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 FEBRUARY 29, 1996
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 April 1, 1996, there were 5,159,842 shares of the Registrant's common stock
outstanding.
2
TEAM, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
February 29, 1996 and May 31, 1995
Consolidated Statements of Operations -- 4
Three Months Ended
February 29, 1996 and February 28, 1995
Nine Months Ended
February 29, 1996 and February 28, 1995
Consolidated Statements of Cash Flows -- 5
Nine Months Ended
February 29, 1996 and February 28, 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 8
of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
2
3
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 29, May 31,
1996 1995
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,775,000 $ 3,154,000
Accounts receivable, net of allowance for
doubtful accounts of $204,000 and $204,000 8,446,000 8,408,000
Materials and supplies 5,748,000 6,641,000
Prepaid expenses and other current assets 1,483,000 1,374,000
----------- -----------
Total current assets 18,452,000 19,577,000
Net Assets of Discontinued Operations -- 124,000
Property, Plant and Equipment:
Land and buildings 6,881,000 6,889,000
Machinery and equipment 11,300,000 10,864,000
----------- -----------
18,181,000 17,753,000
Less accumulated depreciation and amortization 12,535,000 11,641,000
----------- -----------
5,646,000 6,112,000
Military Housing Projects:
Restricted cash and other assets 1,707,000 2,897,000
Land and buildings, net of accumulated
depreciation of $5,804,000 and $4,710,000 41,487,000 42,581,000
----------- -----------
43,194,000 45,478,000
Goodwill, Net of Accumulated Amortization -- 5,583,000
Other Assets 3,781,000 3,184,000
----------- -----------
$71,073,000 $80,058,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $10,984,000 $ 1,344,000
Accounts payable 758,000 742,000
Other accrued liabilities 4,027,000 2,705,000
----------- -----------
Total Current Liabilities 15,769,000 4,791,000
Long-term Debt and Other Obligations 3,697,000 13,627,000
Military Housing Projects' Non-recourse Obligations:
Debt 38,765,000 39,722,000
Other 749,000 1,595,000
----------- -----------
39,514,000 41,317,000
Stockholder's 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 (14,353,000) (6,123,000)
Treasury stock at cost, 9,700 shares (97,000) (97,000)
----------- -----------
12,093,000 20,323,000
----------- -----------
$71,073,000 $80,058,000
=========== ===========
See notes to consolidated financial statements 3
4
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Revenues:
Operating revenue $11,747,000 $13,143,000 $35,340,000 $38,688,000
Military Housing
Project lease revenue 1,259,000 1,250,000 3,771,000 3,660,000
----------- ----------- ---------- -----------
13,006,000 14,393,000 39,111,000 42,348,000
Operating costs and expenses:
Operating expenses 6,228,000 6,841,000 19,000,000 20,219,000
Selling, general and
administrative expenses 7,802,000 5,558,000 18,119,000 17,594,000
Interest 287,000 367,000 913,000 1,130,000
Writedown of assets 5,997,000 -- 5,997,000 1,421,000
----------- ----------- ---------- -----------
20,314,000 12,766,000 44,029,000 40,364,000
Military Housing Project
Costs and Expenses:
Operating expenses 578,000 566,000 1,691,000 1,517,000
General and
administrative expenses 190,000 329,000 301,000 1,081,000
Interest 829,000 849,000 2,502,000 2,561,000
Writedown of assets -- -- -- 4,832,000
----------- ----------- ---------- -----------
1,597,000 1,744,000 4,494,000 9,991,000
Loss from Continuing Operations
before Income Taxes (8,905,000) (117,000) (9,412,000) (8,007,000)
Income Tax Benefit (1,189,000) (41,000) (1,182,000) (2,551,000)
----------- ----------- ---------- -----------
Loss from Continuing
Operations, Net of Income Taxes (7,716,000) (76,000) (8,230,000) (5,456,000)
Earnings (Loss) on Discontinued
Operations, Net of Income Taxes -- 116,000 -- (324,000)
Change in Estimated Loss on
Sale of Discontinued
Operations, Net of Income Taxes -- -- -- (457,000)
----------- ----------- ---------- -----------
Net Earnings (Loss) $(7,716,000) $ 40,000 $(8,230,000) $(6,237,000)
=========== =========== =========== ===========
Net Loss Per Common Share:
Loss from
Continuing Operations $ (1.50) $ (0.01) $ (1.59) $ (1.06)
Earnings (Loss) from
Discontinued Operations -- 0.02 -- (0.06)
Change in Estimated
Loss on Sale of
Discontinued Operations -- -- -- (0.09)
