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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, 1998
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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 1-9950
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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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 331-6154
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-----------------------
Indicate by 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 March 25, 1998, there were 6,083,742 shares of the Registrant's common stock
outstanding.
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TEAM, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
February 28, 1998 and May 31, 1997
Consolidated Statements of Earnings -- 4
Three Months Ended
February 28, 1998 and 1997
Nine Months Ended
February 28, 1998 and 1997
Consolidated Statements of Cash Flows -- 5
Nine Months Ended
February 28, 1998 and 1997
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 6. Exhibits and Reports on Form 8-K 9
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, MAY 31,
1998 1997
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ASSETS
Current Assets:
Cash and cash equivalents $ 1,267,000 $ 1,672,000
Accounts receivable, net of allowance for doubtful
accounts of $80,000 and $61,000 9,293,000 7,211,000
Materials and supplies 6,403,000 6,310,000
Prepaid expenses and other current assets 990,000 820,000
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Total Current Assets 17,953,000 16,013,000
Property, Plant and Equipment:
Land and buildings 6,855,000 6,526,000
Machinery and equipment 11,156,000 11,292,000
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18,011,000 17,818,000
Less accumulated depreciation and amortization 11,935,000 12,010,000
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6,076,000 5,808,000
Other Assets 1,984,000 2,247,000
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$ 26,013,000 $ 24,068,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 263,000 $ 300,000
Accounts payable 1,731,000 740,000
Other accrued liabilities 2,703,000 3,298,000
Current income taxes payable -- 166,000
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Total Current Liabilities 4,697,000 4,504,000
Long-term Debt and Other Obligations 6,257,000 7,601,000
Stockholders' Equity:
Preferred stock, cumulative, par value $100 per share,
500,000 shares authorized, none issued -- --
Common stock, par value $.30 per share, 10,000,000 shares
authorized, 6,057,042 and 5,259,542 shares issued at 1,817,000 1,578,000
February 28, 1998 and May 31, 1997, respectively
Additional paid-in capital 27,031,000 25,123,000
Accumulated deficit (13,692,000) (14,641,000)
Treasury stock at cost, 9,700 shares (97,000) (97,000)
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15,059,000 11,963,000
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$ 26,013,000 $ 24,068,000
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See notes to consolidated financial statements
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TEAM, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
Three Months Ended Nine Months Ended
February 28, February 28,
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1998 1997 1998 1997
------------ ------------ ------------ -------------
Revenues $ 11,483,000 $ 11,305,000 $ 33,428,000 $ 32,732,000
Operating expenses 6,744,000 6,437,000 19,382,000 18,414,000
Selling, general and administrative expenses 4,038,000 4,258,000 12,036,000 12,652,000
Interest 111,000 215,000 347,000 687,000
------------ ------------ ------------ ------------
Earnings from continuing operations before
income taxes 590,000 395,000 1,663,000 979,000
Provision for income taxes 275,000 185,000 714,000 450,000
------------ ------------ ------------ ------------
Earnings from continuing operations, net of
income taxes 315,000 210,000 949,000 529,000
Earnings from Military Housing projects
discontinued operations, net -- -- -- 182,000
Estimated loss on sale of Military Housing projects
discontinued operations, net -- -- -- (181,000)
------------ ------------ ------------ ------------
Net earnings $ 315,000 $ 210,000 $ 949,000 $ 530,000
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE - BASIC
Net earnings from continuing operations $ 0.05 $ 0.04 $ 0.16 $ 0.10
Net earnings discontinued operations -- -- -- 0.00
------------ ------------ ------------ ------------
Net earnings $ 0.05 $ 0.04 $ 0.16 $ 0.10
============ ============ ============ ============
Weighted average number of shares outstanding 6,045,000 5,160,000 5,902,000 5,160,000
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE - DILUTED
Net earnings from continuing operations $ 0.05 $ 0.04 $ 0.16 $ 0.10
Net earnings discontinued operations -- -- -- 0.00
------------ ------------ ------------ ------------
Net earnings $ 0.05 $ 0.04 $ 0.16 0.10
============ ============ ============ ============
Weighted average number of shares outstanding 6,227,000 5,160,000 6,095,000 5,160,000
============ ============ ============ ============
See notes to consolidated financial statements.
