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 28, 1997
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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 (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 (281) 331-6154
---------------------------
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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On April 1, 1997, there were 5,159,842 shares of the Registrant's common stock
outstanding.
2
TEAM, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets -- 3
February 28, 1997 and May 31, 1996
Consolidated Statements of Earnings -- 4
Three Months Ended
February 28, 1997 and February 29, 1996
Nine Months Ended
February 28, 1997 and February 29, 1996
Consolidated Statements of Cash Flows -- 5
Nine Months Ended
February 28, 1997 and February 29, 1996
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 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 11
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PART I.
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 28, MAY 31,
1997 1996
(RESTATED)
------------ ------------
Current Assets:
Cash and cash equivalents $ 1,301,000 $ 2,037,000
Accounts receivable, net of allowance for doubtful
accounts of $142,000 and $171,000 7,742,000 8,140,000
Materials and supplies 6,034,000 5,748,000
Prepaid expenses and other current assets 750,000 846,000
------------ ------------
Total Current Assets 15,827,000 16,771,000
Net Assets of Discontinued Operations, Net of Reserve
for Future Losses of $319,000 and $0 2,990,000 3,503,000
Property, Plant and Equipment:
Land and buildings 6,541,000 6,874,000
Machinery and equipment 11,505,000 11,088,000
------------ ------------
18,046,000 17,962,000
Less accumulated depreciation and amortization 12,231,000 12,197,000
------------ ------------
5,815,000 5,765,000
Other Assets 2,315,000 2,887,000
------------ ------------
$ 26,947,000 $ 28,926,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,613,000 $ 1,735,000
Accounts payable 941,000 846,000
Other accrued liabilities 2,973,000 3,546,000
Current income taxes payable 81,000 --
------------ ------------
Total Current Liabilities 5,608,000 6,127,000
Long-term Debt and Other Obligations 9,764,000 11,754,000
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 and 5,169,542 shares issued 1,551,000 1,551,000
Additional paid-in capital 24,992,000 24,992,000
Accumulated deficit (14,871,000) (15,401,000)
Treasury stock at cost, 9,700 shares (97,000) (97,000)
------------ ------------
11,575,000 11,045,000
------------ ------------
$ 26,947,000 $ 28,926,000
============ ============
See notes to consolidated financial statements
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4
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
(Restated) (Restated)
------------ ------------ ------------ ------------
Revenues $ 11,305,000 $ 11,747,000 $ 32,732,000 $ 35,340,000
Operating expenses 6,437,000 6,816,000 18,414,000 20,450,000
Selling, general and administrative expenses 4,258,000 7,214,000 12,652,000 16,669,000
Interest 215,000 287,000 687,000 913,000
Writedown of assets -- 5,997,000 -- 5,997,000
------------ ------------ ----------- -----------
Earnings (loss) from continuing operations before
income taxes 395,000 (8,567,000) 979,000 (8,689,000)
Provision (benefit) for income taxes 185,000 (1,074,000) 450,000 (936,000)
------------ ----------- ----------- -----------
Earnings (loss) from continuing operations, net of
income taxes 210,000 (7,493,000) 529,000 (7,753,000)
Earnings (loss) from Military Housing projects
discontinued operations, net -- (223,000) 182,000 (477,000)
Estimated loss on sale of Military Housing projects
discontinued operations, net -- -- (181,000) --
------------ ------------ ------------ ------------
Net earnings (loss) $ 210,000 $ (7,716,000) $ 530,000 $ (8,230,000)
============ ============ ============ ============
Net earnings (loss) per common share:
Net earnings (loss) from continuing operations $ 0.04 $ (1.46) $ 0.10 $ (1.50)
Net earnings (loss) from Military Housing projects
discontinued operations -- (0.04) 0.04 (0.09)
Net estimated loss on sale of Military Housing
projects discontinued operations -- -- (0.04) --
------------ ------------ ------------ ------------
Net earnings (loss) $ 0.04 $ (1.50) $ 0.10 $ (1.59)
============ ============ ============ ============
Weighted average number of shares outstanding 5,160,000 5,160,000 5,160,000 5,181,000
============ ============ ============ ============
See notes to consolidated financial statements
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TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
---------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
(RESTATED)
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Cash Flows From Operating Activities:
Net earnings (loss) $ 530,000 $(8,230,000)
(Earnings) loss from discontinued operations (1,000) 477,000
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Net earnings (loss) from continuing operations 529,000 (7,753,000)
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 1,050,000 1,581,000
(Gain) loss on sale of assets (21,000) 3,000
Writedown of assets -- 5,997,000
Noncurrent deferred income taxes 353,000 (733,000)
Change in assets and liabilities:
(Increase) decrease:
Accounts receivable 398,000 (35,000)
Materials and supplies (286,000) 493,000
Prepaid expenses and other assets 96,000 (122,000)
Increase (decrease):
Accounts payable 95,000 31,000
Other accrued liabilities (573,000) 1,069,000
Income taxes payable 81,000 --
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Net cash provided by continuing operating activities 1,722,000 531,000
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Cash Flows From Discontinued Operations:
Earnings (loss) from discontinued operations 1,000 (477,000)
Depreciation 1,093,000 1,093,000
Decrease in current assets 993,000 1,187,000
Decrease in current liabilities (533,000) (858,000)
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Net cash provided by discontinued operations 1,554,000 945,000