----------- ----------- ---------- -----------
Net Income (Loss) $ (1.50) $ 0.01 $ (1.59) $ (1.21)
=========== =========== =========== ===========
Weighted number of
shares outstanding 5,160,000 5,160,000 5,181,000 5,160,000
See notes to consolidated financial statements 4
5
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
----------------------------
February 29, February 28,
1996 1995
------------ ------------
Cash Flows From Operating Activities:
Loss from continuing
operations, net of income taxes $(8,230,000) $(5,456,000)
Adjustments to reconcile loss
from continuing operations, net of
income taxes, to net cash provided
by operating activities:
Depreciation and amortization 2,674,000 3,021,000
Provision for doubtful accounts -- 201,000
and notes receivable
(Gain) Loss on sale of assets 3,000 (14,000)
Writedown of assets 5,997,000 6,253,000
Noncurrent deferred income taxes (733,000) (1,798,000)
Change in assets and liabilities:
(Increase) decrease:
Accounts receivable (38,000) 1,228,000
Materials and supplies 493,000 711,000
Prepaid expenses and other assets (122,000) (306,000)
Increase (decrease):
Accounts payable 16,000 (1,062,000)
Other accrued liabilities 1,072,000 (1,072,000)
Income taxes payable -- (895,000)
----------- -----------
Net cash provided by operating activities 1,132,000 811,000
Cash Flows from Investing Activities:
Capital expenditures (434,000) (311,000)
Disposal of property and equipment 4,000 34,000
Cash received on sale of company -- 4,550,000
Decrease (increase) in other assets (18,000) 286,000
Decrease in net assets of discontinued operatio 124,000 838,000
Decrease in military housing projects'
restricted cash and other assets 1,190,000 1,059,000
----------- -----------
Net cash provided by
investing activities 866,000 6,456,000
Cash Flows From Financing Activities:
Payments under debt agreements
and capital lease obligations (2,329,000) (7,475,000)
Increase in other long term obligations 1,755,000 --
Borrowings under debt agreements -- 272,000
Payments on military housing
projects' non-recourse debt (957,000) (881,000)
Decrease in military housing projects'
other non-recourse obligations (846,000) (783,000)
----------- -----------
Net cash used in financing activities (2,377,000) (8,867,000)
----------- -----------
Net decrease in cash and cash equivalents (379,000) (1,600,000)
Cash and cash equivalents at beginning of year 3,154,000 3,728,000
----------- -----------
Cash and cash equivalents at end of period $ 2,775,000 $ 2,128,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest:
Operating interest $ 933,000 $ 1,445,000
Military housing projects 3,376,000 3,433,000
----------- -----------
$ 4,309,000 $ 4,878,000
=========== ===========
Taxes paid $ 122,000 $ 542,000
=========== ===========
Tax refunds $ 721,000 $ --
=========== ===========
Supplemental schedule of non-cash financing activities:
During the periods ended February 29, 1996 and February 28, 1995, computer
hardware and software acquired under capital lease obligations amounted to
$195,000 and $254,000, respectively.
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 February 28, 1995 financial statements have been restated to reflect
the Transportation Services segment as discontinued operations.
2. Dividends
No dividends were paid during the first nine 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. Pre-Tax Charges
The loss from continuing operations for the third quarter included pre-tax
charges of $6.0 million representing writedowns in the carrying value of
certain of the Company's assets. This charge primarily reflected the $5.3
million write-off of goodwill as it pertained to the Environmental
Consulting and Engineering Division and a $400,000 writeoff of obsolete
inventory.
In addition, the Company recorded $2.3 million of additional general and
administrative expenses. These charges primarily represent certain
compensation arrangements with former employees.
4. Other
The Company's management continues to market the Military Housing Projects,
but currently no negotiations are in progress.
6
7
5. Debt and Credit Arrangements
Team's credit facility with its primary lender consists of a Term Loan and
a revolving line of credit, both of which mature on December 1, 1996. The
balance due at February 29, 1996 on the Term Loan was $3,250,000, while the
balance on the revolving line of credit was $7,452,000. Both of these
amounts are included in the current portion of long term debt.
