-----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, TOn9Ak1SLU9b+CkiPoyVRNhytWH5tB7K8nUDk3hKhCj/HwI0sCt9CDvIYLR/Bo5u Rh2tkflXvhSaiyhIEQryhg== 0000950129-98-004544.txt : 19981110 0000950129-98-004544.hdr.sgml : 19981110 ACCESSION NUMBER: 0000950129-98-004544 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980909 ITEM INFORMATION: FILED AS OF DATE: 19981109 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-08604 FILM NUMBER: 98740652 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 8-K/A 1 TEAM, INC. - DATED 9/9/98 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT TO APPLICATION OR REPORT Filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 TEAM, INC. -------------------------------------------------------------- (Exact name of registrant as specified in its charter) AMENDMENT NO. 1 The undersigned Registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K filed September 9, 1998, as set forth in the pages attached hereto: Item 7: (a) and (b) Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, hereby duly authorized. TEAM, INC. -------------------------------------- Registrant Date November 9, 1998 /s/ TED W. OWEN - ---------------------- -------------------------------------- Ted W. Owen Vice President, Chief Financial Officer and Secretary 2 TEAM, INC. INDEX
PAGE ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS (a) Consolidated Financial Statements of Climax Portable Machine Tools, Inc. Independent Auditors' Report 1 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1997 and 1996 2 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997 and 1996 3 Consolidated Statements of Operations for the Years Ended December 31, 1997 and 1996 4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 5 Notes to Financial Statements 7-19 Interim Consolidated Financial Statements (Unaudited) Consolidated Balance Sheet as of June 30, 1998 20 Consolidated Statement of Shareholders' Equity for the Six-Month Period Ended June 30, 1998 21 Consolidated Statements of Operations for the Six-Month Periods Ended June 30, 1998 and 1997 22 Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 1998 and 1997 23 Notes to Financial Statements 25-26 (b) Pro Forma Consolidated Financial Information of Team, Inc. (Unaudited) Pro Forma Consolidated Financial Statements 27 Pro Forma Consolidated Statement of Operations - Year Ended May 31, 1998 28 Pro Forma Consolidated Statement of Operations - Three Months Ended August 31, 1998 29 Notes to Pro Forma Consolidated Financial Statements 30
-2- 3 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Climax Portable Machine Tools, Inc. and Subsidiaries Newberg, Oregon We have audited the accompanying consolidated balance sheets of Climax Portable Machine Tools, Inc. (an Oregon corporation) and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of shareholders' equity, operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Climax Portable Machines Tools, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ MAGINNIS & CAREY LLP Portland, Oregon June 24, 1998, except for Notes 8 and 9 as to which the date is September 1, 1998 Page 1 4 CLIMAX PORTABLE MACHINE TOOLS, INC. Newberg, Oregon
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 - ----------------------------------------------------------------------------------------------------------- 1997 1996 ---------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents 247,177 1,010,782 Accounts receivable, less provision for doubtful accounts of $115,071 and $50,000 (Note 5) 1,378,107 998,419 Inventory (Notes 2, 5) 978,589 1,072,646 Other receivables 15,746 83,598 Prepaid expenses 125,214 98,325 Deferred tax asset (Note 4) 135,880 104,135 Net current assets - discontinued operations (Note 9) 238,611 ---------- ---------- Total current assets 3,119,324 3,367,905 PROPERTY, PLANT AND EQUIPMENT (Notes 3, 5, 6, 7) Cost, less accumulated depreciation of $2,977,865 and $2,775,438 2,939,901 2,545,620 OTHER ASSETS Cash surrender value of officers' life insurance 44,642 38,710 Other 11,963 10,771 ---------- ---------- Total assets $6,115,830 $5,963,006 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 200,109 199,411 Bank line of credit (Note 5) 65,000 Customer deposits 99,730 108,947 Accrued payroll and payroll taxes 43,446 150,327 Accrued profit sharing contributions 558,182 425,000 Accrued expenses 272,680 153,930 Accrued income taxes (Note 4) 207,602 215,016 Estimated losses from discontinued operations (Note 9) 306,566 Current portion of long-term debt (Note 7) 223,693 143,469 ---------- ---------- Total current liabilities 1,912,008 1,461,100 LONG-TERM DEBT (Note 7) Notes payable, less current portion 1,592,636 1,151,147 DEFERRED TAX LIABILITY (Note 4) 35,743 47,655 NET LONG-TERM LIABILITIES - discontinued operations (Note 9) 275,873 ---------- ---------- Total liabilities 3,816,260 2,659,902 COMMITMENTS AND CONTINGENCIES (Notes 5, 6) SHAREHOLDERS' EQUITY 2,299,570 3,303,104 ---------- ---------- Total liabilities and shareholders' equity $6,115,830 $5,963,006 ========== ==========
