1
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, 1995
_________________________________________
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 1-8604
TEAM, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1765729
------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification Number)
or organization)
1019 South Hood Street, Alvin, Texas 77511
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 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
----- -----
On January 2, 1995, there were 5,159,842 shares of the Registrant's common
stock outstanding.
2
TEAM, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
May 31, 1995 and November 30, 1995
Consolidated Statements of Operations -- 4
Three Months Ended
November 30, 1995 and 1994
Six Months Ended
November 30, 1995 and 1994
Consolidated Statements of Cash Flows -- 5
Six Months Ended
November 30, 1995 and 1994
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 7
of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
3
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, May 31,
1995 1995
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $1,939,000 $3,154,000
Accounts receivable, net of allowance for
doubtful accounts of $204,000 and $204,000 9,097,000 8,408,000
Materials and supplies 6,170,000 6,641,000
Prepaid expenses and other current assets 1,174,000 1,374,000
----------- -----------
Total current assets 18,380,000 19,577,000
Net Assets of Discontinued Operations -- 124,000
Property, Plant and Equipment:
Land and buildings 6,896,000 6,889,000
Machinery and equipment 11,032,000 10,864,000
----------- -----------
17,928,000 17,753,000
Less accumulated depreciation and amortization 12,278,000 11,641,000
----------- -----------
5,650,000 6,112,000
Military Housing Projects:
Restricted cash and other assets 2,742,000 2,897,000
Land and buildings, net of accumulated
depreciation of $5,439,000 and $4,710,000 41,852,000 42,581,000
----------- -----------
44,594,000 45,478,000
Goodwill, Net of Accumulated Amortization 5,425,000 5,583,000
Other Assets 3,088,000 3,184,000
----------- -----------
$77,137,000 $80,058,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $1,287,000 $1,344,000
Accounts payable 746,000 742,000
Other accrued liabilities 2,636,000 2,705,000
Current income tax payable 22,000 --
----------- -----------
Total Current Liabilities 4,691,000 4,791,000
Long-term Debt 11,910,000 13,627,000
Military Housing Projects' Non-recourse Obligations:
Debt 39,253,000 39,722,000
Other 1,474,000 1,595,000
----------- -----------
40,727,000 41,317,000
Stockholders' Equity:
Preferred stock, cumulative, par value $100 per
share, 500,000 shares authorized, none issued -- --
Common stock, par value $.30 per share, 10,000,000
shares authorized, 5,169,542 shares issued 1,551,000 1,551,000
Additional paid-in capital 24,992,000 24,992,000
Accumulated deficit (6,637,000) (6,123,000)
Treasury stock at cost, 9,700 shares (97,000) (97,000)
----------- -----------
19,809,000 20,323,000
----------- -----------
$77,137,000 $80,058,000
=========== ===========
See notes to consolidated financial statements
3
4
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
November 30, November 30, November 30, November 30,
1995 1994 1995 1994
----------- ------------ ----------- ------------
Revenues:
Operating revenue $11,475,000 $12,450,000 $23,593,000 $25,545,000
Military Housing
Project lease revenue 1,253,000 1,205,000 2,511,000 2,410,000
----------- ----------- ----------- -----------
12,728,000 13,655,000 26,104,000 27,955,000
Operating costs and expenses:
Operating expenses 6,399,000 6,604,000 12,772,000 13,377,000
Selling, general and
administrative expenses 5,260,000 6,141,000 10,317,000 12,036,000
Interest 301,000 376,000 626,000 764,000
Writedown of assets -- 1,421,000 -- 1,421,000
----------- ----------- ----------- -----------
11,960,000 14,542,000 23,715,000 27,598,000
Military Housing Project
Costs and Expenses:
Operating expenses 556,000 501,000 1,113,000 951,000
General and
administrative expenses 57,000 604,000 110,000 751,000
Interest 834,000 854,000 1,673,000 1,712,000
Writedown of assets -- 4,832,000 -- 4,832,000
----------- ----------- ----------- -----------
1,447,000 6,791,000 2,896,000 8,246,000
Loss from Continuing Operations before
Income Taxes (679,000) (7,678,000) (507,000) (7,889,000)
Provision (benefit)
for Income Taxes (131,000) (2,546,000) 7,000 (2,510,000)
----------- ----------- ----------- -----------
Loss from Continuing
Operations, Net of Income Taxes (548,000) (5,132,000) (514,000) (5,379,000)