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Net cash provided by operating activities 3,276,000 1,476,000
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Cash Flows from Investing Activities:
Capital expenditures (1,103,000) (434,000)
Disposal of property and equipment 183,000 4,000
Decrease in other assets 16,000 106,000
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Net cash used in investing activities (904,000) (324,000)
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Cash Flows From Financing Activities:
Payments under debt agreements
and capital lease obligations - continuing (2,067,000) (2,329,000)
Increase in other long term obligations -- 1,755,000
Payments under debt agreements - discontinued (1,041,000) (957,000)
----------- -----------
Net cash used in financing activities (3,108,000) (1,531,000)
----------- -----------
Net decrease in cash and cash equivalents (736,000) (379,000)
Cash and cash equivalents at beginning of year 2,037,000 3,154,000
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Cash and cash equivalents at end of period $ 1,301,000 $ 2,775,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest:
Operating $ 701,000 $ 933,000
Discontinued 3,274,000 3,376,000
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$ 3,975,000 $ 4,309,000
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Income taxes paid $ 13,000 $ 122,000
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Income taxes refunded $ 4,000 $ 721,000
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See notes to consolidated financial statements
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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, 1996.
The prior period financial statements have been restated to reflect the
Military Housing projects segment as discontinued operations. Also,
certain amounts from the previous year have been reclassified to conform
with the current year presentation.
2. Dividends
No dividends were paid during the first nine months of fiscal 1997 or
1996. 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. Discontinued Operation - Military Housing Projects
As previously reported, the Company entered into an Agreement of
Purchase and Sale with respect to the sale of the Company's 801 Military
Housing Projects. The closing of the sale was originally expected to close
in December; however, management now anticipates final closing to occur in
the fourth quarter of fiscal 1997. No assurance can be made, however, that
the transaction will be completed. A summary of the discontinued Military
Housing Projects' assets and liabilities as of February 28, 1997 and May
31, 1996 follows:
February 28, May 31,
1997 1996
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Assets:
Current assets .............. $ 1,771,000 $ 2,890,000
Land and buildings, net ..... 40,030,000 41,123,000
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$41,801,000 $44,013,000
Liabilities:
Current liabilities ......... $ 768,000 $ 1,745,000
Long-term debt .............. 37,724,000 38,765,000
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$38,492,000 $40,510,000
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Net Assets .................. $ 3,309,000 $ 3,503,000
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For the three months ended February 28, 1997 and November 30, 1996, the
Military Housing Projects had losses (before tax benefit) of approximately
$47,000 and $95,000, respectively. The original estimated future operating loss
accrued at August 31, 1996 was $180,000 while the original accrual for
estimated loss on the sale of the Projects was $281,000. Management estimates
that no additional loss accruals will be necessary.
4. Long-term Debt
The Company paid down its term note with its primary lender in the amount
of $1,600,000 during the first nine months of fiscal 1997. Further, effective
February 28, 1997, the Company extended and revised its bank credit agreement.
The revised agreement provides a total credit facility of $11,294,000 consisting
of $1,294,000 term loan and a $10,000,000 line of credit. The term of the line
of credit was extended one year to December 1, 1998 with an option to renew for
an additional year under certain conditions. Quarterly principal payments of
$350,000 are due on the term loan until maturity. The balances due at February
28, 1997 on the term loan and revolving line of credit were $1,294,000 and
$6,500,000, respectively. The amount available at the end of the quarter under
the revolving line of credit was approximately $350,000.
5. Other
Net deferred tax assets are classified in the consolidated balance sheets
as follows:
February 28, May 31,
1997 1996
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Prepaid expenses and other current assets $ 385,000 $ 404,000
Other Assets 1,658,000 2,011,000
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$2,043,000 $2,415,000
========== ==========
No valuation account is necessary for the deferred tax assets since the
net operating loss carry forward will be utilized by the taxable gain on the
anticipated sale of the Military Housing Projects as well as the taxable income
generated for the current fiscal year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1997 COMPARED
TO THREE MONTHS ENDED FEBRUARY 29, 1996
For the three month period ended February 28, 1997, revenues from the
Company's industrial repair services business totaled $11.3 million, 4 percent
lower than revenues of $11.7
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8
million reported in the same period of the prior fiscal year. This decline in
revenues was primarily a result of the sale in May 1996 of the consulting and
engineering division and lower demand for emission monitoring services, as a
result of reduced reporting requirements by many of the Company's customers,
due to a slowdown in environmental regulatory activity. In addition, some of
the Company's customers have implemented internal reporting for emissions
control services. Leak sealing revenues were up 7 percent while hot tapping
line repair revenues increased 17 percent.