The accompanying notes are an integral part of these financial statements. Page 2 5 CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED STATEMENTS YEARS ENDED OF SHAREHOLDERS' EQUITY DECEMBER 31, 1997 AND 1996 - --------------------------------------------------------------------------------------------------- 1997 1996 ----------- ----------- CAPITAL STOCK Common stock, no par value Authorized - 50,000 shares Beginning of year - Issued and outstanding 24,415 shares 100,000 100,000 Redemption of common stock - 180 shares (5,550) ----------- ----------- End of year - Issued and outstanding - 24,235 and 24,415 shares 94,450 100,000 ----------- ----------- PAID-IN CAPITAL 10,959 10,959 ----------- ----------- RETAINED EARNINGS Balance - Beginning of year 3,192,145 2,775,760 Redemption of common stock (14,448) Net income (loss) (983,536) 416,385 ----------- ----------- Balance - End of year 2,194,161 3,192,145 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY $ 2,299,570 $ 3,303,104 =========== ===========
The accompanying notes are an integral part of these financial statements. Page 3 6 CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED YEARS ENDED STATEMENTS OF OPERATIONS DECEMBER 31, 1997 AND 1996 - ----------------------------------------------------------------------------------------------------------- 1997 1996 ---------------------------- ---------------------------- Amount % Amount % ------------ ------------ ------------ ------------ SALES, less discounts and allowances of $400,099 and $399,375 10,873,805 100.0 9,676,276 100.0 COST OF GOODS SOLD 5,500,680 50.6 5,057,280 52.3 ------------ ------------ ------------ ------------ GROSS PROFIT 5,373,125 49.4 4,618,996 47.7 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,458,350 31.8 3,179,197 32.8 ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS 1,914,775 17.6 1,439,799 14.9 ------------ ------------ ------------ ------------ OTHER EXPENSE Interest expense, net of interest income of $39,447 and $9,308 (80,082) (0.7) (126,175) (1.3) Profit sharing contributions - ESOP (305,870) (2.8) (268,006) (2.8) Current compensation (252,312) (2.3) (156,994) (1.6) Research, development and miscellaneous expenses (213,885) (2.0) (231,530) 2.4) ------------ ------------ ------------ ------------ Total other expense (852,149) (7.8) (782,705) (8.1) ------------ ------------ ------------ ------------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,062,626 9.8 657,094 6.8 PROVISION FOR INCOME TAXES (Note 4) 398,845 3.7 240,709 2.5 ------------ ------------ ------------ ------------ INCOME FROM CONTINUING OPERATIONS 663,781 6.1 416,385 4.3 ------------ ------------ ------------ ------------ DISCONTINUED OPERATIONS (Note 9) Losses from operations from discontinued Alsana subsidiary, net of income tax benefit of $179,267 (1,194,214) (11.0) Estimated loss on disposal (453,103) (3.7) ------------ ------------ ------------ ------------ (1,647,317) (14.7) ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ (983,536) (8.6) $ 416,385 4.3 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. Page 4 7 CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED YEARS ENDED STATEMENTS OF CASH FLOWS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------------------------------------------ 1997 1996 ---------- ---------- OPERATING ACTIVITIES Net income (loss) (983,536) 416,385 Loss from discontinued operations 1,647,317 ---------- ---------- Income from continuing operations 663,781 416,385 Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities - Depreciation and amortization 454,651 424,286 Land development costs written off 78,404 Gain on disposition of equipment (6,143) (10,500) Provision for losses on accounts receivable 65,071 25,000 Deferred income taxes (43,657) 5,154 Changes in operating assets and liabilities: Accounts receivable (444,759) 67,220 Inventory 94,057 87,020 Income taxes (7,414) 321,027 Accounts payable and accrued expenses 12,567 56,091 Accrued profit sharing contributions 133,182 425,000 Other assets and liabilities 30,520 (81,864) ---------- ---------- Net cash provided by continuing operating activities 951,856 1,813,223 ---------- ---------- Cash flows from discontinued operations Loss from discontinued operations (1,647,317) Adjustments to reconcile net loss from discontinued operations to net cash used by discontinued operating activities - Minority interest (86,704) Depreciation 83,389 Accrued losses from discontinued operations 1,077,007 Provision for losses on accounts receivable 10,212 Deferred income taxes (183,149) Changes in operating assets and liabilities - Income taxes (12,221) Other current assets 639,508 Other current liabilities (241,101) ---------- ---------- Net cash used by discontinued operating activities (360,376) ---------- ---------- Net cash provided by operating activities 591,480 1,813,223 ========== ==========
The accompanying notes are an integral part of these financial statements. Page 5 8 CLIMAX PORTABLE MACHINE TOOLS, INC.