Loss on Discontinued
Operations, Net of Income Taxes -- (452,000) -- (441,000)
Change in Estimated Loss on
Sale of Discontinued
Operations, Net of Income Taxes -- (457,000) -- (457,000)
----------- ----------- ----------- -----------
Net Loss $(548,000) $(6,041,000) $(514,000) $(6,277,000)
=========== =========== ========= ===========
Net Loss Per Common Share:
Loss from
Continuing Operations $(0.11) $(0.99) $(0.10) $(1.04)
Loss from
Discontinued Operations -- (0.09) -- (0.09)
Change in Estimated
Loss on Sale of
Discontinued Operations -- (0.09) -- (0.09)
----------- ----------- ----------- -----------
Net Loss $(0.11) $(1.17) $(0.10) $(1.22)
=========== =========== =========== ===========
Weighted number of
shares outstanding 5,160,000 5,160,000 5,160,000 5,160,000
See notes to consolidated financial statements
4
5
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
--------------------------------------
November 30, November 30,
1995 1994
----------- -----------
Cash Flows From Operating Activities:
Loss from continuing
operations, net of income taxes $(514,000) $(5,379,000)
Adjustments to reconcile loss
from continuing operations, net of
income taxes, to net cash provided
by operating activities:
Depreciation and amortization 1,806,000 2,034,000
Provision for doubtful accounts
and notes receivable -- 141,000
(Gain) Loss on sale of assets 3,000 (8,000)
Writedown of assets -- 6,253,000
Noncurrent deferred income taxes -- (1,798,000)
Change in assets and liabilities:
(Increase) decrease:
Accounts receivable (689,000) 1,569,000
Materials and supplies 471,000 171,000
Prepaid expenses and other assets 200,000 (311,000)
Increase (decrease):
Accounts payable 4,000 (1,215,000)
Other accrued liabilities (69,000) (572,000)
Income taxes payable 22,000 (753,000)
---------- ----------
Net cash provided by operating activities 1,234,000 132,000
Cash Flows from Investing Activities:
Capital expenditures (272,000) (276,000)
Disposal of property and equipment 4,000 19,000
Cash received on sale of company -- 4,550,000
Decrease (increase) in other assets (137,000) 107,000
Decrease in net assets of discontinued operations 124,000 775,000
Decrease in military housing projects'
restricted cash and other assets 155,000 84,000
---------- ----------
Net cash provided by (used in)
investing activities (126,000) 5,259,000
Cash Flows From Financing Activities:
Payments under debt agreements
and capital lease obligations (1,733,000) (6,658,000)
Borrowings under debt agreements -- 272,000
Payments on military housing
projects' non-recourse debt (469,000) (431,000)
Decrease in military housing projects'
other non-recourse obligations (121,000) (47,000)
---------- ----------
Net cash used in
financing activities (2,323,000) (6,864,000)
---------- ----------
Net decrease in cash and cash equivalents (1,215,000) (1,473,000)
Cash and cash equivalents at beginning of year 3,154,000 3,728,000
---------- ----------
Cash and cash equivalents at end of period $1,939,000 $2,255,000
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest:
Operating interest $639,000 $888,000
Military housing projects 1,688,000 1,726,000
---------- ----------
$2,327,000 $2,614,000
========== ==========
Taxes paid $57,000 $211,000
========== ==========
Tax refunds $21,000 $0
========== ==========
Supplemental schedule of non-cash financing activities:
During the period ended November 30, 1994, computer hardware and software
acquired under capital lease obligations amounted to $254,000.
See notes to consolidated financial statements
5
6
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 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, 1995.
The November 30, 1994 financial statements have been restated to
reflect the Transportation Services segment as discontinued
operations.
2. Dividends
No dividends were paid during the first six months of fiscal 1996 or
1995. 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.
3. Other
The Company's management is presently pursuing negotiations to sell
the military housing business segment. Should such a sale be
consummated, the operations of this business segment will be accounted
for as discontinued operations.
6
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's primary operations consist of industrial repair services,
environmental engineering and consulting, and air emission monitoring services.
The Company also owns three Federal Section 801 housing projects ("Military
Housing" segment), which are presently leased to the Departments of the Army,
Navy and Air Force pursuant to long-term lease agreements.
