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 AUGUST 31, 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
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Commission file number 0-9950
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TEAM, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1765729
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Hermann Drive, Alvin, Texas 77511
- ------------------------------------------------------------------------------
(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 October 4, 1999, there were 8,234,954 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
August 31, 1999 (Unaudited) and May 31, 1999
Consolidated Condensed Statements of Operations
(Unaudited) -- 2
Three Months Ended
August 31, 1999 and 1998
Consolidated Condensed Statements of Cash Flows
(Unaudited) -- 3
Three Months Ended
August 31, 1999 and 1998
Notes to Unaudited Consolidated Condensed
Financial Statements 4
Item 2. Management's Discussion and Analysis 7
of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure 9
about Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
August 31, May 31,
ASSETS 1999 1999
------------- -------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 559,000 $ 1,035,000
Accounts receivable, net of allowance for doubtful
accounts of $191,000 and $297,000 11,520,000 10,726,000
Inventories 8,421,000 8,566,000
Income tax receivable 60,000 87,000
Deferred income taxes 709,000 709,000
Prepaid expenses and other current assets 850,000 512,000
------------- ------------
Total Current Assets 22,119,000 21,635,000
Property, Plant and Equipment:
Land and buildings 10,005,000 9,996,000
Machinery and equipment 17,253,000 17,100,000
------------- ------------
27,258,000 27,096,000
Less accumulated depreciation and amortization 14,110,000 13,600,000
------------- ------------
13,148,000 13,496,000
Goodwill, net of accumulated amortization
of $172,000 and $100,000 10,697,000 10,769,000
Other Assets 1,582,000 1,526,000
Restricted Cash 451,000 451,000
------------- ------------
Total Assets $ 47,997,000 $ 47,877,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 953,000 $ 948,000
Accounts payable 622,000 1,104,000
Other accrued liabilities 3,429,000 3,735,000
------------- ------------
Total Current Liabilities 5,004,000 5,787,000
Deferred income taxes 228,000 228,000
Long-term Debt and Other Obligations 21,277,000 20,518,000
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, 8,244,654 and 8,213,652 shares issued at
August 31, 1999 and May 31, 1999, respectively 2,473,000 2,464,000
Additional paid-in capital 32,081,000 32,000,000
Accumulated deficit (12,926,000) (12,972,000)
Unearned compensation (43,000) (51,000)
Treasury stock at cost, 9,700 shares (97,000) (97,000)
------------- ------------
Total Stockholders' Equity 21,488,000 21,344,000
------------- ------------
Total Liabilities and Stockholders' Equity $ 47,997,000 $ 47,877,000
============= ============
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
August 31,
--------------------------------
1999 1998
----------- ------------
Revenues $ 15,410,000 $ 11,368,000
Operating expenses 8,915,000 6,492,000
------------- -------------
Gross Margin 6,495,000 4,876,000
Selling, general and administrative expenses 6,045,000 4,241,000
------------- -------------
Earnings from operations 450,000 635,000
Interest 377,000 95,000
------------- -------------
Income before income taxes 73,000 540,000
Provision for income taxes 27,000 248,000
------------- -------------
Net income $ 46,000 $ 292,000
------------- -------------
Net income per common share:
Basic $ 0.01 $ 0.04
------------- -------------
Diluted $ 0.01 $ 0.04
------------- -------------
Weighted average number of shares outstanding:
Basic 8,221,000 7,192,000
------------- -------------
Diluted 8,351,000 7,485,000
------------- -------------
See notes to unaudited consolidated condensed financial statements.
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TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
August 31,
-------------------------------
1999 1998
------------ -------------
Cash Flows from Operating Activities:
Net income $ 46,000 $ 292,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 771,000 399,000
Change in assets and liabilities
(Increase) decrease:
Accounts receivable (794,000) 1,666,000
Inventories 145,000 (21,000)
Prepaid expenses and other current assets (338,000) (221,000)
Income taxes receivable 27,000 0
Increase (decrease):
Accounts payable (482,000) (359,000)
Other accrued liabilities (240,000) (193,000)
Income taxes payable 0 54,000
------------ ------------
Net cash (used in) provided by operating activities (865,000) 1,617,000
Cash Flows From Investing Activities:
Capital expenditures (242,000) (661,000)
Disposal of property and equipment 29,000 0
Other (194,000) (319,000)
Acquisition of Climax, net of cash and equivalents acquired 0 (6,503,000)
Payments of Climax notes payable at acquisition date 0 (2,897,000)
------------ ------------
Net cash used in investing activities (407,000) (10,380,000)
Cash Flows From Financing Activities:
Payments under debt agreements and other long-term obligations (212,000) (2,629,000)
Proceeds from issuance of long-term debt 910,000 8,695,000
Issuance of common stock 98,000 3,228,000
------------ ------------
Net cash provided by financing activities 796,000 9,294,000
------------ ------------
Net (decrease) increase in cash and cash equivalents (476,000) 531,000
Cash and cash equivalents at beginning of year 1,035,000 1,355,000
------------ ------------
Cash and cash equivalents at end of period $ 559,000 $ 1,886,000
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 356,000 $ 120,000
------------ ------------
Income taxes paid $ 8,000 $ 213,000
------------ ------------
Supplemental schedule of noncash investing and financing activities:
In connection with the acquisition of Climax Portable Machine Tools,
Inc., effective August 31, 1998, the Company issued 200,000 shares of its
common stock with an assigned value of $4.00 per share.
