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, 2001
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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
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Indicate by checkmark 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 5, 2001, there were 7,622,537 shares of the Registrant's common stock
outstanding.
TEAM, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -- 1
August 31, 2001 (Unaudited) and May 31, 2001
Consolidated Condensed Statements of Operations 2
(Unaudited) --
Three Months Ended
August 31, 2001 and 2000
Consolidated Condensed Statements of Cash Flows 3
(Unaudited) --
Three Months Ended
August 31, 2001 and 2000
Notes to Unaudited Consolidated Condensed 4
Financial Statements
Item 2. Management's Discussion and Analysis 8
of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure 10
about Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AUGUST 31, MAY 31,
ASSETS 2001 2001
------------ ------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 1,021,000 $ 968,000
Accounts receivable, net of allowance for doubtful
accounts of $402,000 and $392,000 13,987,000 14,608,000
Inventories 8,425,000 8,245,000
Prepaid expenses and other current assets 1,331,000 759,000
------------ ------------
Total Current Assets 24,764,000 24,580,000
Property, Plant and Equipment, net of accumulated
depreciation of $14,618,000 and $14,139,000 11,694,000 11,786,000
Goodwill, net of accumulated amortization
of $716,000 and $648,000 10,273,000 10,341,000
Other Assets 1,295,000 1,289,000
------------ ------------
Total Assets $ 48,026,000 $ 47,996,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,523,000 $ 1,536,000
Accounts payable 2,214,000 1,957,000
Accrued liabilities 3,846,000 3,493,000
Income taxes payable 1,004,000 1,010,000
------------ ------------
Total Current Liabilities 8,587,000 7,996,000
Long-term debt 13,131,000 13,531,000
Other long-term liabilities 1,581,000 1,657,000
------------ ------------
Total liabilities 23,299,000 23,184,000
------------ ------------
Stockholders' Equity:
Preferred stock, 500,000 shares authorized, none issued
Common stock, par value $.30 per share, 30,000,000 shares
authorized, 8,171,457 and 8,342,654 shares issued at
August 31 and May 31, 2001, respectively 2,451,000 2,503,000
Additional paid-in capital 31,670,000 32,257,000
Accumulated deficit (7,777,000) (8,579,000)
Accumulated other comprehensive loss (65,000) --
Treasury stock at cost, 492,920 and 459,420 shares (1,552,000) (1,369,000)
------------ ------------
Total Stockholders' Equity 24,727,000 24,812,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 48,026,000 $ 47,996,000
============ ============
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,
2001 2000
------------ ------------
Revenues $ 19,828,000 $ 16,776,000
Operating expenses 11,645,000 10,184,000
------------ ------------
Gross Margin 8,183,000 6,592,000
Selling, general and administrative expenses 6,646,000 5,816,000
------------ ------------
Earnings before interest and taxes 1,537,000 776,000
Interest 240,000 424,000
------------ ------------
Earnings before income taxes 1,297,000 352,000
Provision for income taxes 495,000 141,000
------------ ------------
Net income $ 802,000 $ 211,000
============ ============
Net income per common share:
Basic $ 0.10 $ 0.03
============ ============
Diluted $ 0.10 $ 0.03
============ ============
Weighted average number of shares outstanding:
Basic 7,699,000 8,231,000
============ ============
Diluted 7,984,000 8,284,000
============ ============
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,
2001 2000
----------- -----------
Cash Flows from Operating Activities:
Net income $ 802,000 $ 211,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 659,000 722,000
Allowance for doubtful accounts 10,000 --
Equity in earnings of unconsolidated subsidiary (9,000) --
Other -- 40,000
Change in assets and liabilities
(Increase) decrease:
Accounts receivable 611,000 (238,000)
Inventories (180,000) (483,000)
Prepaid expenses and other current assets (484,000) (545,000)
Increase (decrease):
Accounts payable 257,000 397,000
Accrued liabilities 250,000 (89,000)
Income taxes payable (6,000) (327,000)
----------- -----------
Net cash provided by (used in) operating activities 1,910,000 (312,000)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (446,000) (419,000)
Additions to Rental and Demo Machines (17,000) (219,000)
Proceeds from sale of assets 29,000 --
Other (62,000) 39,000
----------- -----------
Net cash used in investing activities (496,000) (599,000)
----------- -----------
