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, 1999
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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 ___________________________
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Hermann Drive, Alvin, Texas 77511
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 331-6154
------------------------------
--------------------------------------
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
On April 6, 1999, there were 7,608,352 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 Condensed Balance Sheets -- 1
February 28, 1999 (Unaudited) and May 31, 1998
Consolidated Condensed Statements of Operations
(Unaudited) -- 2
Three Months Ended
February 28, 1999 and 1998
Nine Months Ended
February 28, 1999 and 1998
Consolidated Condensed Statements of Cash Flows
(Unaudited) -- 3
Nine Months Ended
February 28, 1999 and 1998
Notes to (Unaudited) Consolidated Condensed
Financial Statements 4
Item 2. Management's Discussion and Analysis 8
of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
FEBRUARY 28, MAY 31,
ASSETS 1999 1998
------------ ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 300,000 $ 1,355,000
Accounts receivable, net of allowance for doubtful
accounts of $225,000 and $247,000 10,700,000 9,564,000
Materials and supplies 8,406,000 6,801,000
Prepaid expenses and other current assets 1,177,000 862,000
------------ ------------
Total Current Assets 20,583,000 18,582,000
Property, Plant and Equipment:
Land and buildings 9,565,000 6,735,000
Machinery and equipment 15,525,000 11,746,000
------------ ------------
25,090,000 18,481,000
Less accumulated depreciation and amortization 13,102,000 11,833,000
------------ ------------
11,988,000 6,648,000
Goodwill 3,677,000 0
Other Assets 2,318,000 1,850,000
------------ ------------
Total Assets $ 38,566,000 $ 27,080,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 426,000 $ 286,000
Accounts payable 1,516,000 1,416,000
Other accrued liabilities 3,627,000 3,483,000
Current income taxes payable 191,000 348,000
------------ ------------
Total Current Liabilities 5,760,000 5,533,000
Long-term Debt and Other Obligations 13,130,000 5,966,000
Stockholders' Equity:
Preferred stock, cumulative, par value $100 per share,
500,000 shares authorized, none issued 0 0
Common stock, par value $.30 per share, 30,000,000 shares
authorized, 7,550,052 and 6,093,442 shares issued at
February 28, 1999 and May 31, 1998, respectively 2,275,000 1,828,000
Additional paid-in capital 30,965,000 27,098,000
Accumulated deficit (13,406,000) (13,248,000)
Unearned compensation (61,000) 0
Treasury stock at cost, 9,700 shares (97,000) (97,000)
------------ ------------
Total Stockholders' Equity 19,676,000 15,581,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 38,566,000 $ 27,080,000
============ ============
See notes to unaudited consolidated condensed financial statements.
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TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Revenues $ 14,419,000 $ 11,483,000 $ 39,679,000 $ 33,428,000
Operating expenses 8,614,000 6,744,000 23,248,000 19,382,000
------------ ------------ ------------ ------------
Gross Margin 5,805,000 4,739,000 16,431,000 14,046,000
Selling, general and administrative expenses 5,055,000 4,038,000 14,598,000 12,036,000
Severance and other charge 1,241,000 0 1,241,000 0
Interest 238,000 111,000 543,000 347,000
------------ ------------ ------------ ------------
Income (loss) before income taxes (729,000) 590,000 49,000 1,663,000
Provision (benefit) for income taxes (172,000) 275,000 207,000 714,000
------------ ------------ ------------ ------------
Net income (loss) $ (557,000) $ 315,000 $ (158,000) $ 949,000
============ ============ ============ ============
Net income (loss) per common share:
Basic $ (0.07) $ 0.05 $ (0.02) $ 0.16
============ ============ ============ ============
Diluted $ (0.07) $ 0.05 $ (0.02) $ 0.16
============ ============ ============ ============
Weighted average number of shares outstanding:
Basic 7,540,000 6,045,000 7,413,000 5,902,000
============ ============ ============ ============
Diluted 7,540,000 6,221,000 7,413,000 6,059,000
============ ============ ============ ============
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TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 28,
------------------------------
1999 1998
------------ ------------
Cash Flows from Operating Activities:
Net income (loss) $ (158,000) $ 949,000
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,692,000 1,094,000
Provision for doubtful accounts 0 20,000
Provision for amount due to former officers 816,000 0
Gain on sale of assets (43,000) 0
Non-current deferred income taxes (250,000) 561,000
Change in assets and liabilities, net of effects from purchase of Climax
Portable Machine Tools, Inc.:
(Increase) decrease:
Accounts receivable (172,000) (2,102,000)
Materials and supplies 519,000 (93,000)
Prepaid expenses and other current assets (42,000) (170,000)
Increase (decrease):
