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 NOVEMBER 30, 2001
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
------------------------ --------------------------
Commission file number 0-9950
---------------------------------------------------------
TEAM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1765729
- --------------------------------------------------- --------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Hermann Drive, Alvin, Texas 77511
- -------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 331-6154
------------------------------
--------------------------------------
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 [ ]
On January 8, 2002, there were 7,663,312 shares of the Registrant's common stock
outstanding.
TEAM, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
----------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -- 1
November 30, 2001 (Unaudited) and May 31, 2001
Consolidated Condensed Statements of Operations
(Unaudited) -- 2
Three Months Ended
November 30, 2001 and 2000
Consolidated Condensed Statements of Cash Flows
(Unaudited) -- 3
Three Months Ended
November 30, 2001 and 2000
Notes to Unaudited Consolidated Condensed
Financial Statements 4
Item 2. Management's Discussion and Analysis 9
of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure 12
about Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
NOVEMBER 30, MAY 31,
ASSETS 2001 2001
-------------- ------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 1,591,000 $ 968,000
Accounts receivable, net of allowance for doubtful
accounts of $402,000 and $392,000 14,821,000 14,608,000
Inventories 8,658,000 8,245,000
Prepaid expenses and other current assets 1,161,000 759,000
----------- -----------
Total Current Assets 26,231,000 24,580,000
Property, Plant and Equipment, net of accumulated
depreciation of $15,021,000 and $14,139,000 11,845,000 11,786,000
Goodwill, net of accumulated amortization
of $785,000 and $648,000 10,204,000 10,341,000
Other Assets 1,278,000 1,289,000
----------- -----------
Total Assets $49,558,000 $47,996,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,518,000 $ 1,536,000
Accounts payable 1,961,000 1,957,000
Accrued liabilities 3,552,000 3,493,000
Income taxes payable 1,028,000 1,010,000
----------- -----------
Total Current Liabilities 8,059,000 7,996,000
Long-term debt 14,508,000 13,531,000
Other long-term liabilities 1,510,000 1,657,000
----------- -----------
Total liabilities 24,077,000 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, 8,257,332 and 8,342,654 shares issued 2,477,000 2,503,000
Additional paid-in capital 31,850,000 32,257,000
Accumulated deficit (6,533,000) (8,579,000)
Accumulated other comprehensive loss (88,000) --
Treasury stock at cost, 608,520 and 459,420 shares (2,225,000) (1,369,000)
----------- -----------
Total Stockholders' Equity 25,481,000 24,812,000
----------- -----------
Total Liabilities and Stockholders' Equity $49,558,000 $47,996,000
=========== ===========
See notes to unaudited consolidated condensed financial statements.
- 1 -
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Revenues $ 21,594,000 $ 19,545,000 $ 41,422,000 $ 36,321,000
Operating expenses 12,551,000 11,630,000 24,196,000 21,814,000
------------ ------------ ------------ ----------
Gross Margin 9,043,000 7,915,000 17,226,000 14,507,000
Selling, general and administrative expenses 6,776,000 6,253,000 13,422,000 12,069,000
Other income, net -- (360,000) -- (360,000)
------------ ------------ ------------ -----------
Earnings before interest and taxes 2,267,000 2,022,000 3,804,000 2,798,000
Interest 257,000 467,000 497,000 891,000
------------ ------------ ------------ -----------
Earnings before income taxes 2,010,000 1,555,000 3,307,000 1,907,000
Provision for income taxes 766,000 676,000 1,261,000 817,000
------------ ------------ ------------ -----------
Net income $ 1,244,000 $ 879,000 $ 2,046,000 $ 1,090,000
============ ============ ============ ===========
Net income per common share:
Basic $ 0.16 $ 0.11 $ 0.27 $ 0.13
============ ============ ============ ===========
Diluted $ 0.15 $ 0.11 $ 0.25 $ 0.13
============ ============ ============ ===========
Weighted average number of shares outstanding:
Basic 7,640,000 8,099,000 7,670,000 8,165,000
============ ============ ============ ===========
Diluted 8,185,000 8,184,000 8,116,000 8,233,000
============ ============ ============ ===========
See notes to unaudited consolidated condensed financial statements.