The Company has obtained a waiver for violation of a covenant of its credit
agreement which occurred as a result of the pre-tax charges and additional
general and administrative expenses as discussed in Note 3 herein.
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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 Income Increase/(Decrease)
------------------------------------------------ -----------------------------
Three Months Ended Nine Months Ended Three Months Nine Months
Feb. 29, Feb. 28, Feb. 29, Feb. 28, Ended Ended
1996 1995 1996 1995 2/29 2/29
1996 1996
------ ----- ------ ------ ------- -------
Revenues:
Core businesses 90.3 % 91.3 % 90.4 % 91.4 % (10.6) (8.7) %
Military housing
project lease revenue 9.7 8.7 9.6 8.6 0.7 3.0
------ ----- ------ ------
Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % (9.6)% (7.6)%
Core Business
Costs and Expenses:
Operating expenses 47.9 % 47.5 % 48.6 % 47.7 % (9.0)% (6.0)%
SG&A expenses 60.0 38.6 46.3 41.5 40.4 3.0
Interest 2.2 2.6 2.3 2.7 (21.8) (19.2)
Writedown of assets 46.1 0 15.3 3.4 NM NM
------ ----- ------ ------
156.2 % 88.7 % 112.5 % 95.3 % 59.1 % 9.1 %
Military
Housing Projects:
Operating expenses 4.4 3.9 4.3 3.6 2.1 11.5
G&A expenses 1.5 2.3 0.8 2.6 (42.2) (72.2)
Interest 6.4 5.9 6.4 6.0 (2.4) (2.3)
Writedown of assets 0 0 0 11.4 0 (100.0)
------ ----- ------ ------
12.3 % 12.1 % 11.5 % 23.6 % (8.4)% (55.0)%
Loss from
continuing operations
before income taxes (68.5) (0.8) (24.0) (18.9) NM (17.5)
Income Tax Benefit (9.1) (0.3) (3.0) (6.0) NM (53.7)
------ ------ ------ ------
Earnings (Loss) from
continuing operations
net of income taxes (59.4)% (0.5)% (21.0)% (12.9)% NM (50.8)%
====== ====== ====== ====== ====== =======
NM - not meaningful
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RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 29, 1996 COMPARED
TO THREE MONTHS ENDED FEBRUARY 28, 1995
Primary Operations: For the three month period ended February 29, 1996,
revenues from the Company's environmental services business totaled $11.7
million, 10.6 percent lower than revenues of $13.1 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. The Company's leak sealing services business
experienced a small increase in revenue.
Operating expenses in the Company's primary operations declined by 9.0 percent
from the third quarter of the prior year, primarily due to lower personnel
related costs. However, gross profit margins declined from 48.0 percent to 47.0
percent, as the Company was not able to reduce costs sufficiently to offset the
decline in revenues. Selling, general and administrative expenses of $7.8
million in the three month period ended February 29, 1996 were $2,244,000 or
40.4 percent higher than in the prior year. This increase was the result of $2.3
million of additional general and administrative expenses that related primarily
to certain compensation arrangements of former employees. Excluding these
expenses, general and administrative expenses are consistent with the same
period in the prior year. The writedown of assets of $6.0 million primarily
reflected a $5.3 million write-off of goodwill and a $400,000 write-off of
obsolete inventory.
Interest expense of $287,000 in the three month period ended February 29, 1996
was 21.8 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 $377,000 in the quarter ended February 28, 1995 compared
to a pre-tax operating loss of $8.6 million in the current year ($298,000
pre-tax operating loss in the current year excluding the effect of the writedown
of assets and the additional general and administrative expenses).
Military Housing Projects: For the three month period ended February 29, 1996,
revenues of $1.3 million were consistent with revenues in the prior year period.
The pre-tax loss from military housing was $338,000 compared to a loss of
$494,000 in the same quarter of the prior year. 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 February 29, 1996, the Company recorded a net
loss of $7,716,000 ($341,000 excluding the writedown of assets and the
additional general and administrative expenses) which compares to a loss from
continuing operations of $76,000 for the same period last year.
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10
NINE MONTHS ENDED FEBRUARY 29, 1996 COMPARED
TO NINE MONTHS ENDED FEBRUARY 28, 1995
Primary Operations: For the nine month period ended February 29, 1996, revenues
from the Company's environmental services business were $35.3 million, $3.4
million, or 8.7% lower than revenues of $38.7 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 nine months ended February 29, 1996 were $19.0
million, 6.0% 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 $18.1 million in the nine
month period ended February 29, 1996, $525,000 higher than in the prior year.