As a percent of sales, operating expenses in the Company's operations
declined 1 percent when compared to the second quarter of fiscal 1996. Gross
profit margins improved from 42 percent in the third quarter of fiscal 1996 to
43 percent for the third quarter of fiscal 1997. This improvement was due
primarily to the sale of the consulting and engineering division. Selling,
general and administrative expenses of $4.3 million in the third quarter of
fiscal 1997 were $3 million lower than in the prior year. During the prior
year, one time charges of approximately $2.3 million were recorded for certain
compensation agreements with former employees. Also, the continuing impact of
cost reduction programs implemented during the prior fiscal year, as well as
the sale of the consulting and engineering division, have resulted in lower
personnel, insurance and general expenses.
Interest expense of $215,000 in the third quarter of fiscal 1997 was 25
percent lower than in the same period of fiscal 1996 due to reduced average
borrowing levels. Pre-tax earnings of $395,000 for the third quarter increased
from 1996 third quarter pre-tax losses of $8.6 million. Excluding the prior
year writedown of assets of $6.0 million, the accrued compensation fees of $2.3
million and the consulting and engineering division's loss of $300,000, the
pre-tax earnings for the prior year was $31,000.
NINE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO NINE MONTHS ENDED FEBRUARY 29,
1996
For the nine month period ended February 28, 1997, revenues from the
Company's industrial repair services business totaled $32.7 million, 7 percent
lower than revenues of $35.3 million reported in the same period of last year.
The decline in revenues was primarily a result of the sale of the consulting
and engineering division whose revenues were $2.2 million in the prior period.
Also, revenues for emissions monitoring have decreased due to lower demand as
mentioned above. Contrastingly, revenues in our leak sealing, concrete repair
and hot tapping line repair services have increased.
As a percent of sales, operating expenses in the Company's operations
decreased by 2 percent. Gross profit margins increased from 42 percent to 44
percent. This improvement was due primarily to the sale of the consulting and
engineering division as well as greater efficiencies in operations. Excluding
the one-time accrual of compensation fees of $2.3 million recorded in the prior
year, selling, general and administrative expenses of $12.7 million were $1.7
million or 12 percent lower than in the prior year. The continuing impact of
cost reduction programs as well as the sale of the consulting and engineering
division, have resulted in lower personnel, insurance and general expenses.
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Interest expense of $687,000 in the first nine months of fiscal 1997 was 25
percent lower than in the same period of fiscal 1996 due to reduced average
borrowing levels. Pre-tax earnings were significantly improved with $979,000
for the current nine-month period compared to a loss of $8.7 million for the
same period of the prior year (earnings of $276,000 excluding the one-time
writedown of assets, the one-time accrued compensation for former employees and
the operating loss from the consulting and engineering division).
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1997, the Company's working capital totaled $10.2 million,
a decrease of approximately $400,000 from working capital of $10.6 million at
May 31, 1996. The Company has been able to finance its working capital
requirements through its internally generated cash flow.
As of February 28, 1997, cash and cash equivalents totaled $1.3 million,
down $700,000 from May 31, 1996. Cash provided by continuing operating
activities was $1.7 million while cash used in investing activities was
$904,000 and cash used in financing activities (excluding discontinued
operations) was $2.1 million. See "Consolidated Statements of Cash Flows" for
additional detail.
Management expects that capital expenditures for fiscal 1997 will be
approximately $1.3 million, as the Company continues 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 available
funds. During the first three quarters of fiscal 1997, capital expenditures
totaled $1.1 million, primarily for the purchase of LeakTrackers(R) used in
expanding the Company's emissions control services data handling programs as
well as the purchase of equipment used in hot tapping line repairs.
The Company paid down its term note with its primary lender in the amount
of $1,600,000 during the first nine months of fiscal 1997. Further, effective
February 28, 1997, the Company extended and revised its bank credit agreement.
The revised agreement provides a total credit facility of $11,294,000 consisting
of $1,294,000 term loan and a $10,000,000 line of credit. The term of the line
of credit was extended one year to December 1, 1998 with an option to renew for
an additional year under certain conditions. Quarterly principal payments of
$350,000 are due on the term loan until maturity. The balances due at February
28, 1997 on the term loan and revolving line of credit were $1,294,000 and
$6,500,000, respectively. The amount available at the end of the quarter under
the revolving line of credit was approximately $350,000.