Accounts payable (91,000) 991,000
Other accrued liabilities (861,000) (595,000)
Income taxes payable (157,000) (166,000)
------------ ------------
Net cash provided by operating activities 1,253,000 489,000
Cash Flows From Investing Activities:
Capital expenditures (1,982,000) (1,219,000)
Cash received for disposal of property and equipment 117,000 7,000
Increase in other assets (600,000) (264,000)
Acquisition of Climax, net of cash and equivalents acquired (6,987,000) 0
Payments of Climax notes payable at acquisition date (2,893,000) 0
------------ ------------
Net cash used in investing activities (12,345,000) (1,476,000)
Cash Flows From Financing Activities:
Payments under debt agreements and other long-term obligations (5,553,000) (2,414,000)
Proceeds from issuance of long-term debt 12,137,000 849,000
Issuance of common stock 3,453,000 2,147,000
------------ ------------
Net cash provided by financing activities 10,037,000 582,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,055,000) (405,000)
Cash and cash equivalents at beginning of year 1,355,000 1,672,000
------------ ------------
Cash and cash equivalents at end of period $ 300,000 $ 1,267,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 433,000 $ 367,000
============ ============
Income taxes paid $ 858,000 $ 440,000
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: In
connection with the acquisition of Climax Portable Machine Tools, Inc., the
Company issued 200,000 shares of its common stock with an assigned value of
$4.00 per share. During the nine months ended February 28, 1999 the Company
received a $35,000 note receivable (in addition to $12,000 cash) in connection
with the sale of land.
See notes to unaudited consolidated condensed financial statements.
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TEAM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
1. Method of Presentation
General
The interim financial statements are unaudited, but in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results for such periods.
The consolidated condensed balance sheet at May 31, 1998 is derived from
the May 31, 1998 audited consolidated financial statements. The results of
operations for any interim period are not necessarily indicative of results
for the full year. These financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's
annual report for the fiscal year ended May 31, 1998.
2. Dividends
No dividends were paid during the first nine months of fiscal 1999 or
1998. 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. Acquisition of Climax
Effective August 31, 1998 (the "Effective Date"), the Company acquired
all of the outstanding capital stock of Climax Portable Machine Tools,
Inc., an Oregon corporation ("Climax"), in exchange for cash in the amount
of $6.4 million and 200,000 newly-issued shares of the Company's common
stock, $0.30 par value per share (the "Common Stock"). Additionally, at the
acquisition date, the Company refinanced the majority of Climax's notes
payable in the amount of $2.9 million. Pursuant to the purchase agreement
and based on the approximate market value of the Common Stock, a value of
$4.00 per share was assigned to the Common Stock issued to the former
shareholders of Climax. The Company also entered into employment agreements
with three of the former shareholders, pursuant to which such persons were
granted options to purchase up to an aggregate of 50,000 shares of Common
Stock at an exercise price of $4.125 per share.
The acquisition was accounted for using the purchase method of
accounting, and accordingly, the consolidated financial statements
subsequent to the Effective Date reflect the purchase price, including
transaction costs. As the acquisition was effective August 31, 1998, the
consolidated results of operations for the Company for the three months
ended February 28, 1999 include the results for Climax for the period from
September 1, 1998 to February 28, 1999. The purchase price was allocated to
the assets and liabilities of Climax based on their estimated fair values.
Based on preliminary purchase accounting, the goodwill associated with the
Climax acquisition approximated $3.6 million, which is being amortized on a
straight-line basis over forty years.
In order to finance the acquisition of the Climax shares, future
acquisitions, and operations the Company closed a credit facility with
NationsBank, N.A. of Houston on August 26, 1998 in the amount of
$24,000,000. See Note 4.
Climax designs and manufactures portable, metal cutting machine tools
for on-site maintenance and repair purposes.
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The unaudited pro forma consolidated results of operations of the
Company are shown below as if the acquisition had occurred at the beginning
of the fiscal periods indicated. These results are not necessarily
indicative of the results which would actually have occurred if the
purchase had taken place at the beginning of the periods, nor are they
necessarily indicative of future results.