The following table sets forth for the periods indicated (i) the percentage
which certain items in the financial statements of the Company bear to revenues
and (ii) the percentage change in the dollar amount of such items from period
to period:
Percentage of Revenue Increase/(Decrease)
------------------------------------------------------ ------------------------
Three Six
Three Months Six Months Months Months
Ended November 30, Ended November 30, Ended Ended
----------------------- ----------------------- -------------------------
1995 1994 1995 1994 11/30 11/30
1995 1995
-------- -------- -------- -------- --------- --------
Revenues:
Core businesses 90.2 % 91.2 % 90.4 % 91.4 % (7.8)% (7.6)%
Military housing
project lease revenue 9.8 8.8 9.6 8.6 4.0 4.2
-------- -------- -------- --------
Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % (6.8)% (6.6)%
Core Business
Costs and Expenses:
Operating expenses 50.3 % 48.4 % 48.9 % 47.8 % (3.1)% (4.5)%
SG&A expenses 41.3 45.0 39.5 43.1 (14.4) (14.3)
Interest 2.4 2.7 2.4 2.7 (19.9) (18.0)
Writedown of assets 0 10.4 0 5.1 (100.0) (100.0)
-------- -------- -------- --------
94.0 % 106.5 % 90.8 % 98.7 % (17.8)% (14.1)%
Military
Housing Projects:
Operating expenses 4.4 3.7 4.3 3.4 10.9 17.0
G&A expenses 0.4 4.4 0.4 2.7 (90.6) (85.3)
Interest 6.5 6.2 6.4 6.1 (2.3) (2.3)
Writedown of assets 0 35.4 0 17.3 (100.0) (100.0)
-------- -------- -------- --------
11.3 % 49.7 % 11.1 % 29.5 % (78.7)% (64.9)%
Loss from
continuing operations
before income taxes (5.3) (56.2) (1.9) (28.2) 91.2 93.6
Provision (benefit)
for income taxes (1.0) (18.6) 0.1 (9.0) 94.8 100.3
-------- -------- -------- --------
Earnings (loss) from
continuing operations
net of income taxes (4.3)% (37.6)% (2.0)% (19.2)% 89.3 90.4
======== ======== ======== ======== ========= ========
7
8
RESULTS OF OPERATIONS
Three Months Ended November 30, 1995 Compared
to Three Months Ended November 30, 1994
Primary Operations: For the three month period ended November 30, 1995,
revenues from the Company's environmental services business totaled $11.5
million, 8 percent lower than revenues of $12.5 million reported in the same
period of the prior fiscal year. This decrease resulted from lower revenues
from the Company's emissions monitoring and environmental consulting and
engineering services, primarily as a result of reduced reporting requirements
by many of the Company's customers, due to the slowdown in environmental
regulatory activity. In addition, some of the Company's customers have
implemented internal reporting for emissions control services. However,
revenue from the Company's leak sealing services remains stable.
Operating expenses in the Company's primary operations declined by 3 percent
from the second quarter of the prior year, primarily due to lower personnel
related costs. Gross profit margins declined from 47.0 percent to 44.2
percent, as the Company was not able to reduce costs sufficiently to offset the
decline in revenues. Selling, general and administrative expenses of $5.3
million in the three month period ended November 30, 1995 were $881,000, or 14
percent lower than in the prior year. The continuing impact of cost reduction
programs implemented during the prior fiscal year has resulted in lower
personnel, and other general expenses.
Interest expense of $301,000 in the three month period ended November 30, 1995
was 20 percent lower than in the same period of the prior year due to reduced
average borrowing levels. The Company incurred a pre-tax operating loss on its
primary operations of $485,000 in the quarter ended November 30, 1995 compared
to a pre-tax operating loss of $2.1 million in the prior year ($671,000 pre-tax
operating loss in the prior year excluding the effect of a one time writedown
recorded in the three month period ended November 30, 1994).
Military Housing Projects: For the three month period ended November 30, 1995,
revenues were $1.3 million, $48,000 higher than revenues in the prior year
period, due to increased maintenance revenues. The pre-tax loss from military
housing was $194,000 compared to a loss of $754,000 in the same quarter of the
prior year, excluding the effect of a one time writedown in the amount of $4.8
million. Reduced legal fees, associated with the settlement of litigation with
the general contractor of the projects in March 1995, accounted for the change.
For the three month period ended November 30, 1995, the Company recorded a net
loss of $548,000 which was less than the net loss from continuing operations of
$5.1 million ($1,005,000 excluding the one time writedown) in the same period
last year. The Company's net loss for the same period of the prior year was
$6.0 million, including the net change in estimate on sale of
8
9
discontinued operations and the net earnings from the operations of the
Company's discontinued transportation segment, which was sold in April 1995.
Six Months Ended November 30, 1995 Compared
to Six Months Ended November 30, 1994
Primary Operations: For the six month period ended November 30, 1995, revenues
from the Company's environmental services business were $23.6 million, $1.9
million, or 8% lower than revenues of $25.5 million in the comparable period
last year. Reduced demand for the Company's emissions monitoring and
environmental consulting and engineering services accounted for the majority of
this decrease.
Operating expenses in the six months ended November 30, 1995 were $12.8
million, 5% lower than operating expenses in the same period last year. The
Company has reduced personnel related costs; however, due to competitive
pressures, the cost decreases have not offset in full the decline in revenues.
