-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qv5A837IHdns9SfcpsOBmwzz7wwJCYCwixha4i+wYm7M9kLAKvDP9kNteSjL+iGn yx+ZgxLlSpzyxTTp3YQinQ== 0000950129-03-000118.txt : 20030114 0000950129-03-000118.hdr.sgml : 20030114 20030114142314 ACCESSION NUMBER: 0000950129-03-000118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021130 FILED AS OF DATE: 20030114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEAM INC CENTRAL INDEX KEY: 0000318833 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS REPAIR SERVICES [7600] IRS NUMBER: 741765729 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08604 FILM NUMBER: 03513321 BUSINESS ADDRESS: STREET 1: 200 HERMANN DRIVE CITY: ALVIN STATE: TX ZIP: 77056 BUSINESS PHONE: 2813316154 MAIL ADDRESS: STREET 1: 1019 SOUTH HOOD STREET CITY: ALVIN STATE: TX ZIP: 77551 10-Q 1 h02497e10vq.txt TEAM, INC. - PERIOD ENDED NOVEMBER 30, 2002 UNITED STATES 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 NOVEMBER 30, 2002 -------------------------------------------------- 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 --------------------------------------------------------- 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 January 9, 2003, there were 7,750,137 shares of the Registrant's common stock outstanding. TEAM, INC. INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets -- 1 November 30, 2002 (Unaudited) and May 31, 2002 Consolidated Condensed Statements of Operations (Unaudited) -- 2 Three Months and Six Months Ended November 30, 2002 and 2001 Consolidated Condensed Statements of Cash Flows (Unaudited) -- 3 Six Months Ended November 30, 2002 and 2001 Notes to Unaudited Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis 10 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure 15 about Market Risk Item 4. Controls and Procedures 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 CERTIFICATIONS 18
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
NOVEMBER 30, MAY 31, ASSETS 2002 2002 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents $ 643,000 $ 823,000 Accounts receivable, net of allowance for doubtful accounts of $565,000 and $511,000 16,511,000 17,250,000 Inventories 9,166,000 8,802,000 Prepaid expenses and other current assets 1,628,000 1,198,000 ------------ ------------ Total Current Assets 27,948,000 28,073,000 Property, Plant and Equipment, net of accumulated depreciation of $16,444,000 and $15,719,000 11,983,000 11,937,000 Goodwill, net of accumulated amortization of $922,000 10,049,000 10,049,000 Other Assets 892,000 1,130,000 ------------ ------------ Total Assets $ 50,872,000 $ 51,189,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,494,000 $ 1,512,000 Accounts payable 1,888,000 2,953,000 Accrued liabilities 4,770,000 4,294,000 Income taxes payable 3,000 621,000 ------------ ------------ Total Current Liabilities 8,155,000 9,380,000 Long-term debt 10,368,000 11,978,000 Other long-term liabilities 1,353,000 1,476,000 Minority interest 241,000 173,000 ------------ ------------ Total Liabilities 20,117,000 23,007,000 ------------ ------------ Stockholders' Equity: Preferred stock, 500,000 shares authorized, none issued Common stock, par value $.30 per share, 30,000,000 shares authorized, 8,522,137 and 8,331,132 shares issued at November 30, 2002 and May 31, 2002, respectively 2,557,000 2,499,000 Additional paid-in capital 33,738,000 32,961,000 Accumulated deficit (2,158,000) (4,670,000) Accumulated other comprehensive loss (52,000) (57,000) Treasury stock at cost, 756,400 and 658,520 shares (3,330,000) (2,551,000) ------------ ------------ Total Stockholders' Equity 30,755,000 28,182,000 ------------ ------------ Total Liabilities and Stockholders' Equity $ 50,872,000 $ 51,189,000 ============ ============
See notes to unaudited consolidated condensed financial statements. -1- TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED NOVEMBER 30, NOVEMBER 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Revenues $ 23,160,000 $ 21,594,000 $ 45,168,000 $ 41,422,000 Operating expenses 13,553,000 12,551,000 26,530,000 24,196,000 ------------ ------------ ------------ ------------ Gross Margin 9,607,000 9,043,000 18,638,000 17,226,000 Selling, general and administrative expenses 7,209,000 6,707,000 14,202,000 13,285,000 Goodwill amortization -- 69,000 -- 137,000 Non-cash compensation cost 31,000 -- 52,000 -- ------------ ------------ ------------ ------------ Earnings before interest and taxes 2,367,000 2,267,000 4,384,000 3,804,000 Interest expense, net 156,000 257,000 315,000 497,000 ------------ ------------ ------------ ------------ Earnings before income taxes 2,211,000 2,010,000 4,069,000 3,307,000 Provision for income taxes 847,000 766,000 1,557,000 1,261,000 ------------ ------------ ------------ ------------ Net income $ 1,364,000 $ 1,244,000 $ 2,512,000 $ 2,046,000 ============ ============ ============ ============ Net income per common share: Basic $ 0.18 $ 0.16 $ 0.33 $ 0.27 ============ ============ ============ ============ Diluted $ 0.16 $ 0.15 $ 0.30 $ 0.25 ============ ============ ============ ============ Weighted average number of shares outstanding: Basic 7,756,000 7,640,000 7,729,000 7,670,000 ============ ============ ============ ============ Diluted 8,477,000 8,185,000 8,503,000 8,116,000 ============ ============ ============ ============