Nine Months Ended
February 28,
------------------------------
1999 1998
------------ ------------
Net sales $ 42,009,000 $ 42,554,000
Net income (loss) $ (161,000) $ 1,140,000
Earnings (loss) per share:
Basic $ (0.02) $ 0.19
Diluted $ (0.02) $ 0.18
4. Long-Term Debt and Other Obligations
Long-term obligations consist of:
February 28, May 31,
1999 1998
---------------------------
Revolving credit $ 4,910,000 $ 2,500,000
Term notes 6,338,000 1,693,000
Capital lease obligations 262,000 340,000
Compensation agreements 1,768,000 1,418,000
Other 278,000 301,000
----------- -----------
13,556,000 6,252,000
Less current portion 426,000 286,000
----------- -----------
Total $13,130,000 $ 5,966,000
=========== ===========
Effective August 26, 1998, the Company entered into a new credit
facility with a new primary lender in the amount of $24,000,000. This new
facility provides for (i) a $12,500,000 revolving loan, (ii) $9,500,000 in
term loans for business acquisitions and (iii) a $2,000,000 mortgage loan
to refinance existing real estate indebtedness. Amounts borrowed under the
revolving credit loan are due August 28, 2001. Amounts borrowed against the
term loans are due August 8, 2003. Amounts outstanding under this facility
bear interest at a marginal rate over the LIBOR rate or prime rate,
depending upon the amount of funded debt to cash flow. The effective rate
on outstanding borrowings under the new agreement is approximately 7.3%. In
October 1998, the Company finalized the mortgage loan and borrowed $1.8
million to refinance the existing real estate. Additionally, in October
1998, the Company entered into an interest rate swap transaction on the
$4.5 million term loan, exchanging a floating LIBOR rate of 5.3% at the
time of the swap for a fixed LIBOR rate of 5.19% for a period of three
years. In December 1998, the Company executed interest rate swap
transactions for two years with respect to the $1.8 million mortgage loan
and for $2 million of amounts outstanding under the revolver. At the time
of the December swaps, the floating LIBOR was 5.25%. The fixed swap rates
received in exchange are at 5.13%. At February 28, 1999, $4,910,000 in
revolving loans and $6,338,000 in term loans (including the mortgage loan)
were outstanding under the facility.
On April 9, 1999, an additional $7.7 million was borrowed under the
credit facilities to finance the acquisition of X-Ray Inspection, Inc. -
see note 7.
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Loans under the Company's bank credit facility are secured by
substantially all of the assets of the Company. The terms of the agreement
require the maintenance of certain financial ratios and limit investments,
liens, leases and indebtedness, among other things. At February 28, 1999,
the Company was in compliance with all credit facility covenants.
5. Earnings Per Share
The following table is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
Three months ended February 28, 1999 Three months ended February 28, 1998
---------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ----------- ----------- ------------- -----------
Basic EPS:
Net income (loss) $(557,000) 7,540,000 $ (0.07) $ 315,000 6,045,000 $ 0.05
Effect of Dilutive Securities:
Options -- -- -- 182,000
--------- --------- --------- ---------
Diluted EPS:
Net income $(557,000) 7,540,000 $ (0.07) $ 315,000 6,227,000 $ 0.05
========= ========= ========= =========
Three months ended February 28, 1999 Three months ended February 28, 1998
---------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ----------- ----------- ------------- -----------
Basic EPS:
Net income (loss) $(158,000) 7,413,000 $ (0.02) $ 949,000 5,902,000 $ 0.16
Effect of Dilutive Securities:
Options -- -- -- 157,000
--------- --------- --------- ---------
Diluted EPS:
Net income $(158,000) 7,413,000 $ (0.02) $ 949,000 6,059,000 $ 0.16
========= ========= ========= =========
The effect of common stock equivalents arising from stock options and
non-vested restricted stock is anti-dilutive for the three months and nine
months ended February 28, 1999, and therefore is not included in the above
calculations.
6. Severance and Other Charge
The Company reduced headquarters support staff by approximately 20% (19
individuals) which resulted in a one-time charge of $425,000 made in the
third quarter ending February 28, 1999. Additionally, a one-time charge of
$816,000 was made in the third quarter to fully provide for the future
payments due to two former officers under deferred compensation agreements
that extend beyond the period in which services are expected to be
rendered. Payments pursuant to that charge will be made through 2004.
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7. Acquisition of X-Ray Inspection, Inc.
Effective April 9, 1999, the Company acquired X-Ray Inspection, Inc.
("X-Ray"), a mechanical inspection company located in Lafayette, La.