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TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
February 28,
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1998 1997
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Cash Flows From Operating Activities:
Net earnings $ 949,000 $ 530,000
Earnings from discontinued operations -- (1,000)
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Net earnings from continuing operations 949,000 529,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,094,000 1,050,000
Provision for doubtful accounts 20,000 --
Noncurrent deferred income taxes 561,000 353,000
Gain on sale of assets -- (21,000)
Change in assets and liabilities:
(Increase) decrease:
Accounts receivable (2,102,000) 398,000
Materials and supplies (93,000) (286,000)
Prepaid expenses and other assets (170,000) 96,000
Increase (decrease):
Accounts payable 991,000 95,000
Other accrued liabilities (595,000) (573,000)
Income taxes payable (166,000) 81,000
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Net cash provided by continuing operating activities 489,000 1,722,000
Cash Flows From Discontinued Operations:
Earnings from discontinued operations -- 1,000
Depreciation -- 1,093,000
Decrease in current assets -- 993,000
Increase in current liabilities -- (533,000)
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Net cash provided by discontinued operations -- 1,554,000
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Net cash provided by operating activities 489,000 3,276,000
Cash Flows From Investing Activities:
Capital expenditures (1,219,000) (1,103,000)
Disposal of property and equipment 7,000 183,000
Decrease (increase) in other assets (264,000) 16,000
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Net cash used in investing activities (1,476,000) (904,000)
Cash Flows From Financing Activities:
Payments under debt agreements
and capital lease obligations - continuing (2,414,000) (2,067,000)
Proceeds from borrowings 849,000 --
Payments under debt agreements - discontinued -- (1,041,000)
Issuance of common stock 2,147,000 --
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Net cash provided by (used in) financing activities 582,000 (3,108,000)
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Net decrease in cash and cash equivalents (405,000) (736,000)
Cash and cash equivalents at beginning of year 1,672,000 2,037,000
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Cash and cash equivalents at end of period $ 1,267,000 $ 1,301,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest:
Operating $ 367,000 $ 701,000
Discontinued -- 3,274,000
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$ 367,000 $ 3,975,000
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Income taxes paid $ 440,000 $ 13,000
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Income taxes refunded $ -- $ 4,000
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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,
1997.
2. Dividends
No dividends were paid during the first nine months of fiscal 1998 or
1997. 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. Long-Term Debt
As previously disclosed, the Company has extended its bank credit
agreement with its primary lender. The revised agreement provides a
$10,000,000 line of credit and the term was extended one year to December
31, 1999. The amount available for borrowings at the end of the quarter was
$5.2 million.
Also, during the quarter the Company entered into a Construction Loan
Agreement for construction of an addition to an existing building, which
will serve as the corporate facility. This loan for $750,000 is due August
2010 and bears interest at prime plus 0.5 percent and provides for 150
installments, the first six of which are interest only, the next 143 of
which will be evenly monthly installments of principal and interest and the
final installment being all unpaid principal and accrued interest. The
lender, at its sole discretion, can adjust the interest rate on the loan in
February 2005. The company also modified and extended an existing term loan
with the same bank. The loan, to mature June 1999, was extended to February
2007 and the interest rate was reduced from prime plus 1.25 percent to
prime plus 0.5 percent. Land and buildings secure both of these loans.
4. Other
During the third quarter of fiscal year 1998, the Board of Directors of
the Company approved the Team, Inc. 1998 Incentive Stock Option Plan which
authorizes options to purchase 500,000 shares of common stock for key
employees of the Company. Options granted under this Plan during the
quarter totaled 269,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED
TO THREE MONTHS ENDED FEBRUARY 28, 1997
For the three-month period ended February 28, 1998, revenues were $11.5
million, a 2 percent improvement over revenues of $11.3 million reported in the
same period of the prior fiscal year. Three of the Company's five service lines
- - hot tapping, concrete repair and energy management services - showed sales
gains during the quarter while leak repair and emissions control services had
revenue declines.
Gross margins declined from 43 percent to 41 percent. Ordinary compensation
and material costs were factors in the decrease. Selling, general and
administrative expenses for the current quarter showed a 5 percent improvement
over the same period of the prior fiscal year. This was largely the result of
lower charges for professional fees, insurance and certain compensation related
items. Interest expense of $111,000 in the third quarter of fiscal 1998 was 48
percent lower than in the same period of the prior year due to reduced average
borrowing levels. Pre-tax earnings of $590,000 for the third quarter increased
from 1997 third quarter pre-tax earnings of $395,000.
NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED
TO NINE MONTHS ENDED FEBRUARY 28, 1997
For the nine-month period ended February 28, 1998, revenues totaled $33.4
million, 2 percent higher than revenues of $32.7 million reported in the same
period last year. The increase in revenues was primarily due to significantly
improved sales in the Company's hot tapping service line as well as improved
sales in concrete repair and energy management services. This improvement was
somewhat offset by declines in emissions control and leak repair services
revenue.