See notes to unaudited consolidated condensed financial statements. -2- TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 2002 2001 ------------ ------------ Cash Flows from Operating Activities: Net income $ 2,512,000 $ 2,046,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,309,000 1,352,000 Allowance for doubtful accounts 54,000 10,000 Equity in earnings of unconsolidated subsidiary (34,000) (11,000) Non-cash compensation cost 52,000 -- Change in assets and liabilities (Increase) decrease: Accounts receivable 685,000 (223,000) Inventories (364,000) (413,000) Prepaid expenses and other current assets (243,000) (299,000) Increase (decrease): Accounts payable (1,065,000) 4,000 Accrued liabilities 572,000 (81,000) Income taxes payable (618,000) 18,000 ------------ ------------ Net cash provided by operating activities 2,860,000 2,403,000 ------------ ------------ Cash Flows From Investing Activities: Capital expenditures (827,000) (951,000) Net additions to rental and demo machines (334,000) (242,000) Proceeds from sale of assets 17,000 57,000 Other 62,000 (118,000) ------------ ------------ Net cash provided by (used in) investing activities (1,082,000) (1,254,000) ------------ ------------ Cash Flows From Financing Activities: Payments under debt agreements and other long-term liabilities (1,747,000) (925,000) Net borrowings under revolving credit facility -- 1,737,000 Repurchase of common stock (779,000) (1,668,000) Issuance of common stock in exercise of stock options 568,000 330,000 ------------ ------------ Net cash used in financing activities (1,958,000) (526,000) ------------ ------------ Net increase in cash and cash equivalents (180,000) 623,000 Cash and cash equivalents at beginning of year 823,000 968,000 ------------ ------------ Cash and cash equivalents at end of period $ 643,000 $ 1,591,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 315,000 $ 516,000 ============ ============ Income taxes paid $ 1,950,000 $ 1,243,000 ============ ============
See notes to unaudited consolidated condensed financial statements. -3- 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, 2002 is derived from the May 31, 2002 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 Team, Inc.'s ("the Company") annual report on Form 10-K for the fiscal year ended May 31, 2002. New Accounting Standards Statement of Financial Accounting Standards No. 142 Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142") became effective for the Company as of June 1, 2002. According to SFAS No. 142, goodwill that arises from purchases after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 requires that amortization of existing goodwill will cease on the first day of the adoption year. Accordingly, the Company stopped recording the amortization of goodwill as a charge to earnings effective as of the beginning of the current year. The following table sets forth the pro-forma impact on the prior year had the provisions of the new standard been applied as of June 1, 2001:
Three Months Ended Six Months Ended November 30, November 30, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Reported net income $ 1,364,000 $ 1,244,000 $ 2,512,000 $ 2,046,000 Add back: Goodwill amortization -- 69,000 -- 137,000 ------------ ------------ ------------ ------------ Adjusted net income $ 1,364,000 $ 1,313,000 $ 2,512,000 $ 2,183,000 ============ ============ ============ ============ Basic earnings per share: Reported net income $ 0.18 $ 0.16 $ 0.33 $ 0.27 Goodwill amortization -- 0.01 -- 0.02 ------------ ------------ ------------ ------------ Adjusted net income $ 0.18 $ 0.17 $ 0.33 $ 0.29 ============ ============ ============ ============ Diluted earnings per share: Reported net income $ 0.16 $ 0.15 $ 0.30 $ 0.25 Goodwill amortization -- 0.01 -- 0.02 ------------ ------------ ------------ ------------ Adjusted net income $ 0.16 $ 0.16 $ 0.30 $ 0.27 ============ ============ ============ ============