Cash Flows From Financing Activities:
Payments under debt agreements and other long-term liabilities (489,000) (678,000)
Proceeds from issuance of long-term debt -- 2,440,000
Repurchase of common stock (995,000) (390,000)
Issuance of common stock 123,000 51,000
----------- -----------
Net cash provided by (used in) financing activities (1,361,000) 1,423,000
----------- -----------
Net increase in cash and cash equivalents 53,000 512,000
Cash and cash equivalents at beginning of year 968,000 327,000
----------- -----------
Cash and cash equivalents at end of period $ 1,021,000 $ 839,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 267,000 $ 371,000
=========== ===========
Income taxes paid $ 502,000 $ 482,000
=========== ===========
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, 2001 is derived from
the May 31, 2001 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 Team, Inc.'s
("the Company") annual report on Form 10-K for the fiscal year ended May
31, 2001.
New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 137 and No. 138, became effective for the Company as of June 1,
2001. Those statements establish accounting and reporting standards
requiring that all derivative instruments be recorded as either assets or
liabilities measured at fair value. These statements also require that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met, which includes an
assessment of the effectiveness of the hedging instrument. The effective
portion of the change in the fair value of derivatives used as cash flow
hedges are reported as other comprehensive income, with all other changes
reported in net income.
The Company's only derivative instruments are interest rate swap
agreements, which qualify as cash flow hedges under SFAS No. 133. The
Company has three swap agreements, which were entered into in 1998 to hedge
the exposure of an increase in interest rates. Pursuant to these
agreements, which cover approximately $7 million of outstanding debt, the
Company exchanged a variable LIBOR rate for a fixed LIBOR rate of
approximately 5.2%. (The total interest rate on the Company's debt is the
LIBOR rate plus an applicable margin of 1.75%, based upon existing
financial covenants). Two of the agreements, covering approximately $3.5
million, expire on December 31, 2001 and one agreement (covering $3.5
million of debt) expires September 30, 2003.
Adoption of this new accounting standard resulted in a charge to other
comprehensive income of $56 thousand on June 1, 2001. During the first
quarter of fiscal 2002, there has been an additional charge to other
comprehensive income of $47 thousand to reflect the increase in the mark-to
market liability associated with the swaps resulting from the continued
reduction in variable LIBOR rates below the 5.2% fixed rate obtained by the
Company. In the first quarter of fiscal 2002, interest expense includes
approximately $19 thousand pertaining to settlements under the swap
agreements. Approximately $70 thousand of the amounts in accumulated other
comprehensive loss will be reclassified to interest expense over the course
of the next twelve months.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 Accounting for Business
Combinations ("SFAS No. 141") and Statement of Financial Accounting
Standards No. 142 Accounting for Goodwill and Other Intangible Assets
("SFAS No. 142"). SFAS No. 141 requires that all business combinations be
accounted for using the purchase method of accounting and prohibits the
pooling-of-interest method for business combinations initiated after June
30,2001. According to SFAS No. 142, goodwill that arises from purchases
after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 requires
the continuation of the amortization of goodwill and all intangible assets
through the end of the fiscal year preceding the adoption year, but
amortization of
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existing goodwill will cease on the first day of the adoption year. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001.
Accordingly, the Company will adopt SFAS No. 142 as of the beginning of its
next fiscal year that commences June 1, 2002.
The Company has six months from the date it initially applies SFAS No.
142 to test goodwill for impairment and any impairment charge resulting
from the initial application of the new standard must be classified as the
cumulative effect of a change in accounting principle. Thereafter, goodwill
should be tested for impairment annually and impairment losses will,
generally, be presented in the operating section of the income statement.