Gross margins declined from 44 percent to 42 percent for the first nine
months of fiscal 1998 due to increases in operating expenses. Ordinary
compensation and material costs were factors in the decrease. Selling, general
and administrative expenses of $12.0 million for the first nine months were
$616,000 or 5 percent lower than in the prior year. Less compensation related
costs, professional fees and insurance were factors in the decrease.
Interest expense of $347,000 in the first nine months of fiscal 1998 was 49
percent lower than in the same period of 1997 due to reduced borrowing levels.
Pre-tax earnings of $1.7 million for the first nine months increased from
pre-tax earnings of $979,000.
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LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1998, the Company's working capital totaled $13.3 million,
an increase of 1.8 million from working capital of $11.5 million at May 31,
1997. The Company has been able to finance its working capital requirements
through its internally generated cash flow and its unused borrowing capacity
under its bank credit agreement.
As of February 28, 1998, cash and cash equivalents totaled $1.3 million,
decreasing $405,000 in the first nine months of the current fiscal year. This
cash decrease resulted mainly from $1,476,000 used in the Company's investing
activities offset by $582,000 provided by the Company's financing activities and
$489,000 provided by the Company's operating activities. See "Consolidated
Statements of Cash Flows" for additional detail.
Management expects that capital expenditures which are intended to provide
for normal replacement of assets and new assets to support planned growth will
approximate $2.0 million for fiscal 1998. Of this amount, $750,000 is for
construction of an addition to an existing facility. All other planned capital
expenditures are discretionary and will be made based on available funds.
The Company's current and long-term debt and other obligations were $6.5
million at February 28, 1998, compared to $7.9 million at May 31, 1997. At the
end of the third quarter, $3.0 million was owed to the Company's primary bank
lender. The company paid down the revolving line of credit in the amount of $2.0
million during the first nine months using proceeds from the sale of common
stock as described below. During the third quarter, the Company extended its
bank credit agreement. The revised agreement, which expires December 31, 1999,
provides a $10,000,000 line of credit. The amount available for borrowings at
the end of the quarter was $5.2 million. Also, during the quarter the Company
entered into a Construction Loan Agreement for construction of an addition to an
existing building. This loan for $750,000 is due August 2010 and bears interest
at prime plus 0.5 percent and provides for 150 installments, the first six of
which are interest only, the next 143 of which will be evenly monthly
installments of principal and interest and the final installment being all
unpaid principal and accrued interest. The lender, at its sole discretion, can
adjust the interest rate on the loan in February 2005. The company also modified
and extended an existing term loan with the same bank. The loan, to mature June
1999, was extended to February 2007 and the interest rate was reduced from prime
plus 1.25 percent to prime plus 0.5 percent. Land and buildings secure both of
these loans.
As previously reported, the Company completed the sale of 650,000 shares of
Team's common stock for $3.00 per share to Armstrong International, Inc. in a
private placement transaction. Proceeds from the sale were used to reduce the
Company's long-term debt.
Also, as previously reported, the Company signed a letter of intent with
Wescon, S.A. of Singapore to provide leak sealing and hot tapping services in
Singapore, Malaysia, Indonesia and Brunei. This letter of intent was terminated
due to lack of progress in organizing the joint venture. The Company's
management continues to assess other strategic alternatives. In addition, in the
first quarter the Company signed a letter of intent for the potential sale of
newly issued common stock to Wingate Partners, L.P. at $3.125 per share
representing 50 percent of Team's issued and outstanding shares. This
transaction is contingent upon the negotiation and consummation of a mutually
acceptable business acquisition. It is expected that the proceeds of
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such a stock sale to Wingate would be used for the purchase consideration for
such a business acquisition. The Company is vigorously pursuing various
acquisition candidates. The Company has extended this letter of intent with
Wingate Partners through June 1998.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Construction Loan Agreement dated February 20, 1998, by and
between Sterling Bank and Team, Inc.
10.2 Modification and Extension Agreement dated February 20, 1998,
by and between Sterling Bank and Team, Inc.
10.3 Team Inc. 1998 Incentive Stock Option Plan
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Form 8-K Reports filed during the quarter ended February 28,
1998.
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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: March 31, 1998
/s/ WILLIAM A. RYAN
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William A. Ryan, Chairman of the Board
and Chief Executive Officer
/s/ MARGIE E. ROGERS
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Margie E. Rogers, Vice President,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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Ex-10.1 Construction Loan Agreement dated February 20, 1998, by and
between Sterling Bank and Team, Inc.
Ex-10.2 Modification and Extension Agreement dated February 20, 1998,
by and between Sterling Bank and Team, Inc.
Ex-10.3 Team Inc. 1998 Incentive Stock Option Plan
Ex-11 Statement Re Computation of Per Share Earnings
Ex-27 Financial Data Schedule