-4- The Company has completed the initial impairment test required by SFAS No. 142 and has preliminarily determined that there is no impairment of goodwill as of June 1, 2002, the beginning of the fiscal year. Goodwill will be tested for impairment at least annually hereafter, and impairment losses, if any, will be presented in the operating section of the income statement. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets, except for certain obligations of lessees. SFAS 143 is effective for the Company in June 2003. Management is in the process of evaluating the impact of the adoption of Statement 143. SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections," was issued in April 2002. SFAS No. 145 provides guidance for income statement classification of gains and losses on extinguishment of debt and accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 145. SFAS No. 146, "Accounting for Exit or Disposal Activities" was issued in June 2002. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 146. 2. Dividends and Stock Repurchases No dividends were paid during the six months ended November 30, 2002 or 2001. 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. In the six months ended November 30, 2002, the Company reacquired 97,880 shares pursuant to an open-market repurchase plan at a weighted average price of $7.96 per share. These shares have not been formally retired and, accordingly, these shares are carried as treasury stock. Cumulatively, since the inception of the stock repurchase program in July 2000, the Company has reacquired 982,347 shares at a total cost of $4.0 million. In January 2003, the Board of Directors increased the Company's authority to repurchase its common stock on the open market to an additional $2.5 million plus the amount of proceeds from stock option exercises. This approval follows a similar authority given by the Company's senior lender in December 2002 in connection with an amendment to the Company's credit facility. 3. Earnings Per Share There is no difference, for either of the periods presented, in the amount of net income (numerator) used in the computation of basic and diluted earnings per share. With respect to the number of weighted average shares outstanding (denominator), diluted shares reflects the pro forma exercise of options to acquire common stock to the extent that the options' exercise prices are less than the average market price of common shares during the period. -5- 4. Inventories Inventories consist of :
November 30, May 31, 2002 2002 ------------ ------------ Raw materials $ 986,000 $ 953,000 Finished goods and work in progress 8,180,000 7,849,000 ------------ ------------ Total $ 9,166,000 $ 8,802,000 ============ ============
5. Long-term debt Long-term debt consists of:
November 30, May 31, 2002 2002 ------------ ------------ Revolving loan $ 5,050,000 $ 5,919,000 Term and mortgage notes 6,799,000 7,540,000 Capital lease obligations 13,000 31,000 ------------ ------------ 11,862,000 13,490,000 Less current portion 1,494,000 1,512,000 ------------ ------------ Total $ 10,368,000 $ 11,978,000 ============ ============
In December 2002, the Company extended its loan agreements to expire in September 2005 and to increase its authority to repurchase stock to $2.5 million plus proceeds from exercises of stock options. 6. Industry Segment Information SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," 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. 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 inspection. The equipment sales and rental segment is comprised solely of the operations of a wholly-owned subsidiary, Climax Portable Machine Tools, Inc. The Company evaluates performance based on earnings before interest and income taxes. Inter-segment sales are eliminated in the operating measures used by the company to evaluate segment performance and have, therefore, been eliminated in the following schedule. Interest is not allocated down to the segments. -6- THREE MONTHS ENDED NOVEMBER 30, 2002
Industrial Equipment Corporate Services Sales & Rentals & Other Total ----------- --------------- ----------- ----------- Revenues $20,718,000 $ 2,442,000 $ -- $23,160,000 =========== =============== =========== =========== Earnings before interest & taxes 3,482,000 138,000 (1,253,000) 2,367,000 Interest expense, net -- -- 156,000 156,000 ----------- --------------- ----------- ----------- Earnings before income taxes 3,482,000 138,000 (1,409,000) 2,211,000 =========== =============== =========== =========== Depreciation and amortization 433,000 156,000 113,000 702,000 =========== =============== =========== =========== Capital expenditures 396,000 56,000 24,000 476,000 =========== =============== =========== =========== Identifiable assets $36,397,000 $ 11,132,000 $ 3,343,000 $50,872,000 =========== =============== =========== ===========
THREE MONTHS ENDED NOVEMBER 30, 2001