Management is currently assessing the impact that the adoption of SFAS No.
142 will have on the Company's consolidated financial statements.
2. Dividends and Stock Repurchases
No dividends were paid during the three months ended August 31, 2001 or
2000. 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.
In June, 2001, the Company completed the reacquisition of 235,000
shares of its common stock for $812,000, including expenses, pursuant to a
self-tender offer announced in April 2001. These shares were retired and,
accordingly, the cost was charged to Common Stock (at par value of $.30 per
share) and to Additional Paid-in Capital. Additionally, in the three months
ended August 31, 2001, the Company reacquired 33,500 shares pursuant to an
open-market repurchase plan at a weighted average price of $5.46 per share.
These shares have not been formally retired and, accordingly, these shares
are carried as treasury stock.
As of October 5, 2001, an additional 64,500 shares have been reacquired
through open market purchases. The Company is authorized by it Board of
Directors and lender to expend up to an additional $2.2 million on open
market repurchases.
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,
2001 2001
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Raw materials $ 882,000 $ 935,000
Finished goods and work in progress 7,543,000 7,310,000
------------ ------------
Total $ 8,425,000 $ 8,245,000
============ ============
5. Long-term debt
Long-term debt consists of:
August 31, May 31,
2001 2001
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Revolving loan $ 5,940,000 $ 5,960,000
Term and mortgage notes 8,652,000 9,022,000
Capital lease obligations 62,000 85,000
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14,654,000 15,067,000
Less current portion 1,523,000 1,536,000
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Total $ 13,131,000 $ 13,531,000
============ ============
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 is comprised solely of the
operations of a wholly-owned subsidiary, Climax Portable Machine Tools,
Inc.
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The Company evaluates performance based on earnings before interest and
income taxes. Inter-segment sales are eliminated in the operating measures used
by the company to evaluate segment performance and, therefore, have been
eliminated in the following schedule. Interest is not allocated down to the
segments.
THREE MONTHS ENDED AUGUST 31, 2001
Industrial Equipment Corporate
Services Sales & Rentals & Other Total
----------- --------------- ---------- -----------
Revenues $17,348,000 $ 2,480,000 -- $19,828,000
=========== =========== ========== ===========
Earnings before interest & taxes 2,507,000 4,000 (974,000) 1,537,000
Interest -- -- 240,000 240,000
----------- ----------- ---------- -----------
Earnings before income taxes 2,507,000 4,000 (1,214,000) 1,297,000
=========== =========== ========== ===========
Depreciation and amortization 406,000 171,000 82,000 659,000
=========== =========== ========== ===========
Capital expenditures 376,000 30,000 40,000 446,000
=========== =========== ========== ===========
Identifiable assets $32,161,000 $11,606,000 $4,259,000 $48,026,000
=========== =========== ========== ===========
THREE MONTHS ENDED AUGUST 31, 2000
Industrial Equipment Corporate
Services Sales & Rentals & Other Total
----------- --------------- ---------- -----------
Revenues $14,697,000 $ 2,079,000 -- $16,776,000
=========== =========== ========== ===========
Earnings before interest & taxes 1,801,000 (242,000) (783,000) 776,000
Interest 0 0 424,000 424,000
----------- ----------- ---------- -----------
Earnings before income taxes 1,801,000 (242,000) (1,207,000) 352,000
=========== =========== ========== ===========
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
=========== =========== ========== ===========
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7. Comprehensive income
Comprehensive income represents the change in the Company's equity from
transactions and other events and circumstances from non-owner sources and
includes all changes in equity except those resulting from investments by owners
and distributions to owners.