Selling, general and administrative expenses were $10.3 million in the six
month period ended November 30, 1995, $1.7 million lower than in the prior
year, primarily due to the continuing impact of cost reduction programs.
Military Housing Projects: For the six months ended November 30, 1995,
revenues were $2.5 million, $101,000 higher than revenues in the prior year due
to increased maintenance revenues. The pre-tax loss was $385,000 in the six
month period ended November 30, 1995, compared to a loss of $5.8 million, $1.0
million excluding the effects of the writedown of assets, in the comparable
period of the prior year. Reduced legal fees accounted for the change.
The Company recorded a net loss for the six months ended November 30, 1995 of
$514,000, which was substantially lower than the net loss from continuing
operations of $5.4 million last year ($1,252,000 excluding the one time
writedown). Including the net change in estimate on sale of discontinued
operations of $457,000 and the net loss of $441,000 on the discontinued
transportation segment, the Company's net loss was $6.3 million for the six
months ended November 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1995, the Company's working capital totaled $13.7 million, a
decrease of $1.1 million from working capital of $14.8 million at May 31, 1995.
This decrease was primarily attributable to the reduction of cash as a result
of debt payments. The Company has been able to finance its working capital
requirements through its internally generated cash flow. In August 1995, the
Company and its primary bank modified and extended the terms of its credit
agreement, which provides a total credit facility of $15,950,000 consisting of
a $3,950,000 term loan and a $12.0 million revolving line of credit. The term
loan is due December 1, 1996, and provides for quarterly principal payments of
$350,000 which began September 30, 1995, with the balance due at maturity. The
revolving line of credit also expires on December 1, 1996. At November 30,
1995, amounts outstanding under the revolving line of credit were $7.5 million.
9
10
For the six month period ended November 30, 1995, net cash provided from
operations totaled $1.2 million, resulting primarily from depreciation and
amortization of $1.8 million, lower inventories of $471,000, and reductions in
prepaids and other assets of $200,000. This was partially offset by the net
loss of $514,000 and higher accounts receivable of $689,000. Capital
expenditures totaled $272,000 during the six month period ending November 30,
1995 as a result of the replacement of equipment used in the Company's
operations. The Company reduced its revolving line of credit and other
long-term debt by $1.7 million during the six month period ending November 30,
1995. Payments on military housing non-recourse debt were $469,000 during the
first two quarters. These payments were made with rental receipts deposited in
the military housing projects' restricted cash account.
Management expects that capital expenditures for fiscal 1996 will be
approximately $1.5 million, as the Company plans to replace, upgrade and expand
its data collection, computer and other operating equipment.
In order to focus its efforts on the Company's environmental maintenance and
consulting services, management intends to sell its military housing business.
The proceeds of such a sale, if completed, will be used to increase available
working capital and to reduce bank debt. Management is presently negotiating
with a prospective buyer, although there can be no assurance that the
transaction will be completed.
10
11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1995 Annual Meeting of Shareholders of the Company was held on November 1,
1995. At the meeting Mr. Sidney B. Williams was reelected and Mr. George W.
Harrison was elected to serve as Class III Directors for a term of three years.
The votes with respect to the election of each such director were as follows:
NAME FOR WITHHELD
---- --- --------
Mr. Sidney B. Williams 3,801,238 492,924
Mr. George W. Harrison 3,877,342 416,820
The five directors continuing in office until the expiration of their
respective terms are Messrs. William A. Ryan, John L. Farrell, Jr., Jack M.
Johnson, Jr., E. Theodore Laborde and Thomas N. Amonett.
The shareholders also approved the appointment of Deloitte & Touche as
independent certified public accounts to audit the Company's accounts for the
fiscal year ending May 31, 1996 by the following vote:
FOR AGAINST ABSTAIN
--- ------- -------
4,084,111 163,322 46,729
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Fourth Amendment to Team, Inc. Amended and Restated 1987
Restricted Stock Option Plan
10.2 Third Amendment to Team, Inc. Non-Employee Directors' Stock
Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Form 8-K Reports filed during the quarter ended November
30, 1995.
11
12
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: January 15, 1996
/s/ WILLIAM A. RYAN
----------------------------------------
William A. Ryan, Chairman of the Board,
President and Chief Executive Officer
/s/ MARGIE E. ROGERS
----------------------------------------
Margie E. Rogers, Treasurer and
Chief Accounting Officer
12
13
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.1 Fourth Amendment to Team, Inc. Amended and Restated 1987
Restricted Stock Option Plan
10.2 Third Amendment to Team, Inc. Non-Employee Directors' Stock
Option Plan
27 Financial Data Schedule