Industrial Equipment Corporate Services Sales & Rentals & Other Total ----------- --------------- ----------- ----------- Revenues $19,148,000 $ 2,446,000 $ -- $21,594,000 =========== =============== =========== =========== Earnings before interest & taxes 3,226,000 37,000 (996,000) 2,267,000 Interest expense, net -- -- 257,000 257,000 ----------- --------------- ----------- ----------- Earnings before income taxes 3,226,000 37,000 (1,253,000) 2,010,000 =========== =============== =========== =========== Depreciation and amortization 429,000 171,000 93,000 693,000 =========== =============== =========== =========== Capital expenditures 400,000 57,000 48,000 505,000 =========== =============== =========== =========== Identifiable assets $33,050,000 $ 12,127,000 $ 4,381,000 $49,558,000 =========== =============== =========== ===========
-7- SIX MONTHS ENDED NOVEMBER 30, 2002
Industrial Equipment Corporate Services Sales & Rentals & Other Total ----------- --------------- ----------- ----------- Revenues $39,750,000 $ 5,418,000 $ -- $45,168,000 =========== =============== =========== =========== Earnings before interest & taxes 6,294,000 394,000 (2,304,000) 4,384,000 Interest expense, net -- -- 315,000 315,000 ----------- --------------- ----------- ----------- Earnings before income taxes 6,294,000 394,000 (2,619,000) 4,069,000 =========== =============== =========== =========== Depreciation and amortization 794,000 302,000 213,000 1,309,000 =========== =============== =========== =========== Capital expenditures 720,000 65,000 42,000 827,000 =========== =============== =========== =========== Identifiable assets $36,397,000 $ 11,132,000 $ 3,343,000 $50,872,000 =========== =============== =========== ===========
SIX MONTHS ENDED NOVEMBER 30, 2001
Industrial Equipment Corporate Services Sales & Rentals & Other Total ----------- --------------- ----------- ----------- Revenues $36,496,000 $ 4,926,000 $ -- $41,422,000 =========== =============== =========== =========== Earnings before interest & taxes 5,733,000 41,000 (1,970,000) 3,804,000 Interest expense, net -- -- 497,000 497,000 ----------- --------------- ----------- ----------- Earnings before income taxes 5,733,000 41,000 (2,467,000) 3,307,000 =========== =============== =========== =========== Depreciation and amortization 835,000 342,000 175,000 1,352,000 =========== =============== =========== =========== Capital expenditures 776,000 87,000 88,000 951,000 =========== =============== =========== =========== Identifiable assets $33,050,000 $ 12,127,000 $ 4,381,000 $49,558,000 =========== =============== =========== ===========
-8- 7. Comprehensive income Comprehensive income represents the change in the Company's equity from transactions and other events and circumstances from non-owner sources and includes all changes in equity except those resulting from investments by owners and distributions to owners. Comprehensive income is as follows:
Three Months Ended Six Months Ended November 30, November 30, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net income $ 1,364,000 $ 1,244,000 $ 2,512,000 $ 2,046,000 Other comprehensive loss: Unrealized gain/(loss) on derivative instruments 16,000 (38,000) 8,000 (141,000) Tax benefit/(expense) (6,000) 15,000 (3,000) 53,000 ------------ ------------ ------------ ------------ Comprehensive income $ 1,374,000 $ 1,221,000 $ 2,517,000 $ 1,958,000 ============ ============ ============ ============
-9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 2001 Revenues for the quarter ended November 30, 2002 were $23.2 million compared to $21.6 million for the corresponding period of the preceding year. Operating margins (shown as "gross margin" in the Condensed Statements of Operations) declined slightly to 41.5% of revenues in the current year quarter versus 41.9% in the same quarter last year and net income increased to $1.4 million ($.16 per share-diluted) as compared to $1.2 million ($.15 per share) in last year's quarter. Industrial services segment revenues were $20.7 million in the current quarter, an increase of $1.6 million (8%) over the prior year. The following table sets forth the revenue composition of industrial services between newer service lines (NDT inspection, field machining and technical bolting) and our traditional service offerings (principally, leak repair, hot tapping, and fugitive emissions monitoring) for the November 30 quarter:
INC. (DEC.) --------------------- 2002 2001 $ % ------------ ------------ Traditional services $ 14,610,000 $ 12,915,000 $ 1,695,000 13% New services 6,108,000 6,233,000 $ (125,000) (2)% $ 20,718,000 $ 19,148,000 $ 1,570,000 8%