- 2 -
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30,
2001 2000
------------ -------------
Cash Flows from Operating Activities:
Net income $ 2,046,000 $ 1,090,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,352,000 1,468,000
Other income -- (360,000)
Allowance for doubtful accounts 10,000 --
Equity in earnings of unconsolidated subsidiary (11,000) 44,000
Change in assets and liabilities (Increase) decrease:
Accounts receivable (223,000) (1,543,000)
Inventories (413,000) (379,000)
Prepaid expenses and other current assets (299,000) (230,000)
Increase (decrease):
Accounts payable 4,000 576,000
Accrued liabilities (81,000) 92,000
Income taxes payable 18,000 138,000
----------- -----------
Net cash provided by operating activities 2,403,000 896,000
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (951,000) (1,067,000)
Net additions to rental and demo machines (242,000) (360,000)
Proceeds from sale of assets 57,000 1,575,000
Other (118,000) 145,000
----------- -----------
Net cash provided by (used in) investing activities (1,254,000) 293,000
----------- -----------
Cash Flows From Financing Activities:
Payments under term loans and other long term liabilities (925,000) (1,127,000)
Net borrowings under revolving credit facility 1,737,000 1,120,000
Repurchase of common stock (1,668,000) (564,000)
Issuance of common stock in exercise of stock options 330,000 51,000
----------- -----------
Net cash used in financing activities (526,000) (520,000)
----------- -----------
Net increase in cash and cash equivalents 623,000 669,000
Cash and cash equivalents at beginning of year 968,000 327,000
----------- -----------
Cash and cash equivalents at end of period $ 1,591,000 $ 996,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 516,000 $ 829,000
=========== ===========
Income taxes paid $ 1,243,000 $ 699,000
=========== ===========
See notes to unaudited consolidated condensed financial statements.
- 3 -
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 half
of fiscal 2002, there has been an additional charge to other comprehensive
income of $85 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 half of fiscal 2002, interest expense includes approximately
$58 thousand pertaining to settlements under the swap agreements.
Approximately $87 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
- 4 -
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 six months ended November 30, 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 six months
ended November 30, 2001, the Company reacquired 149,100 shares pursuant to
an open-market repurchase plan at a weighted average price of $5.74 per
share. These shares have not been formally retired and, accordingly, these
shares are carried as treasury stock.
The Company is authorized by its Board of Directors and lender to
expend up to an additional $2.0 million on open market repurchases.
3. Earnings Per Share
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 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.
- 5 -
4. Inventories
Inventories consist of :
November 30, May 31,
2001 2001
------------ ----------
Raw materials $ 890,000 $ 935,000
Finished goods and work in progress 7,768,000 7,310,000
---------- ----------
Total $8,658,000 $8,245,000
========== ==========
5. Long-term debt
Long-term debt consists of:
November 30, May 31,
2001 2001
------------ -----------
Revolving loan $ 7,697,000 $ 5,960,000
Term and mortgage notes 8,281,000 9,022,000
Capital lease obligations 48,000 85,000
----------- -----------
16,026,000 15,067,000
Less current portion 1,518,000 1,536,000
---------- -----------
Total $14,508,000 $13,531,000
=========== ===========
6. Industry Segment Information
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," 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.
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 have, therefore,
been eliminated in the following schedule. Interest is not allocated down
to the segments.
- 6 -
THREE MONTHS ENDED NOVEMBER 30, 2001
Industrial Equipment Corporate
Services Sales& Rentals & Other Total
--------------- --------------- --------------- ---------------
Revenues $19,148,000 $ 2,446,000 $ -- $21,594,000
=============== =============== =============== ===============
Earnings before interest & taxes 3,226,000 37,000 (996,000) 2,267,000
Interest -- -- 257,000 257,000
--------------- --------------- --------------- ---------------
Earnings before income taxes 3,226,000 37,000 (1,253,000) 2,010,000
=============== =============== =============== ===============
Depreciation and amortization 429,000 171,000 93,000 693,000
=============== =============== =============== ===============
Capital expenditures 400,000 57,000 48,000 505,000
=============== =============== =============== ===============
Identifiable assets $33,050,000 $12,127,000 $ 4,381,000 $49,558,000
=============== =============== =============== ===============
THREE MONTHS ENDED NOVEMBER 30, 2000
Industrial Equipment Corporate
Services Sales& Rentals & Other Total
--------------- --------------- -------------- ---------------
Revenues $17,429,000 $ 2,116,000 $ -- $19,545,000
=============== =============== ============== ===============
Earnings before interest & taxes 2,876,000 (215,000) (639,000) 2,022,000
Interest -- -- 467,000 467,000
--------------- --------------- -------------- ---------------
Earnings before income taxes 2,876,000 (215,000) (1,106,000) 1,555,000
=============== =============== ============== ===============
Depreciation and amortization 414,000 217,000 115,000 746,000
=============== =============== ============== ===============
Capital expenditures 641,000 7,000 -- 648,000
=============== =============== ============== ===============
