (decrease):
Accounts payable 397,000 (482,000)
Accrued liabilities (98,000) (240,000)
Income taxes payable (327,000) --
------------ ------------
Net cash provided by operating activities (312,000) (865,000)
------------ ------------
Cash Flows From Investing Activities:
Capital expenditures (419,000) (242,000)
Additions to Rental and Demo Machines (219,000) --
Other 39,000 (165,000)
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Net cash used in investing activities (599,000) (407,000)
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Cash Flows From Financing Activities:
Payments under debt agreements and other long-term obligations (678,000) (212,000)
Proceeds from issuance of long-term debt 2,440,000 910,000
Repurchase of common stock (390,000) --
Issuance of common stock 51,000 98,000
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Net cash provided by (used in) financing activities 1,423,000 796,000
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Net decrease in cash and cash equivalents 512,000 (476,000)
Cash and cash equivalents at beginning of year 327,000 1,035,000
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Cash and cash equivalents at end of period $ 839,000 $ 559,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 371,000 $ 356,000
============ ============
Income taxes paid $ 482,000 $ 8,000
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See notes to unaudited consolidated condensed financial statements.
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TEAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
1. Method of Presentation
General
The interim financial statements are unaudited, but in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results for such periods.
The consolidated condensed balance sheet at May 31, 2000 is derived from
the May 31, 2000 audited consolidated financial statements. The results of
operations for any interim period are not necessarily indicative of results
for the full year. These financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's
annual report for the fiscal year ended May 31, 2000.
New Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an
amendment of FASB No. 133", which effectively delays the application of
SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133" which amends and supercedes various sections of
SFAS No. 133. Management is currently studying SFAS No. 133 and its
amendments for their possible impact on the consolidated financial
statements when they are adopted in June 2001.
2. Dividends and Stock Repurchases
No dividends were paid during the three months ended August 31, 2000 or
1999. Pursuant to the Company's Credit Agreement, the Company may not pay
quarterly dividends without the consent of its senior lender. Future
dividend payments will depend upon the Company's financial condition and
other relevant matters.
On July 13, 2000, the Board of Directors approved a stock repurchase
plan of up to 10% of the outstanding common stock of the Company. Stock
repurchases (which will be limited to a maximum of $2,000,000) must be made
on the open market and are subject to certain regulatory restrictions
which, generally, limit the number of shares that can be acquired on a
daily basis and limits the price per share that can be paid. As of August
31, 2000, 137,850 shares of common stock had been reacquired at an average
price of $2.83 per share.
3. Earnings Per Share
In 1998 the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 128, "Earnings per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share ("EPS").
There is no difference, for either of the periods presented, in the amount
of net income (numerator) used in the computation of basic and diluted
earnings per share. With respect to the number of weighted average shares
outstanding (denominator), diluted shares reflects only the pro forma
exercise of options to acquire common stock to the extent that the options'
exercise prices are less than the average market price of common shares
during the period.
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4. Inventories
Inventories consist of:
August 31, May 31,
2000 2000
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Raw materials $ 809,000 $ 947,000
Finished goods and work in progress 7,495,000 6,874,000
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Total $ 8,304,000 $ 7,821,000
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5. Long-Term Debt
Long-term debt consists of:
August 31, May 31,
2000 2000
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Revolving loan $ 9,060,000 $ 6,620,000
Team and mortgage notes 10,134,000 10,504,000
Capital lease obligations 175,000 215,000
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19,369,000 17,339,000
Less current portion 1,595,000 1,611,000
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Total $ 17,774,000 $ 15,728,000
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6. Industry Segment Information
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," in fiscal 1999. SFAS No. 131 requires
that the Company disclose certain information about its operating segments
where operating segments are defined as "components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance." Generally, financial information
is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments.
Pursuant to SFAS No. 131, the Company has two reportable segments:
industrial services and equipment sales and rentals. The industrial
services segment includes services consisting of leak repair, hot tapping,
emissions control monitoring, field machining, and mechanical inspection.
The equipment sales and rental segment consists of the Climax business.
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The Company evaluates performance based on earnings before interest and
income taxes. Inter-segment sales are eliminated in the operating measure used
by the company to evaluate segment performance and has been eliminated in the
following schedule. Interest is not allocated to the segments.