The decline in new service revenues for the current year quarter is isolated to NDT inspection, which experienced a 15% decline in revenues in the quarter, due principally to lower pipeline and major turnaround activity that was further depressed by poor weather conditions along the Gulf Coast during October. Other new services (field machining and bolting) continued to grow robustly--with an increase of 25% over last year reflecting our continued penetration of these offerings with our existing customers. Revenues from our traditional service offerings (leak repair, emissions control monitoring, hot tapping and concrete repair) were up 13% compared to last year's quarter. Approximately half of that growth came from the addition of two multi-service, multi-location contracts which commenced in the fourth quarter of fiscal 2002, with the remainder of the growth coming from a general increase in market share in spite of very tough market conditions facing most of our served industry groups. Operating profits for the industrial segment (earnings before interest and taxes) were up 8%, increasing to $3.5 million in the current year quarter versus $3.2 million in last year's quarter. The equipment sales and rental segment (the "Climax" business) reported substantially improved results in the current quarter, with operating profits of $138 thousand versus $37 thousand in last year's second quarter. This profit improvement came on relatively flat revenues of $2.4 million in each year's quarter and resulted from the implementation of a cost reduction program in the third quarter of last year. Corporate and other expenses for the second quarter were $257 thousand higher than last year, primarily resulting from increased legal defense costs associated with litigation discussed in Part II, Item 1., "Legal -10- Proceedings". Management expects legal defense costs to be approximately $100 thousand per quarter for the next few quarters. Interest expense was $100 thousand less in the current year's quarter than in the same quarter last year due to 1) a significant reduction in the amount of debt outstanding during the quarter, 2) general rate reductions by the Federal Reserve Bank over the past year. SIX MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 2001 Revenues for the six months ended November 30, 2002 were $45.2 million compared to $41.4 million for the corresponding period of the preceding year, an increase of 9%. Operating margins declined slightly to 41.3% of revenues in the first half of fiscal 2003 versus 41.6% in the same period last year and net income increased to $2.5 million ($0.30 per share-diluted) as compared to $2.0 million ($0.25 per share) in fiscal 2002--an improvement of 23%. The following table sets forth the composition of the industrial services segment revenues for the six-month periods:
INC. (DEC.) -------------------- 2002 2001 $ % ------------ ------------ Traditional services $ 27,861,000 $ 25,148,000 $ 2,713,000 11% New services 11,889,000 11,348,000 $ 541,000 5% ------------ ------------ ------------ --- $ 39,750,000 $ 36,496,000 $ 3,254,000 9% ============ ============ ============ ===
Reasons for year over year changes are generally consistent with the above discussion for the second quarter comparison. Approximately half of the increase in traditional services came from the multi-plant, multi-location contracts that commenced in the fourth quarter of fiscal 2002 and the growth in new services was negatively impacted by market and weather conditions in the NDT inspection line (with revenues declining 2% year over year). Operating profits for the industrial segment (earnings before interest and taxes) were up 10%, increasing to $6.3 million in the first half of fiscal 2003 versus $5.7 million last year. The discussion of the Climax segment for the six-month period mirrors the three-month discussion above. The business reported substantially improved results in the first half of fiscal 2003, with revenues of $5.4 million versus $4.9 million in the same period last year. Operating profits were $394 thousand year to date in fiscal 2003, versus only $41 thousand in the fiscal 2002 period, reflecting the cost improvements implemented in the third quarter last year. On a year to date basis, corporate general and administrative expenses were up approximately $334 thousand over last year, due primarily to increased legal costs discussed above and as a result of the non-cash compensation charge ($52 thousand) associated with performance based stock options. Interest costs for the six-month period of $315 thousand were $182 thousand less than incurred in the six-month period of last year for the reasons discussed in the three-month analysis above. LIQUIDITY AND CAPITAL RESOURCES At November 30, 2002, our liquid working capital (cash and accounts receivable, less current liabilities) totaled $9 million, which is up slightly