Consideration consisted of $7.7 million in cash and 595 thousand shares of
newly - issued Team common stock. Additional consideration of up to $2.5
million in cash could be paid to the sellers over the next four years if
aggressive growth plans of X-Ray are achieved. The Company also entered
into five year employment/consulting agreements with the two former
shareholders of X-Ray. The amount of consideration paid by Team to the
former X-Ray shareholders was determined as a result of arm-length
negotiations and agreement between unrelated parties.
In order to finance the acquisition, Team borrowed $7.7 million under
existing credit facilites -- see Note 4.
As of the date of filing of this Current Report on Form 10-Q, it is
impracticable to provide the financial statements required with respect to
the acquisition of X-Ray. Such financial statements shall be filed no later
than June 23, 1999.
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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, 1999 COMPARED
TO THREE MONTHS ENDED FEBRUARY 28, 1998
Revenues for the quarter ended February 28, 1999 were $14.4 million compared to
$11.5 million for the corresponding period of the preceding year. $2.5 million
of the $2.9 million increase is attributable to the inclusion of Climax Portable
Machine Tools, Inc in Team's operating results for the 1999 period.
In the 1999 quarter, the Company experienced a pre tax loss of $729 thousand
versus pre-tax income of $590 thousand in the quarter ended February 28, 1998.
The year-to-year change is directly attributable to a $1.2 million charge
taken in the 1999 quarter. $425 thousand of the charge was for severance
and related separation costs associated with significant staff reductions
undertaken in January, 1999 at Team's headquarters location and at Climax. Total
headquarters staffs have been reduced by approximately 20%. $816 thousand of the
charge represents the remaining payments due under consulting agreements with
two former officers. The Company does not expect to continue to utilize the
services of those individuals in the future. The full impact of these staffing
and consulting cost reductions will begin to be realized in the fourth quarter.
NINE MONTHS ENDED FEBRUARY 28, 1999 COMPARED
TO NINE MONTHS ENDED FEBRUARY 28, 1998
For the nine months ended February 28, 1999, income before income taxes was $49
thousand or $1.6 million less than the same period of 1998. $1.2 million of the
decline is the result of the charge taken in the third quarter, as discussed
above. The remaining $400 thousand decline in pre-tax income is primarily
attributable to the quarter ended November 30, 1998, as a result of increased
operating and general and administrative expenses when compared to the same
quarter of 1998, as well as costs associated with international start-up
activities. A summary of the nine-month comparison is as follows:
Revenues--1999 revenues of $39.7 million were 18.9% greater than the $33.4
million reported in 1998. The increase is attributable to the Climax revenues of
$4.8 million included since its acquisition at the end of the first quarter of
the current fiscal year, as well as an increase of industrial service revenues
of $1.4 million over the same period of 1998.
Gross Margins--For the nine months ended February 28, 1999, the gross operating
margin was 41.4% of sales, which is down slightly from the 42.0% achieved in the
same period of 1998. Operating margins from Climax are consistent with Team's
year to date results.
Selling, General and Administrative Expenses--For the nine months ended February
28, 1999, SG &A expenses were 36.8% of revenues, compared to 36.0% for the same
period of 1998. For the nine months, SG&A associated with international
activities was $170 thousand higher than in 1998 due to costs associated with
start-up and timing of activities.
Interest--Interest expense increased $196 thousand for the nine months ended
February 28, 1999, when compared to the same period in 1998, as a result of the
additional debt associated with the acquisition of Climax.
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LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1999, the Company's working capital totaled $14.8 million,
an increase of $1.8 million since May 31, 1998. The Climax acquisition has
contributed net working capital of $2.8 million, partially offset by a reduction
in cash balances as explained in the following paragraph. The Company has been
able to finance its working capital requirements primarily through its
internally generated cash flow and through borrowings under a revolving credit
facility.
As of February 28, 1999, cash and cash equivalents totaled $300 thousand, a
decrease of $1.1 million since May 31, 1998. The cash decrease is primarily
reflective of a change in cash management features associated with the Company's
new credit facility, whereby excess operating funds are automatically used to
reduce the amount outstanding under the revolving facility. See "Consolidated
Statements of Cash Flows" for additional detail.
Effective August 31, 1998, the Company acquired all of the outstanding
capital stock of Climax Portable Machine Tools, Inc., an Oregon corporation
("Climax"), in exchange for cash in the amount of $6.4 million and 200,000
newly-issued shares of the Company's common stock, $0.30 par value per share
(the "Common Stock"). Additionally, at the acquisition date, the Company
refinanced the majority of Climax's notes payable in the amount of $2.9 million.