CONSOLIDATED YEARS ENDED STATEMENTS OF CASH FLOWS - CONTINUED DECEMBER 31, 1997 AND 1996 - ---------------------------------------------------------------------------------------------------- 1997 1996 ----------- ----------- Net cash provided by operating activities 591,480 1,813,223 ----------- ----------- INVESTING ACTIVITIES - CONTINUING OPERATIONS Purchases of machinery and equipment (499,421) (117,517) Additions to building and fixtures (49,649) (32,786) Additions to equipment for self-constructed assets, net of $348,312 and $304,937 transferred to inventory (159,310) (101,424) Proceeds from disposition of equipment 7,216 10,500 Investment in subsidiaries (516,993) Advances to discontinued subsidiary (272,933) Increase in cash value of officers' life insurance (5,932) (11,656) ----------- ----------- Subtotal (1,497,022) (252,883) ----------- ----------- INVESTING ACTIVITIES - DISCONTINUED OPERATIONS Purchases of machinery and equipment (34,744) Proceeds from disposition of equipment 255,000 Advances from parent company 272,933 ----------- ----------- Subtotal 493,189 ----------- ----------- Net cash used by investing activities (1,003,833) (252,883) ----------- ----------- FINANCING ACTIVITIES - CONTINUING OPERATIONS Proceeds from (payments on) bank line of credit, net (65,000) (433,537) Payments on long-term debt (179,720) (144,776) Redemption of common stock (19,998) ----------- ----------- Subtotal (264,718) (578,313) ----------- ----------- FINANCING ACTIVITIES - DISCONTINUED OPERATIONS Proceeds from borrowings on long-term debt 375,318 Payments on long-term debt (431,168) ----------- ----------- Subtotal (55,850) ----------- ----------- Net cash used by financing activities (320,568) (578,313) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (732,921) 982,027 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 1,010,782 28,755 ----------- ----------- TOTAL CASH AND CASH EQUIVALENTS - END OF YEAR 277,861 1,010,782 CASH ATTRIBUTABLE TO DISCONTINUED OPERATIONS (30,684) ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 247,177 $ 1,010,782 =========== ===========
The accompanying notes are an integral part of these financial statements. Page 6 9 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- THE COMPANY Climax Portable Machine Tools, Inc. was incorporated in Oregon in 1966. The Company's principal business is the design and manufacture of transportable metal-cutting machine tools for on-site maintenance and repair purposes in the United States and internationally. Its subsidiaries are Climax International II, Inc. which is a Foreign Sales Corporation incorporated in the U.S. Virgin Islands, Climax Leasing, Inc., and Alsana, Inc., dba Otto Tool. The Company's main offices and manufacturing facilities are located in Newberg, Oregon, with subsidiary facilities in El Dorado Hills, California. The Company also maintains a sales and support office in North Carolina. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Climax Portable Machine Tools, Inc. employs accounting policies that are in accordance with generally accepted accounting principles in the United States of America. The presentation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. BASIS OF PRESENTATION AND CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its 100% owned subsidiaries, Climax International II, Inc. and Climax Leasing, Inc., and its 75% owned subsidiary, Alsana, Inc., dba Otto Tool. Significant intercompany accounts and transactions have been eliminated in consolidation. Effective August 31, 1997, the Company purchased 75% of the outstanding shares of Alsana, Inc., a California company, for a total cost of $1,030,556. Alsana primarily manufactures stainless steel tubing preparation equipment for use by process piping contractors in the construction of semiconductor, pharmaceutical and food processing plants. The results of operations of Alsana, Inc. after August 31, 1997 that were attributable to the minority shareholders were allocated to the 25% minority shareholders until the minority interest in Alsana, Inc.'s shareholders' equity was reduced to zero (Note 9). Goodwill arising from the acquisition of Alsana, Inc. totaled $770,442, which represents the excess of cost over the net book value of the assets of Alsana, Inc. as of August 31, 1997. The carrying value of goodwill was not evaluated for financial impairment due to the subsequent disposal of Alsana and its classification as a discontinued operation (Note 9). Page 7 10 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued INVENTORIES. The parent Company's inventories are stated at the lower of last-in, first-out (LIFO) cost or market. If inventories had been valued using a combination of current average costs and first-in, first-out (FIFO) costs, inventories would have been $357,590 and $358,009 higher than reported at December 31, 1997 and 1996, respectively. Inventories for Alsana, Inc. included in the consolidated financial statements are stated at the lower of first-in, first-out (FIFO) cost or market. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at cost. Depreciation is computed by the declining balance, straight-line and units-of-production methods over the estimated useful or productive lives of the related assets. The Company leases certain equipment under capital leases. The assets and related liabilities are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets at lease inception. Amortization of the assets is included in depreciation expense. UNDEVELOPED LAND. Undeveloped land is stated at its cost of $302,118, and preliminary development costs totaling $15,000 have been capitalized. Interest and other carrying costs are being expensed until final development and construction commences. During 1996, management determined that preliminary development costs, consisting of architects' plans and other costs incurred for future plant expansion, would not provide a future benefit; therefore, $78,404 of these costs were written off. WARRANTY COSTS. The Company provides a warranty against defects in materials and workmanship for one year following the date of sale. Costs of product warranties are charged to cost of goods sold as incurred. Management believes future warranty costs will be incurred at a rate comparable with recent experience. EMPLOYEE SAVINGS PLAN. The Company maintains an Employee Savings Plan (ESP) for the benefit of substantially all eligible employees. Contributions are in the form of salary reductions which participants have elected to defer and the Company has contributed on their behalf. EMPLOYEE STOCK OWNERSHIP PLAN. The Company also maintains an Employee Stock Ownership Plan (ESOP) which covers substantially all eligible employees. The cost of the ESOP is borne by the Company through annual contributions in discretionary amounts determined by the board of directors. These contributions are allocated to the participants' ESOP accounts based on current compensation for the year. For 1997 and 1996, retirement plan contributions were $305,870 and $268,006, respectively. During 1997 and 1996, respectively, the ESOP purchased 475 and 520 shares of the Company's common stock, bringing its total ownership at December 31, 1997 to 7,762 shares with an approximate appraised value of $1,115,399. The Company has the ultimate responsibility to repurchase these shares from terminated ESOP participants, if they are not repurchased by the ESOP itself. The ESOP had receivables and other investments totaling approximately $962,000 that could be available to fund the repurchase of shares from terminated ESOP participants. Page 8 11 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued INCOME TAXES. Income taxes are provided for all items included in the statements of operations regardless of the period when such items are reported for tax purposes. Any tax effect of the temporary differences between financial and income tax reporting is reflected in deferred income taxes in the financial statements. The significant temporary differences reflected in the deferred tax asset are the allowance for doubtful accounts, capitalized inventory adjustments and payroll related accruals. The deferred tax liability results from the use of accelerated depreciation for income tax purposes. The deferred income tax asset related to goodwill, certain inventory adjustments and losses on disposition of operations related to Alsana, Inc. has been offset by a valuation allowance due to the uncertainty of any future tax benefits associated with those items. CASH AND CASH EQUIVALENTS. Cash balances are on deposit with a financial institution; periodically throughout the years ended December 31, 1997 and 1996, the balances exceeded the amounts insured by the Federal Deposit Insurance Corporation. Cash equivalents consists of highly liquid commercial paper with maturities of less than three months when originally purchased. At December 31, 1997 and 1996 the Company had $300,000 and $985,667, respectively, invested in commercial paper. 2. INVENTORY Inventory consists of the following at December 31:
1997 1996 ---------- ---------- Raw materials 136,163 135,147 Finished parts 652,281 796,497 Work in process 244,224 242,641 Finished machines 303,511 256,370 ---------- ---------- 1,336,179 1,430,655 Less: LIFO reserve 357,590 358,009 ---------- ---------- $ 978,589 $1,072,646 ========== ==========
During the years ended December 31, 1997 and 1996, certain items of rental and demonstration equipment which had originally been capitalized, were transferred back from property, plant and equipment to inventory for eventual resale to customers. These transfers were at original cost less accumulated depreciation, and totaled $348,312 and $304,937 for the years ended December 31, 1997 and 1996, respectively. Page 9 12 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- 3. PROPERTY, PLANT AND EQUIPMENT The major categories of property, plant and equipment at year end were as follows:
1997 1996 ----------- ----------- Land and land improvements 97,607 97,607 Building I 750,241 728,391 Building II and fixtures 847,350 819,551 Machinery and equipment (including approximately $255,000 under capital leases - 1997) 3,675,125 3,303,488 Undeveloped land and preliminary development costs 317,118 317,118 Assets leased to customers 230,325 54,903 ----------- ----------- 5,917,766 5,321,058 Less accumulated depreciation (2,977,865) (2,775,438) ----------- ----------- $ 2,939,901 $ 2,545,620 =========== ===========
Depreciation expense was $453,957 and $423,598 for the years ended December 31, 1997 and 1996, respectively. 4. INCOME TAXES The provision for income taxes and accrued income taxes consist of the following:
1997 ------------------------------------- Continuing Discontinued operations operations Total 1996 ---------- ---------- ---------- ---------- Provision for current taxes Federal 382,268 3,882 386,150 189,217 State 60,234 60,234 46,338 ---------- ---------- ---------- ---------- Total current provision 442,502 3,882 446,384 235,555 Deferred income tax expense (benefit) (43,657) (183,149) (226,806) ---------- ---------- ---------- ---------- Total provision (benefit) $ 398,845 $ (179,267) $ 219,578 $ 235,555 ========== ========== ========== ==========
Page 10 13 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - -------------------------------------------------------------------------------- 4. INCOME TAXES - Continued
1997 -------------------------------------- Continuing Discontinued operations operations Total 1996 ---------- ---------- ---------- ---------- Advance payments for current taxes Federal 189,600 9,272 198,872 14,800 State 45,300 45,300 5,739 ---------- ---------- ---------- ---------- $ 234,900 $ 9,272 $ 244,172 $ 20,539 ========== ========== ========== ========== Accrued income taxes Federal 192,668 (5,390) 187,278 174,417 State 14,934 14,934 40,599 ---------- ---------- ---------- ---------- $ 207,602 $ (5,390) $ 202,212 $ 215,016 ========== ========== ========== ==========
Deferred tax assets (liabilities) are comprised of the following at December 31:
1997 1996 -------------------------------------------------- --------------------- Continuing operations Discontinued operations Current Long-term Current Long-term Current Long-term --------- --------- --------- --------- --------- --------- Deferred tax assets Accrued losses of Alsana, Inc. (Note 9(b)) 239,000 Loss on disposition of Alsana, Inc. (Note 9(c)) 174,000 Inventory adjustments 198,000 --------- --------- --------- --------- --------- --------- Subtotal 611,000 Valuation allowance (Note 1) (611,000) --------- --------- --------- --------- --------- --------- Net $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- ========= ========= ========= ========= ========= ========= Receivables 44,137 3,635 19,179 Inventory 43,517 77,587 46,524 Payroll related accruals 48,226 38,432 Property, plant and equipment 10,487 8,324 10,360 Other, net 13,423 --------- --------- --------- --------- --------- --------- Total deferred tax assets 135,880 10,487 3,635 99,334 104,135 10,360 Deferred tax liability Depreciation (46,230) (58,015) --------- --------- --------- --------- --------- --------- Net deferred tax asset (liability) $ 135,880 $ (35,743) $ 3,635 $ 99,334 $ 104,135 $ (47,655) ========= ========= ========= ========= ========= =========