Identifiable assets $33,453,000 $11,762,000 $ 4,649,000 $49,864,000
=============== =============== ============== ===============
- 7 -
SIX MONTHS ENDED NOVEMBER 30, 2001
Industrial Equipment Corporate
Services Sales& Rentals & Other Total
------------- -------------- ------------ -------------
Revenues $36,496,000 $ 4,926,000 $ -- $41,422,000
============= ============= ============ =============
Earnings before interest & taxes 5,733,000 41,000 (1,970,000) 3,804,000
Interest -- -- 497,000 497,000
============= ============= ------------ -------------
Earnings before income taxes 5,733,000 41,000 (2,467,000) 3,307,000
============= ============= ============ =============
Depreciation and amortization 835,000 342,000 175,000 1,352,000
============= ============= ============ =============
Capital expenditures 776,000 87,000 88,000 951,000
============= ============= ============ =============
Identifiable assets $33,050,000 $12,127,000 $4,381,000 $49,558,000
============= ============= ============ =============
SIX MONTHS ENDED NOVEMBER 30, 2000
Industrial Equipment Corporate
Services Sales& Rentals & Other Total
-------------- -------------- ------------- -------------
Revenues $ 32,126,000 $ 4,195,000 $ -- $36,321,000
============== ============== ============= =============
Earnings before interest & taxes 4,677,000 (457,000) (1,422,000) $2,798,000
Interest - - 891,000 $ 891,000
-------------- -------------- ------------- -------------
Earnings before income taxes 4,677,000 (457,000) (2,313,000) 1,907,000
============== ============== ============= =============
Depreciation and amortization 820,000 406,000 242,000 1,468,000
============== ============== ============= =============
Capital expenditures 924,000 138,000 5,000 1,067,000
============== ============== ============= =============
Identifiable assets $ 33,453,000 $11,762,000 $ 4,649,000 $49,864,000
============== ============== ============= =============
- 8 -
7. Comprehensive income
Comprehensive income (loss) 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 Six Months Ended
November 30, November 30,
---------------------------- -----------------------------
2001 2000 2001 2000
------------- ----------- ------------- -------------
Net income $1,244,000 $ 879,000 $ 2,046,000 $ 1,090,000
Other comprehensive loss:
Unrealized loss on derivative instruments
net of $15,000 and $53,000 tax benefit
for three months and six months ended
November 30, 2001, respectively (23,000) -- (88,000) --
---------- --------- ----------- -----------
Comprehensive income $1,221,000 $ 879,000 $ 1,958,000 $ 1,090,000
========== ========= ============ ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 2001 COMPARED
TO THREE MONTHS ENDED NOVEMBER 30, 2000
Revenues for the quarter ended November 30, 2001 were $21.6 million
compared to $19.5 million for the corresponding period of the preceding year.
Operating margins (shown as "gross margin" in the Condensed Statements of
Operations) improved to 41.9% of revenues in the second quarter of fiscal 2002
versus 40.5% in the same quarter last year and net income increased to $1.2
million ($.15 per share-diluted) as compared to $879 thousand ($.11 per share)
in fiscal 2001.
Industrial services segment revenues were $19.1 million in the second
quarter of fiscal 2002, an increase of $1.7 million (10%) over the prior year.
The growth in revenues was associated with the newer service lines of
inspection, field machining and technical bolting which grew by more than 30%
during the quarter when compared to the prior year. The growth in new services
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.
- 9 -
Revenues from our traditional service offerings (leak repair, emissions
control monitoring, hot tapping and concrete repair) were generally flat in
comparison to the same fiscal 2001 quarter. Demand for our services was
generally strong in both years as a result of good business conditions among
Team's primary customer industries.
Operating profits for the industrial segment (earnings before interest and
taxes) were up 12%, increasing to $3.2 million in the second quarter of fiscal
2002 versus $2.9 million last year. The profit improvement reflects improved
operating results from the penetration of newer services, particularly
inspection, in Team's existing customer base.
The equipment sales and rental segment (the "Climax" business) reported
substantially improved results in the second quarter of fiscal 2002, with
revenues of $2.4 million versus $2.1 million in the same quarter last year, an
increase of 16%. This segment continued to operate at close to break-even, with
an operating profit of $37 thousand for the quarter, compared to a loss of $215
thousand in the same quarter last year. The improved operating profit reflects a
significantly improved operating margin (44% in fiscal 2002 versus 39% in fiscal
2001) as a result of increasing revenues and aggressive efforts to bring
manufacturing costs down to meet existing sales levels.
Management believes that the Climax business is continuing to be negatively
impacted by a softness in capital equipment markets and has taken additional
steps, in December of 2001, to reduce its operating costs through a 20%
reduction in workforce. The associated severance cost of $170 thousand will be a
charge to earnings in the third quarter that ends in February 2002. Management
expects these reductions to result in a monthly cost reduction of approximately
$70 thousand.
Corporate and other expenses for the second quarter were $357 thousand
higher than last year. The difference is due primarily to a $360 thousand
non-recurring gain on a real estate sale realized last year.