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,
1999 is derived from the May 31, 1999 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, 1999.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB)
issued statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company is currently analyzing this statement to determine the
impact on the Company's financial position, results of operations, and
cash flows.
2. Dividends
No dividends were paid during the first three months of fiscal
2000 or 1999. 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 and Other Obligations
Long-term obligations consist of:
August 31, May 31,
1999 1999
------------------------------------
Revolving credit agreement $ 8,380,000 $ 7,470,000
Term notes 11,276,000 11,307,000
Capital lease obligations 215,000 238,000
Agreements with former officers 1,576,000 1,657,000
Deferred compensation 451,000 451,000
Other 332,000 343,000
------------ ------------
22,230,000 21,466,000
Less current portion 953,000 948,000
------------ ------------
Total $ 21,277,000 $ 20,518,000
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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
September 30, 2001. Amounts borrowed against the term loans are due in
quarterly installments in the amount of $339,000 beginning December
31, 1999, with the remaining principal balance to be paid on the term
loans maturity date of September 30, 2003. Amounts borrowed against
the mortgage loan are to be repaid in quarterly installments in the
amount of $31,000 beginning December 31, 1998, with the remaining
principal balance to be paid on the mortgage loan maturity date of
September 30, 2008. Amounts outstanding under this facility bear
interest at a marginal rate over the LIBOR rate or prime rate. The
marginal rate is based on the Company's level of funded debt to cash
flow, and ranges from 1.50% to 2.50% over the LIBOR rate and from
0.00% to 0.50% over the prime rate. The effective rate on outstanding
borrowings under the new agreement is approximately 7.3%.
In October 1998, the Company entered into an interest rate swap
transaction on $4,500,000 of the outstanding term loans, exchanging a
floating LIBOR rate (5.3% at the time of the swap) for a fixed rate of
5.19%. The maturity of this swap agreement is September 30, 2003. In
December 1998, the Company executed two additional swap transactions
related to $1,800,000 borrowed against the mortgage loan and to
$2,000,000 of the amount outstanding under the revolver. A floating
LIBOR rate (5.25% at the time of these swap transactions) was
exchanged for fixed rates of 5.24% and 5.19% on the $1,800,000 and
$2,000,000 notional amounts, respectively. The maturity of these swap
agreements is December 31, 2001.
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 August 31, 1999, the Company was in compliance with all credit
facility covenants.
4. 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 August 31, 1999 Three months ended August 31, 1998
-------------------------------------------- --------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ --------- ----------- ------------- ---------
Basic EPS:
Net income $ 46,000 8,221,000 $ 0.01 $ 292,000 7,192,000 $ 0.04
Effect of Dilutive Securities:
Options - 130,000 - 293,000
----------- --------- ---------- ---------
Diluted EPS:
Net income $ 46,000 8,351,000 $0.01 $ 292,000 7,485,000 $ 0.04
=========== ========= ========== =========
5. Industry Segment Information
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," in fiscal 1999. SFAS No. 131
requires that the Company disclose certain information about its
operating segments where operating segments are defined as "components
of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing
performance." Generally, financial information is required to be
reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments.
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Pursuant to SFAS No. 131, the Company has two reportable segments:
industrial services and equipment sales and rentals. The industrial
services segment includes services consisting of leak repair, hot
tapping, emissions control monitoring, field machining, and mechanical
inspection. The equipment sales and rental segment consists of the
Climax business.
The Company evaluates performance based on earnings before
interest and income taxes. Inter-segment sales are eliminated in the
following schedule. Interest is not allocated to the segments.