The net total asset for deferred taxes from continuing operations at December 31, 1997 was $100,137, representing an increase of $43,657 from the net total asset for deferred taxes of $56,480 at December 31, 1996. The net total asset for deferred taxes from discontinued operations at December 31, 1997 was $102,969, representing an increase of $183,149 from the net deferred tax liability for Alsana, Inc. of $80,180 as of September 1, 1997. Page 11 14 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- 5. BANK LINE OF CREDIT The bank line of credit consists of an operating line with a maximum commitment of $750,000 ($500,000 - 1996), not to exceed 80% of eligible accounts receivable, which is secured by substantially all of the Company's assets. Interest is variable at the prime rate plus 1.25% (9.75% at December 31, 1997). The balance is repayable on demand, but if no demand is made, any unpaid principal and interest is due at May 31, 1998, when the line of credit is subject to annual review. An additional revolving line of credit was established in 1997 with a maximum commitment of $500,000, for the purchase of fixed assets (mentioned in Note 6), which will convert to a term loan on May 31, 1998. Interest is variable at the prime rate plus 1% (9.5% at December 31, 1997). 6. COMMITMENTS AND CONTINGENCIES (a) The Company has committed to purchase equipment during 1998 in the amount of $344,265, of which $35,358 had been prepaid as of December 31, 1997. (b) Alsana, Inc., dba Otto Tool leases its office and warehouse property from a partnership that is partly owned by one of its minority shareholders under a non-cancelable lease agreement. The lease was signed in September, 1997 for a period of three years. The base monthly lease payment is $7,000, and is subject to annual revision based on fluctuations in the consumer price index. Lease payments for the year ended December 31, 1997 totaled $38,000. Future minimum lease payments approximate the following:
Year ending December 31, ------------------------ 1998 84,000 1999 84,000 2000 56,000 -------- $224,000 ========
(c) Alsana, Inc., dba Otto Tool is a guarantor under an equipment lease agreement of a company that is partly owned by one of its minority shareholders. The total amount of the guarantee approximates $835,000. (d) The Company is a co-defendant in a lawsuit filed by one of its competitors for alleged patent infringement by Alsana, Inc., seeking an undetermined amount of damages. Although the final outcome cannot be determined, management has entered into settlement negotiations and believes that the ultimate cost to the Company, if any, will not be material. Page 12 15 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- 7. LONG-TERM DEBT (a) Long-term debt for continuing operations consists of the following:
1997 1996 ---------- ---------- Note payable to bank, due October 1, 1997, payable in monthly installments of $3,187, including interest at 7.88%, secured by equipment 30,747 Note payable to bank, due April 1, 1999, payable in monthly installments of $790, including interest at 9.23%, secured by equipment 11,185 19,858 Note payable to bank, due October 1, 1999, payable in monthly installments of $4,265, including interest at 9.25%, secured by equipment 83,385 127,984 Note payable to bank, due March 1, 2001, payable in monthly installments of $3,369, including interest at 7.662%, with initial payment due March 1, 1996, secured by equipment 90,076 133,873 Note payable to bank, due April 1, 2001, payable in monthly installments of $5,085, including interest at 8.83%, with a balloon payment of approximately $474,000 due at maturity, secured by Building I 524,369 539,458 Note payable to bank, due April 1, 2005, payable in monthly installments of $4,254, including interest of 9.5%, secured by Building II 432,542 442,696 Amounts due under Alsana Stock Purchase Agreement, $70,322 paid in February, 1998, and balance of $404,557 payable under a promissory note in September, 1999, interest payable monthly at 9.5% per annum 474,879 ---------- ---------- Subtotal 1,616,436 1,294,616 Obligations under capital lease, secured by equipment, payable in monthly installments of $5,450, including imputed interest at 10.05%, due 2001 199,893 ---------- ---------- 1,816,329 1,294,616 Less: Current portion 223,693 143,469 ---------- ---------- $1,592,636 $1,151,147 ========== ==========
Page 13 16 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- 7. LONG-TERM DEBT - Continued Annual maturities of long-term debt for continuing operations after December 31, 1997 are as follows:
1998 223,693 1999 164,381 2000 506,436 2001 536,395 2002 15,100 Thereafter 370,324 ---------- $1,816,329 ==========
(b) The following is a schedule of future minimum lease payments required under the capital lease for continuing operations, together with the present value of the minimum lease payments at December 31, 1997.