from May 31, 2002. Since the end of the last fiscal year, we have -11- reduced our total outstanding debt by $1.6 million as a result of cash flow from operations. We generally utilize excess operating funds to automatically reduce the amount outstanding under the revolving credit facility. In the opinion of management, we currently have sufficient funds and adequate financial sources available to meet our anticipated liquidity needs. Management believes that cash flows from 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. We have a $24 million bank credit facility that consists of: (i) a $12,500,000 revolving loan, which matures September 30, 2005, (ii) $9,500,000 in term loans for business acquisitions and (iii) a $2,000,000 mortgage loan. Amounts borrowed against the term loans are due in quarterly installments in the amount of $339,000 until the loans mature on September 30, 2005. Amounts borrowed against the mortgage loan are repaid in quarterly installments of $31,000 until its maturity date of September 30, 2008. Amounts outstanding under the credit facility bear interest at a marginal rate over either the LIBOR rate or the prime rate. At November 30, 2002, our marginal rate was 1.5% over the LIBOR rate. The weighted average rate on outstanding borrowings at November 30, 2002 is approximately 4.4%. The Company also pays a commitment fee of .25% per annum on the average amount of the unused availability under the revolving loan. The Company entered into an interest rate swap agreement that expires in September 2003 and which qualifies as a cash flow hedge under SFAS No. 133. The agreement was entered into in 1998 to hedge the exposure of an increase in interest rates. Pursuant to this agreement, which covers approximately $2.6 million of outstanding debt, the Company exchanged a variable LIBOR rate for a fixed LIBOR rate of approximately 5.2%. As the interest rates on the credit facility are based on market rates, the fair value of amounts outstanding under the facility approximate the carrying value. The interest rate swap agreements, which have no carrying value, had a negative mark-to-market value of approximately $84,000 and $92,000 at November 30, 2002 and May 31, 2002, respectively. The fair value of interest rate swaps is estimated by discounting expected cash flows using quoted market interest rates. Loans under the 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, and dividends, among other things. At November 30, 2002, the Company was in compliance with all credit facility covenants. At November 30, 2002, the Company was contingently liable for $1.9 million in outstanding stand-by letters of credit and, at that date, approximately $5.2 million was available to borrow under the credit facility. CRITICAL ACCOUNTING POLICIES Goodwill - The Company has $10.0 million of recorded goodwill associated with business acquisitions made in fiscal year 1999. Of that amount, approximately $7.1 million is associated with the industrial services segment and $2.9 million is associated with the equipment sales and rental business. Through May 31, 2002, goodwill was being amortized over 40 years and its carrying value was periodically evaluated using management's estimate of future undiscounted cash flows in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Under SFAS No. 121, there has been no impairment of the Company's recorded goodwill. Effective at the beginning of the Company's current fiscal year, June 1, 2002, we have adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets", which requires that goodwill no longer be amortized but be reviewed for impairment at least annually using a methodology that is different than the methodology required under SFAS No. 121. Management has evaluated the impact of SFAS No. 142 on the consolidated financial statements and determined that no adjustment is needed to the carrying value of goodwill as a result of the implementation adoption of SFAS No. 142. -12- Revenue Recognition - The Company derives its revenues by providing a variety of industrial services including leak repair, hot tapping, emissions control services, field machining and inspection services. In addition, the Company sells and rents portable machine tools through one of its subsidiaries. For all of these services, revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer. Deferred Income Taxes - The Company records deferred income tax assets and liabilities related to temporary differences between the book and tax bases of assets and liabilities. The Company computes its deferred tax balances by multiplying these temporary differences by the current tax rates. A valuation allowance is provided for the net deferred tax asset amounts that are not likely