THREE MONTHS ENDED AUGUST 31, 1999
Industrial Equipment Corporate
Services Sales& Rentals & Other Total
---------- -------------- --------- ------------
Revenues $12,915,000 $ 2,495,000 - $ 15,410,000
Operating expenses 7,546,000 1,369,000 - 8,915,000
----------- ----------- ------------ ------------
Gross margin 5,369,000 1,126,000 - 6,495,000
Selling, general and administrative
expenses 4,143,000 1,040,000 862,000 6,045,000
----------- ----------- ------------ ------------
Earnings before interest & taxes 1,226,000 86,000 (862,000) 450,000
Interest - - 377,000 377,000
----------- ----------- ------------ ------------
Earnings before income taxes 1,226,000 86,000 (1,239,000) 73,000
=========== =========== ============ ============
Depreciation and amortization 433,000 226,000 112,000 771,000
=========== =========== ============ ============
Capital expenditures 220,000 17,000 5,000 242,000
=========== =========== ============ ============
Identifiable assets $35,115,000 $ 8,191,000 $ 4,691,000 $ 47,997,000
=========== =========== ============ ============
THREE MONTHS ENDED AUGUST 31, 1998
Industrial Equipment Corporate
Services Sales& Rentals & Other Total
---------- -------------- --------- ------------
Revenues $11,368,000 - - $ 11,368,000
Operating expenses 6,492,000 - - 6,492,000
----------- ----------- ------------ ------------
Gross margin 4,876,000 - - 4,876,000
Selling, general and administrative
expenses 3,079,000 - 1,162,000 4,241,000
----------- ----------- ------------ ------------
Earnings before interest & taxes 1,797,000 - (1,162,000) 635,000
Interest - - 95,000 95,000
----------- ----------- ------------ ------------
Earnings before income taxes 1,797,000 - (1,257,000) 540,000
=========== =========== ============ ============
Depreciation and amortization 297,000 - 102,000 399,000
=========== =========== ============ ============
Capital expenditures 163,000 - 498,000 661,000
=========== =========== ============ ============
Identifiable assets $23,777,000 $ 8,290,000 $ 6,046,000 $ 38,113,000
=========== =========== ============ ============
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1999 COMPARED
TO THREE MONTHS ENDED AUGUST 31, 1998
Revenues for the quarter ended August 31, 1999 were $15.4 million compared
to $11.4 million for the corresponding period of 1998. The $4.0 million
increase is entirely attributable to the inclusion, in 1999, of the
operating results of Climax Portable Machine Tools, Inc. ("Climax") and
X-Ray Inspection, Inc., ("XRI"), which were both acquired in the fiscal
year ended May 31, 1999. Operating results for the August 1998 quarter do
not include Climax or XRI, since they were acquired after the end of the
first quarter in fiscal 1999.
Earnings before interest and taxes was $450,000 in the 1999 quarter
compared to $635,000 in 1998. The decline is generally attributable a to
reduction in operating profits of $570,000 in the industrial services
business segment, offset by a $300,000 improvement in corporate general and
administrative costs and $86,000 of operating income from Climax (equipment
sales and rental segment).
Operating income from the industrial services segment was $1,226,000 in the
1999 quarter as compared to $1,797,000 in the 1998 quarter, a decline of
$571,000. The decline from 1998 is directly attributable to a softening in
the market for the Company's traditional industrial services, particularly
in the refining and petrochemical industries, which resulted in shrinking
volumes and margins in the 1999 quarter. While the market was softening for
traditional services, field based support personnel were being added to
support new field machining and technical bolting service lines. The impact
of reduced operating margins and higher support costs in the traditional
industrial service lines was mitigated by the addition of XRI's inspection
services in the 1999 quarter, which contributed over $400,000 to operating
income. In August, 1999 management took steps to re-balance human resources
with existing business conditions, which will reduce operating costs by
approximately $100,000 per month.
Interest expense in the first quarter of 1999 was $377,000 compared to
$95,000 for the same quarter of 1998. The increase of $282,000 is directly
associated with borrowings in connection with the Climax and XRI
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1999, the Company's working capital totaled $17.1
million, an increase of $1.3 million since May 31, 1999. As of August 31,
1999, cash and cash equivalents totaled $559,000, a decrease of $476,000
since May 31, 1999. 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.
At August 31, 1999, approximately $2.8 million was available under the
revolving credit facility.
In the opinion of management, the Company currently has sufficient
funds and adequate financial sources available to meet its anticipated
liquidity and capital needs. Management believes that cash flow from
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operations, cash balances and available borrowings will be sufficient for
the foreseeable future to finance anticipated working capital requirements,
capital expenditures and debt service requirements.
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 and , 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 Company is relying on vendor
certification and testing.
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.
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 was implemented during February and March 1999.
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 cannot 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
cash flow reductions.
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 Company's 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
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internal operating plans. Accordingly, there can be no assurance that the
forward-looking statements contained herein will occur or that objectives
will be achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company holds certain floating-rate obligations. The exposure of
these obligations to increase in short-term interest rates is limited by
interest rate swap agreements entered into by the Company. There were no
other material quantitative or qualitative changes during the first three
months of fiscal 2000 in the Company's market risk sensitive instruments.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(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: October 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
(27) Financial Data Schedule.
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