Comprehensive income is as follows:
Three Months Ended
August 31,
---------------------------
2001 2000
------------ ------------
Net income $ 802,000 $ 211,000
Other comprehensive loss:
Unrealized loss on derivative instruments
net of $38,000 tax benefit (65,000) --
------------ ------------
Comprehensive income $ 737,000 $ 211,000
============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 2001 COMPARED
TO THREE MONTHS ENDED AUGUST 31, 2000
Revenues for the quarter ended August 31, 2001 were $19.8 million compared
to $16.8 million for the corresponding period of the preceding year. Operating
margins (shown as "gross margin" in the Condensed Statements of Operations)
improved to 41.3% of revenues in the first quarter of fiscal 2002 versus 39.3%
in the same quarter last year and net income increased to $802 thousand ($.10
per share) as compared to $211 thousand ($.03 per share) in fiscal 2001.
Industrial services segment revenues were $17.3 million in the fiscal 2002
quarter, an increase of $2.6 million (18%) over the prior year. The significant
growth in revenues was associated with the newer service lines of inspection,
field machining and technical bolting which grew by more than 90% during the
quarter when compared to the prior year. The significant growth is attributable
to 1) the continued penetration of our newer services within our existing
customer base and 2) an increase in the demand for inspection services by
pipeline customers due to new pipeline construction and increased regulatory
activities in the pipeline industry.
Revenues from our traditional service offerings (leak repair, emissions
control monitoring, hot tapping and concrete repair) were, in total, generally
flat in comparison to fiscal 2001. Demand for our services was generally strong
in both years as a result of good business conditions among Team's primary
customer industries.
While industrial services segment revenues were up 18%, operating profits
for that segment (earnings before interest and taxes) were up 40%, increasing to
$2.5 million in the first quarter of fiscal 2002 versus $1.8
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million last year. The profit improvement reflects improved operating results
from the penetration of newer services, particularly inspection, in Team's
existing customer base and a general improvement in the execution of jobs during
the first quarter of this fiscal year.
The equipment sales and rental segment (the "Climax" business) reported
substantially improved results in the first quarter of fiscal 2002, with
revenues of $2.5 million versus $2.1 million in the same quarter last year, an
increase of 19%. The operating profit of this segment was $ 4 thousand in the
first quarter of fiscal 2002, compared to a loss of $242 thousand in the same
quarter last year. The improved operating profit reflects a significantly
improved operating margin ( 43.5% in fiscal 2002 versus 38.5% in fiscal 2001) as
a result of increasing revenues and aggressive efforts to bring manufacturing
costs down to meet existing sales levels. While we are pleased with the improved
operating results from Climax, management believes that the Climax business is
continuing to be negatively impacted by a softness in capital equipment markets.
Total corporate general and administrative costs were $974 thousand in the
first quarter of fiscal 2002, versus $783 thousand in the same quarter last
year. The increase of $191 thousand is due primarily to higher costs in fiscal
2002 for incentive compensation and group insurance accruals. Interest expense
was $184 thousand less in the current year's quarter than in the same quarter
last year due to 1) a significant reduction in the amount of debt outstanding
during the quarter, 2) general rate reductions by the Federal Reserve Bank over
the past year, and 3) improvements in a key financial ratio (the ratio of debt
to earnings before interest, taxes, depreciation and amortization) that impacts
the rate of interest paid to our lending institution.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 2001, the Company's liquid working capital (cash and accounts
receivable, less current liabilities) totaled $6.4 million, a decrease of
approximately $ 1 million since May 31, 2001. The Company utilizes excess
operating funds to automatically reduce the amount outstanding under the
revolving credit facility. At August 31, 2001, the outstanding balance under the
revolving credit facility was $5.9 million leaving approximately $5.0 million
available to borrow under the facility.
During the quarter ended August 31, 2001, the Company reduced its total
outstanding debt by $413 thousand as a result of cash flows generated from
operations. Additionally, the Company expended $995 thousand, including
expenses, for the repurchase of 268,500 shares of its outstanding common stock.
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
(b) Reports on Form 8-K
A report on Form 8-K was filed on August 31, 2001, and subsequently
amended on October 5, 2001, to report Item 4, Change in Registrant's Certifying
Accountant.
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 15, 2001
/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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