LeakTracker(R) is a registered trademark of Tracker Technologies, Inc.
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As previously reported, the Company entered into an Agreement of Purchase
and Sale with respect to the sale of the Company's 801 Military Housing
Projects. The closing of the sale was originally expected to close in December;
however, management now anticipates final closing to occur in the fourth
quarter of fiscal 1997. No assurance can be made, however, that the transaction
will be completed. The cash proceeds from the sale will be used to pay in full
the Company's term loan with its primary lender, to pay down the revolver and
the remainder will be used to increase available working capital.
PART II
ITEM 1. LEGAL PROCEEDINGS
Allstate Vacuum & Tanks, Inc. ("Allstate"), a former subsidiary of the
Company, was identified in the mid-1980s as a potentially responsible party
("PRP") in connection with the Sheridan Disposal Superfund Site (the "Sheridan
Site") near Hempstead, Texas. A committee of PRPs (the "Steering Committee")
was subsequently formed to evaluate and implement the remediation of the
Sheridan Site, and to interact with the Environmental Protection Agency ("EPA")
in an attempt to settle the liability of PRPs who agreed to participate in such
remediation ("Settling PRPs"). Allstate was ultimately classified as a PRP that
had generated or delivered only de minimis amounts of waste to the Sheridan
Site. Therefore, Allstate was offered the opportunity to enter into a de
minimis party settlement agreement (the "De Minimis Settlement Agreement") with
the large waste volume Settling PRPs (the "Major PRPs"). On or about September
22, 1989, the Company, on behalf of Allstate, entered into the De Minimis
Settlement Agreement ("Settlement Agreement") and paid a total settlement
amount of $101,665.00 to settle the liabilities that had been indemnified by
the Major PRPs who entered into the Settlement Agreement against any
remediation costs in excess of the settlement payment made by the Company. That
Settlement Agreement with the Major PRPs remains in effect.
The Settling PRPs, including the Company, on behalf of Allstate, also
entered into a consent decree ("Consent Decree") with the EPA. Such Consent
Decree (along with other consent decrees to which the Company is not a party)
were lodged in the United States District Court for the Southern District of
Texas in December 1991. A Motion for Entry of the Consent Decree was filed by
the EPA in March 1992, and various Amended Motions for Entry of Consent Decree
were subsequently filed.
One party, which was not a Settling PRP (the "Nonsettling PRP"), opposed
the entry of the Consent Decree, principally because it had not been given the
opportunity to join in the Consent Decree as a de minimis PRP. The waste
allegedly generated by the Nonsettling PRP and disposed of at the Sheridan Site
allegedly contained PCBs, and the Settling PRPs wanted the Nonsettling PRP to
pay a substantial share of the total Sheridan Site remediation costs, because
of the greater toxicity (due to PCB content) of the Nonsettling PRP waste
allegedly disposed of at the Sheridan Site.
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In April 1996, the judge of the court in which the Consent Decree had been
lodged rejected entry of the Consent Decree. Notwithstanding the court's
rejection of the Consent Decree, Allstate and the Company are of the opinion
that they are indemnified for any potential liability for remediation of the
Sheridan Site in excess of the settlement payment made in September 1989,
because of the continued existence of the Settlement Agreement. To the
Company's and Allstate's knowledge, no one, including any of the Settling PRPs,
the EPA, or any third party, has asserted otherwise.
On March 13, 1997, counsel for the Company had telephone conversations
with an attorney in the Superfund Division of the EPA, Region 6, in Dallas,
Texas and with an attorney who represents the Settling PRP group, both of whom
confirmed that an agreement in principle has been reached with the Nonsettling
PRP, whereby the Nonsettling PRP's potential liability for Sheridan Site
remediation would be settled, the Nonsettling PRP would withdraw its objection
to entry of the Consent Decree, and the Consent Decree would be resubmitted to
the court for approval. In addition, the EPA informed the Company's counsel
that the principal terms of the settlement agreement with the Nonsettling PRP
have been outlined to the court that had previously rejected the Consent Decree
in April 1996, and the judge has indicated that if the settlement agreement
with the Nonsettling PRP, as outlined, is finally documented and a Motion for
Entry of the Consent Decree is reintroduced, the court will enter the Consent
Decree. Based on all of the foregoing, the Company does not anticipate
incurring any additional liability for the Sheridan Site in excess of the
settlement payment already made in September 1989.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Letter Agreement dated April 10, 1997 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
28, 1997.
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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 14, 1997
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
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Letter Agreement dated April 10, 1997 by and between Texas
Commerce Bank National Association and Team, Inc.
27 Financial Data Schedule