to be realized. As of November 30, 2002 management believes that it is more likely than not that the Company will have sufficient future taxable income to allow it to realize the benefits of the net deferred tax assets. Accordingly, no valuation allowance has been recorded. Loss Contingencies - The Company is involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, management consults with its legal counsel and evaluates the merits of the claim based on the facts available at that time. Currently, the Company is involved with two significant matters, which are summarized in Legal Proceedings in Part II below. In management's opinion, an adequate accrual has been made as of November 30, 2002 to provide for any losses that may arise from these contingencies. OTHER CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The Company enters into capital leases related to certain computer and equipment and software, as well as operating leases related to facilities and transportation and other equipment. These operating leases are over terms ranging from one to five years with typical renewal options and escalation clauses. The Company is occasionally required to post letters of credit generally issued by a bank as collateral under certain agreements. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that the Company has failed to meet its obligations under the letter of credit. If this were to occur, the Company would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. To date, the Company has not had any claims made against a letter of credit that resulted in a payment made be the issuer or the Company to the holder. The Company believes that it is unlikely that it will have to fund claims made under letters of credit in the foreseeable future. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 142 Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142") became effective for the Company as of June 1, 2002. According to SFAS No. 142, goodwill that arises from purchases after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 requires that amortization of existing goodwill will cease on the first day of the adoption year. Accordingly, the Company stopped recording the amortization of goodwill as a charge to earnings effective as of the beginning of the current year. See also the above discussion of goodwill under "Critical Accounting Policies". In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets, except for certain obligations of lessees. SFAS 143 is effective for the Company in June 2003. Management is in the process of evaluating the impact of the adoption of Statement 143. SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections," was issued in April 2002. SFAS No. 145 provides guidance for income statement classification of gains and losses on extinguishment of debt and accounting for certain lease -13- modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 145. SFAS No. 146, "Accounting for Exit or Disposal Activities" was issued in June 2002. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 146. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Any 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 any 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 any forward-looking statements contained herein will occur or those objectives will be achieved. -14- 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 material quantitative or qualitative changes during the first six months of fiscal 2003 in the Company's market risk sensitive instruments. ITEM 4. CONTROLS AND PROCEDURES The Company's chief executive officer and its chief financial officer have evaluated the Company's disclosure controls and procedures (as defined in Exchange Act rules 13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date of this quarterly report and have concluded that such controls are effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In December 2002, The Company settled a lawsuit with respect to one of two plaintiffs in a case involving allegations of misconduct by personnel in one of the Company's branches during the years 1998 and 1999. The settlement follows a jury verdict rendered against the Company in May 2002. An adequate accrual was made at May 31, 2002 with respect to the ultimate settlement. With respect to the second plaintiff, the Court set aside the jury verdict and granted the Company's motion for a new trial on a specific issue. The Company is presently evaluating its options with respect to this plaintiff and does not expect any significant future costs with respect to this matter. In December 2001, the Company was named a defendant in a lawsuit, along with 18 other parties, alleging that a former subsidiary, French Ltd. ("French"), was involved