Pursuant to the purchase agreement and based on the approximate market value of
the Common Stock, a value of $4.00 per share was assigned to the Common Stock
issued to the former shareholders of Climax.
In order to finance the acquisition of the Climax shares, the Company
closed a new credit facility with NationsBank, N.A on August 26, 1998 in the
amount of $24,000,000. The new facility is comprised of (i) a $12,500,000
revolving loan, (ii) $9,500,000 in term loans for business acquisitions and
(iii) a $2,000,000 mortgage loan to refinance existing real estate indebtedness.
Amounts borrowed under the revolving credit loan are due August 28, 2001.
Amounts borrowed against the term loans are due August 8, 2003. The revolving
credit loan and term loans bear interest at a marginal rate over the LIBOR rate
or prime rate, depending upon the amount of funded debt to cash flow. The
effective rate on outstanding borrowings under the new agreement is
approximately 7.5%. In October, 1998 the Company finalized the mortgage loan and
borrowed $1.8 million to refinance existing real estate. Additionally, in
October 1998, the Company entered into an interest rate swap transaction on the
$4.5 million term loan, exchanging a floating LIBOR rate of 5.3% for a fixed
LIBOR rate of 5.19% for a period of three years. In December 1998, the Company
executed interest rate swap transactions for two years with respect to the $1.8
million mortgage loan and for $2 million of amounts outstanding under the
revolver. At the time of the December swaps, the floating LIBOR was 5.25%. The
fixed swap rates received in exchange are at 5.13%. At February 28, 1999, $4.9
million in revolving loans and $6.3 million in term and mortgage loans were
outstanding under the facility.
At February 28, 1999, approximately $6.5 million was available under the
revolving credit facility and $5 million was available under one of the term
loan facilities. In April, 1999 the Company borrowed $7.7 million to complete
the acquisition of X-Ray Inspection, Inc--see note 7.
In June 1998, the Company completed the sale of 1,200,000 shares of Team's
common stock for $2.75 per share to Houston Post Oak Partners ("Houston
Partners") in a private placement transaction. Houston Partners then owned
approximately 17% of the Company's outstanding common shares on a fully diluted
basis. Proceeds from the sale were used to reduce the Company's long-term debt.
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YEAR 2000 COMPLIANCE
The Company, like other businesses, is facing the Year 2000 issue. Many
computer systems and equipment with embedded chips or processors use only two
digits to represent the calendar year. This could result in computational or
operational errors as dates are compared across the century boundary causing
possible disruptions in business operations. The year 2000 issue can arise at
any point in the Company's supply, manufacturing, processing, distribution, and
financial chains.
State of Readiness--The Company began addressing the Year 2000 issue in 1997,
with an initial assessment of Year 2000 readiness. Based on the assessment, a
Year 2000 Plan was developed. By January 1998, a Year 2000 Plan had been
completed that included the following components:
1) Assessment of all systems for Year 2000 compliance,
2) Development of a schedule for replacement of non-compliant systems,
3) Obtaining manufacturers certification of Year 2000 compliance,
4) Developing a list of significant vendors/suppliers for surveying their
Year 2000 readiness efforts.
The Year 2000 issue is being addressed within the Company by its Year 2000
compliance team and progress is reported periodically to management. The Company
has committed resources to conduct risk assessment and to take corrective
action, where required, with a target date of becoming Year 2000 ready for the
most critical systems by the third quarter of calendar year 1999.
Effective February 1, 1999, the Company substantially completed a
comprehensive project to upgrade its information, technology, and manufacturing
facilities computer hardware and software to programs that address the Year 2000
problem. The new hardware and packaged software was purchased from large vendors
who have represented that the systems are already Year 2000 compliant.
With respect to the plant systems, including automation and embedded chips
used in manufacturing operations, the manufacturing plant is in the process of
completing their inventory and assessment reviews. The Company is relying on
vendor certification and testing. Assessment and testing, with corrective action
as required, is expected to be completed by the third quarter of calendar year
1999.
With respect to the external parties, including suppliers and customers,
the Company's Year 2000 compliance team is in the process of surveying the Year
2000 readiness efforts of critical external parties. Risk assessment is expected
to be completed by June 1999 and monitoring risk in this area will continue into
the third quarter of calendar year 1999, as many external parties will not have
completed their Year 2000 readiness efforts.