However, this increase was the result of $2.3 million of additional general and
administrative expenses that related primarily to certain compensation
arrangements of former employees. Excluding these expenses, general and
administrative expenses are $1.8 million lower than in the prior year, primarily
due to the continuing impact of cost reduction programs.
Military Housing Projects: For the nine months ended February 29, 1996, revenues
were $3.8 million, $111,000 higher than revenues in the prior year due to
increased maintenance revenues. The pre-tax loss was $723,000 in the nine month
period ended February 29, 1996, compared to a loss of $6.3 million ($1.5 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 nine months ended February 29, 1996 of
$8.2 million, $2.7 million higher than the $5.5 million net loss recorded in the
same period last year. Excluding the writedowns of $6.0 million and additional
general and administrative expenses of $2.3 million in 1996 and the $6.3 million
writedown in 1995, the net loss for the nine months ended February 29, 1996 was
$856,000, substantially lower than the net loss from continuing operations of
$1.3 million last year. Including the net change in estimate on sale of
discontinued operations of $457,000 and the net loss of $324,000 on the
discontinued transportation segment, the Company's net loss was $2.1 million for
the nine months ended February 28, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 1996, the Company's working capital totaled $2.7 million, a
decrease of $12.1 million from working capital of $14.8 million at May 31, 1995.
This decrease was primarily attributable to the reclassification of long term
debt to current debt due to our credit agreements maturing in December, 1996.
The Company has been able to finance its working capital requirements through
its internally generated cash flow.
10
11
For the nine month period ended February 29, 1996, net cash provided from
operations totaled $1.1 million. Capital expenditures totaled $434,000 during
the nine month period ending February 29, 1996 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 $2.0 million during the nine month
period ended February 29, 1996. Payments on military housing non-recourse debt
were $957,000 during the first three 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 $750,000, as the Company plans to replace, upgrade and expand its
data collection, computer and other operating equipment. All planned capital
expenditures are discretionary and will be made based on the availability of
funds.
Management continues to market the Military Housing Projects, but currently no
negotiations are in progress.
The Company's current and long-term debt, excluding non-recourse debt of $38.8
million of the Military Housing Projects, was $12.9 million at February 29, 1996
compared to $14.9 million at May 31, 1995. Of this amount, $10.7 million was
owed to the Company's primary bank lender. At the end of the third quarter of
fiscal year 1996, the Company was in violation of a covenant under its credit
agreement with the bank, which has been waived by the bank. (See Note 5 to Notes
to Consolidated Financial Statements). Company management anticipates
negotiations with the bank to amend the credit agreement wherein maturity dates
would be extended and financial covenants would be revised so that the Company
will remain in compliance with the credit agreement.
11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment and Supplement to Amended and Restated Credit
Agreement, and Note Modification Agreement by and between Team,
Inc. and Texas Commerce Bank National Association effective as of
September 13, 1995.
10.2 Sixth Amendment and Restatement of the Team, Inc. Employee Stock
Ownership Plan.
10.3 Ninth Amendment and Restatement of the Team, Inc. Salary Deferral
Plan.
10.4 Letter Agreement dated April 12, 1996 by and between Texas
Commerce Bank National Association and Team, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Form 8-K Reports filed during the quarter ended February
29, 1996.
12
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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: April 15, 1996
WILLIAM A. RYAN
--------------------------------------
William A. Ryan, Chairman of the Board,
President and Chief Executive Officer
MARGIE E. ROGERS
--------------------------------------
Margie E. Rogers, Treasurer and
Chief Accounting Officer
13
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EXHIBIT INDEX
10.1 First Amendment and Supplement to Amended and Restated Credit
Agreement, and Note Modification Agreement by and between Team,
Inc. and Texas Commerce Bank National Association effective as of
September 13, 1995.
10.2 Sixth Amendment and Restatement of the Team, Inc. Employee Stock
Ownership Plan.
10.3 Ninth Amendment and Restatement of the Team, Inc. Salary Deferral
Plan.
10.4 Letter Agreement dated April 12, 1996 by and between Texas
Commerce Bank National Association and Team, Inc.
27 Financial Data Schedule