in the illegal disposal of hazardous substances during the years 1969 and 1970. The plaintiff's allege that Team is a successor-in-interest to French and is, therefore, liable for contribution to a settlement embodied in a consent decree entered into by the plaintiffs with the EPA in 1998. French was acquired by Team in 1978 and sold back to its prior owner in 1984. The case is early in the discovery stage and the Company is unable to estimate a range of potential loss, if any, with respect to this matter. However, the Company vigorously denies that it is a successor-in-interest of French and that it has any responsibility in this matter. The Company expects to incur ongoing litigation defense costs of approximately $100 thousand per quarter for the next few quarters with respect to this matter. The Company and certain subsidiaries are involved in various other lawsuits and are subject to various claims and proceedings encountered in the normal conduct of business. In the opinion of management, any uninsured losses that might arise from these lawsuits and proceedings will not have a materially adverse effect on the Company's consolidated financial statements. -15- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 2002 Annual Meeting of Shareholders of the Company was held on September 26, 2002. At that meeting, Messrs. Philip J. Hawk and Louis A. Waters were elected to serve as directors for a three-year term. The votes with respect to the election of each director were as follows:
NAME FOR WITHHELD - ---- --- -------- Philip J. Hawk 6,708,496 208,373 Louis A. Waters 6,902,562 14,307
The five directors continuing in office until the expiration of their respective terms are Messrs. E. Theodore Laborde, Jack M. Johnson, Jr., Sidney B. Williams, George W. Harrison, and E. Patrick Manuel. The shareholders also approved the appointment of KPMG LLP as independent auditors for the fiscal year ending May 31, 2003 by the following vote:
FOR AGAINST ABSTAIN - --- ------- ------- 6,901,609 14,110 1,151
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description 99.1 Certification for Chief Executive Officer 99.2 Certification for Chief Financial Officer (b) Reports on Form 8-K No reports on Form 8-K were filed during the six months ended November 30, 2002. -16- SIGNATURES 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: January 14, 2003 /s/ PHILIP J. HAWK ----------------------------------------- Philip J. Hawk Chairman and Chief Executive Officer /s/ TED W. OWEN ----------------------------------------- Ted W. Owen, Senior Vice President - Finance and Administration (Principal Financial Officer and Principal Accounting Officer) -17- CERTIFICATIONS I, Philip J. Hawk, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Team, Inc., ("Team"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. Team's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Team's other certifying officer and I have disclosed, based on our most recent evaluation, to Team's auditors and audit committee of Team's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. Team's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 14, 2003 /s/ PHILIP J. HAWK ------------------ Philip J. Hawk Chairman and Chief Executive Officer -18- I, Ted W. Owen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Team, Inc., ("Team"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. Team's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Team's other certifying officer and I have disclosed, based on our most recent evaluation, to Team's auditors and audit committee of Team's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. Team's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 14, 2003 /s/ Ted W Owen -------------- Ted W. Owen Senior Vice President - Finance and Administration -19- EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 99.1 Certification for Chief Executive Officer 99.2 Certification for Chief Financial Officer
EX-99.1 3 h02497exv99w1.txt CERTIFICATION FOR CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ending November 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Phillip J. Hawk, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. - ----------------------------- Philip J. Hawk Chairman and Chief Executive Officer January 14, 2003 EX-99.2 4 h02497exv99w2.txt CERTIFICATION FOR CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ending November 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ted W. Owen, Senior Vice President - Finance and Administration of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. - ----------------------------- Ted W. Owen Senior Vice President - Finance and Administration January 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----