Cost--The total estimated cost for the Company's Year 2000 readiness efforts is
$950,000, which consists primarily of a new management information system that
will be implemented during February and March 1999. As of February 28, 1999
approximately $800,000 of the $950,000 has been incurred.
Risks--The Company relies on third party suppliers for raw materials, water,
utilities, transportation and other key services. Interruption of supplier
operations due to Year 2000 issues could affect the Company's operations. While
the project team will evaluate the status of its major suppliers' Year 2000
readiness efforts and develop contingency plans to manage the risk, it can not
eliminate the potential for disruption due to third party failures.
The Company is also dependent upon its customers for sales and cash flow.
Year 2000 interruptions in the operations of its major customers could result in
reduced sales, increased inventory or receivable levels and
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cash flow reductions. The Company is in the process of surveying its major
customers' Year 2000 readiness efforts to assess risk and develop plans with an
intent to minimize the impact on its operations.
The Company believes that it is taking all reasonable steps to ensure Year
2000 readiness. It's ability to meet the projected goals, including the costs of
addressing the Year 2000 issue and the dates upon which compliance will be
attained, depends on the Year 2000 readiness of its key suppliers and customers,
the completion of its final remediation and testing efforts and the successful
development and implementation of contingency plans. The Company currently has
not yet developed any contingency plans. These and other unanticipated Year 2000
issues could have a material adverse effect on the results of operations or
financial condition.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain forward-looking information contained herein is being provided in
accordance with the provisions of the Private Securities Litigation Reform Act.
Such information is subject to certain assumptions and beliefs based on current
information known to the Company and is subject to factors that could result in
actual results differing materially from those anticipated in the
forward-looking statements contained herein. Such factors include domestic and
international economic activity, interest rates, market conditions for the
Company's customers, regulatory changes and legal proceedings, and the Company's
successful implementation of its internal operating plans. Accordingly, there
can be no assurance that the forward-looking statements contained herein will
occur or that objectives will be achieved.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The following information is reported in lieu of filing a Form 8-K Report
on the following matter.
On April 9, 1999, the Company acquired 100% of the outstanding capital
stock of X-Ray Inspection, Inc. ("X-Ray"), a Louisiana corporation, from E.
Patrick Manuel and B. Dal Miller in consideration for the payment to the sellers
of an aggregate of $7.7 million in cash and 595,000 shares of newly issued
Company common stock. Additional consideration of up to $2.5 million in cash
could be payable to the sellers over the next four years if certain high growth
operating results are achieved by X-Ray. In order to finance the purchase, the
Company borrowed $7.7 million under its existing credit facilities (see Note 4
to the Financial Statements under Item 1 of this Report). X-Ray is in the
business of providing mechanical inspection services consisting primarily of
non-invasive inspections of pipelines and piping systems in industrial plants
using x-ray and similar inspection techniques. X-Ray's inspection services
include radiographic testing, ultrasonic testing, magnetic particle testing, and
visual inspection. Currently, X-Ray has four service locations, all located in
Louisiana. X-Ray's revenues for 1998 were $9.4 million.
As of the date of filing of this Form 10-Q Report, it is impracticable for
the Registrant to provide the financial statements required by Item 7(a) of Form
8-K. In accordance with Item 7(a)(4) of Form 8-K, such financial statements
shall be filed under a Form 8-K Report no later than 60 days after April 24,
1999.
As of the date of filing of this Form 10-Q Report, it is impracticable for
the Registrant to provide the pro forma financial information required by Item
7(b) or Form 8-K. In accordance with Item 7(b) of Form 8-K, such financial
statements shall be filed under a Form 8-K Report no later than 60 days after
April 24, 1999.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
(2) Stock Purchase Agreement Among Team, Inc. (Buyer) and E.
Patrick Manuel and B. Dal Miller (Sellers) dated April 9, 1999
providing for the acquisition by Team, Inc. of 100% of the
outstanding capital stock of X-Ray Inspection, Inc.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed this quarter.
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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, 1999
/s/PHILIP J. HAWK
----------------------------------------
Philip J. Hawk
Chief Executive Officer and Director
/s/TED W. OWEN
----------------------------------------
Ted W. Owen, Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
(2) Stock Purchase Agreement Among Team, Inc. (Buyer) and E.
Patrick Manuel and B. Dal Miller (Sellers) dated April 9, 1999
providing for the acquisition by Team, Inc. of 100% of the
outstanding capital stock of X-Ray Inspection, Inc.
(27) Financial Data Schedule.