Interest expense was $210 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.
SIX MONTHS ENDED NOVEMBER 30, 2001 COMPARED
TO SIX MONTHS ENDED NOVEMBER 30, 2000
Revenues for the six months ended November 30, 2001 were $41.4 million
compared to $36.3 million for the corresponding period of the preceding year, an
increase of 14%. Operating margins improved to 41.6% of revenues in the first
half of fiscal 2002 versus 39.9% in the same period last year and net income
increased to $2.05 million ($.25 per share-diluted) as compared to $1.1 million
($.13 per share) in fiscal 2001--an improvement of more than 85%.
Industrial services segment revenues were $36.5 million in the fiscal 2002
period, an increase of $4.4 million (14%) over the prior year. As discussed in
the three month comparison above, the growth in revenues in the six month period
was associated with the newer service lines of inspection, field machining and
technical bolting which grew by more than 50% during the six months when
compared to the prior year. The growth in new services 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.
Operating profits for the industrial segment (earnings before interest and
taxes) were up 23%, increasing to $5.7 million in the first half of fiscal 2002
versus $4.7 million last year. The profit improvement reflects improved
operating results from the penetration of newer services, particularly
inspection, in Team's existing
- 10 -
customer base and a general improvement in the execution of jobs during the
first quarter of the current fiscal year compared to last year's first quarter.
The discussion of the Climax segment for the six month period mirrors the
three month discussion above. The business reported substantially improved
results in the first half of fiscal 2002, with revenues of $4.9 million versus
$4.2 million in the same period last year. This segment operated at close to
break-even, with an operating profit of $41 thousand for the period, compared to
a loss of $457 thousand in the first half of last fiscal year. The improved
operating profit reflects a significantly improved operating margin (44% in
fiscal 2002 versus 39% in fiscal 2001) as a result of increasing revenues and
aggressive efforts to bring manufacturing costs down to meet existing sales
levels. See the three month analysis above for a discussion of additional steps
being taken in the third quarter of fiscal 2002 to improve profitability of this
business segment.
On a year to date basis, corporate general and administrative expenses
were up approximately $550 thousand over last year, due to an additional $190
thousand of incentive compensation and group insurance expenses in the first
quarter ended August 31, 2001 and because of the $360 thousand gain on the sale
of property that was reflected in last year's amount, as discussed above.
Interest costs for the six month period of $497 thousand were $394 thousand
less than incurred in the six month period of last year for the reasons
discussed in the three month analysis above.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 2001, the Company's liquid working capital (cash and
accounts receivable, less current liabilities) totaled $8.4 million, an increase
of approximately $800 thousand since May 31, 2001. The Company utilizes excess
operating funds to automatically reduce the amount outstanding under the
revolving credit facility. At November 30, 2001, the outstanding balance under
the revolving credit facility was $7.7 million, leaving approximately $4.1
million available to borrow under the facility.
While the total amount of outstanding bank debt at November 30, 2001 was
$1 million higher than at May 31, 2001, that increase is due only to timing of
cash flows. The weighted average outstanding bank debt during the first half of
fiscal 2002 was $15.2 million, which is slightly less than the average for the
fourth quarter of fiscal 2001 ($15.4 million). The average outstanding bank debt
during the first half of fiscal 2001 was $18.9 million.
In the six months ended November 30, 2001, the Company expended $1.7
million, including expenses, for the repurchase of 384 thousand 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.
- 11 -
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 six months of
fiscal 2002 in the Company's market risk sensitive instruments.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2001 Annual Meeting of Shareholders of the Company was held on
September 27, 2001. At that meeting, Mssrs. Sidney B. Williams, George W.
Harrison and E. Patrick Manuel were elected to serve as directors for a
three-year term. The votes with respect to the election of each director were as
follows:
<Table>
<Caption>
NAME FOR WITHHELD
- ---- --- --------
Sidney B. Williams 6,772,634 55,301
George W. Harrison 6,772,634 55,301
E. Patrick Manuel 6,821,434 6,501
</Table>
The four directors continuing in office until the expiration of their
respective terms are Messrs. Philip J. Hawk, E. Theodore Laborde, Jack M.
Johnson, Jr., and Louis A. Waters.
The shareholders also approved the appointment of Arthur Andersen LLP
as independent auditors for the fiscal year ending May 31, 2001 by the following
vote:
<Table>
<Caption>
FOR AGAINST ABSTAIN
- --- ------- -------
6,810,439 15,775 1,721
</Table>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
An amended report on Form 8-K was filed on October 5, 2001, to report Item
4, Change in Registrant's Certifying Accountant.
- 12 -
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 thereto duly authorized.
TEAM, INC
(Registrant)
Date: January 14, 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)
- 13 -