THREE MONTHS ENDED AUGUST 31, 2000
Industrial Equipment Corporate
Services Sales & Rentals & Other Total
------------ --------------- ------------ ------------
Revenues $ 14,697,000 $ 2,079,000 $ 0 $ 16,776,000
============ ============ ============ ============
Earnings before interest & taxes 1,801,000 (242,000) (776,000) 783,000
Interest 0 0 416,000 416,000
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Earnings before income taxes 1,801,000 (242,000) (1,192,000) 367,000
============ ============ ============ ============
Depreciation and amortization 406,000 189,000 127,000 722,000
============ ============ ============ ============
Capital expenditures 283,000 131,000 5,000 419,000
============ ============ ============ ============
Identifiable assets $ 31,802,000 $ 12,379,000 $ 5,943,000 $ 50,124,000
============ ============ ============ ============
THREE MONTHS ENDED AUGUST 31, 1999
Industrial Equipment Corporate
Services Sales & Rentals & Other Total
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Revenues $ 12,915,000 $ 2,495,000 $ 0 $ 15,410,000
============ ============ ============ ============
Earnings before interest & taxes 1,226,000 86,000 (862,000) 450,000
Interest 0 0 377,000 377,000
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Earnings before income taxes 1,226,000 86,000 (1,239,000) 73,000
============ ============ ============ ============
Depreciation and amortization 433,000 226,000 112,000 771,000
============ ============ ============ ============
Capital expenditures 220,000 17,000 5,000 242,000
============ ============ ============ ============
Identifiable assets $ 30,482,000 $ 11,691,000 $ 5,824,000 $ 47,997,000
============ ============ ============ ============
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED
TO THREE MONTHS ENDED AUGUST 31, 1999
Revenues for the quarter ended August 31, 2000 were $16.8 million compared
to $15.4 million for the corresponding period of the preceding year. Revenues of
the industrial services segment increased by $1.8 million (13.8%), while
equipment sales and rental revenues declined by $416 thousand (16.7%). Revenue
growth in the services segment was primarily a result of improved business
conditions as compared to the 1999 quarter, as well as the addition of
significant new customers. Management believes that the decline in equipment
sales is temporary in nature, but has taken actions to strengthen sales and
rental efforts while reducing operating costs.
Earnings before interest and taxes, ("EBIT"), were $783 thousand in the
2000 quarter, an increase of $333 thousand from the 1999 quarter. EBIT in the
services segment increased by $575 thousand (47%) over the 1999 quarter, while
EBIT in the equipment segment declined by $328 thousand compared to the 1999
quarter. Additionally, corporate costs were $86 thousand less than the 1999
quarter.
The increase in industrial services EBIT is a result of the growth in
revenue and its associated operating leverage. The decline in equipment segment
EBIT is due to the significant downturn in revenues while overall production
costs were increasing. Management expects to see profit improvements for that
segment in the second quarter as a result of actions taken to strengthen sales
efforts and rebalance costs.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 2000, the Company's liquid working capital (cash and accounts
receivable, less current liabilities) totaled $7.0 million, an increase of
approximately $800 thousand since May 31, 2000. The Company utilizes excess
operating funds to automatically reduce the amount outstanding under the
revolving credit facility. At August 31, 2000, the outstanding balance under the
revolving credit facility was $9.1 million and approximately $2.7 million was
available to borrow under the facility.
In the opinion of management, cash flow from operations, cash balances and
available borrowings will be sufficient for the foreseeable future to finance
anticipated working capital requirements, capital expenditures and debt service
requirements.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Any forward-looking information contained herein is being provided in
accordance with the provisions of the Private Securities Litigation Reform Act.
Such information is subject to certain assumptions and beliefs based on current
information known to the Company and is subject to factors that could result in
actual results differing materially from those anticipated in any
forward-looking statements contained herein. Such factors include domestic and
international economic activity, interest rates, market conditions for the
Company's customers, regulatory changes and legal proceedings, and the Company's
successful implementation of its internal operating plans. Accordingly, there
can be no assurance that any forward-looking statements contained herein will
occur or those objectives will be achieved.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company holds certain floating-rate obligations. The exposure of these
obligations to increase in short-term interest rates is limited by interest rate
swap agreements entered into by the Company. There were no material quantitative
or qualitative changes during the first three months of fiscal 2001 in the
Company's market risk sensitive instruments.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed this quarter.
SIGNATURE
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 thereto duly authorized.
TEAM, INC
(Registrant)
Date: October 10, 2000
/s/ PHILIP J. HAWK
---------------------------------------
Philip J. Hawk
Chief Executive Officer and Director
/s/ TED W. OWEN
---------------------------------------
Ted W. Owen, Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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(27) Financial Data Schedule.