Year ending December 31, ------------------------ 1998 59,950 1999 65,400 2000 65,400 2001 49,050 -------- 239,800 Less amount representing interest (39,907) -------- $199,893 ========
(c) Long term debt for discontinued operations consists of the following:
1997 1996 ------- ------- Note payable to minority shareholder of subsidiary, payable in monthly installments of $2,079, including interest at 9.5%, unpaid balance due in full on September 2, 2002 95,057 Note payable to bank, due September 3, 2002, payable in monthly installments of $6,631, including interest at 8.5%, secured by substantially all of Alsana, Inc.'s assets 304,228 Note payable to minority shareholder of subsidiary, payable in monthly installments of interest only at 9.5% until September 1, 1999; thereafter monthly installments of principal and interest are due in the amount of $1,947 249,279 ------- ------- Subtotal 648,564
Page 14 17 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - -------------------------------------------------------------------------------
7. LONG-TERM DEBT - Continued 1997 1996 ---- ---- Balance forward 648,564 Note payable to employee, due July 3, 1998, payable in a balloon Payment on or before that date, along with interest at 9.5% 5,000 -------- -------- Subtotal 653,564 -------- -------- Obligations under capital leases, secured by equipment, payable in the following monthly installments of: $2,977, including imputed interest at 13.68%, due 1998 17,167 $2,869, including imputed interest at 12.87%, due 1998 29,616 $289, including imputed interest at 9.50%, due 1998 2,767 $179, including imputed interest at 9.00%, due 1998 2,847 $1,553, including imputed interest at 17.00%, due 1999 25,712 $1,268, including imputed interest at 10.65%, due 1999 24,201 $2,904, including imputed interest at 14.10%, due 2000 68,955 $544, including imputed interest at 18.98%, due 2000 13,573 $1,783, including imputed interest at 10.94%, due 2001 63,203 -------- -------- 248,041 -------- -------- Subtotal 901,605 Less: Current portion 199,269 -------- -------- $702,336 $ -0- ======== ========
Annual maturities of long-term debt of discontinued operations after December 31, 1997 are as follows:
1998 199,269 1999 161,616 2000 142,633 2001 128,872 2002 97,800 Thereafter 171,415 -------- $901,605 ========
Page 15 18 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - -------------------------------------------------------------------------------- 7. LONG-TERM DEBT - Continued (d) The following is a schedule of future minimum lease payments required under capital leases for discontinued operations, along with the present value of the minimum lease payments at December 31, 1997:
Year ending December 31 ----------------------- 1998 151,083 1999 87,401 2000 36,820 2001 59,539 -------- 334,843 Less amount representing interest (86,802) -------- Present value included in long-term debt $248,041 ========
8. SUBSEQUENT EVENTS (a) On May 21, 1998, the Board of Directors of the Company authorized the purchase of the remaining 25% of the outstanding shares of Alsana, Inc. The total cost for the remaining 25% of the shares was $60,000, of which $25,000 was paid in cash, with the balance represented by a note payable. (b) On May 15, 1998, a subsidiary of the Company entered into a joint venture agreement with Integra Services Technologies, Inc. to form Climax Rental Venture, LLC. The Company accounts for its investment in Climax Rental Venture, LLC under the equity method. (c) Effective as of August 31, 1998, the Company sold 100% of the issued and outstanding capital stock of Alsana, Inc. to a Limited Liability Company consisting of the Company's president/majority shareholder and four other members of the Company's management. (d) Subsequent to December 31, 1997, the shareholders of the Company entered into negotiations for the sale of 100% of the Company's outstanding common stock. Effective as of August 31, 1998, all of the Company's common stock was sold to Team, Inc., of Alvin, Texas. Page 16 19 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- 9. DISCONTINUED OPERATIONS (a) As discussed in Note 8 above, on August 31, 1998 the Company disposed of its wholly owned subsidiary, Alsana, Inc. The results of Alsana, Inc., and the loss on disposal, have been classified as discontinued operations in the accompanying financial statements. Alsana's results for the four month period ended December 31, 1997 were as follows:
Sales, less discounts and allowances of $199,095 411,569 Cost of goods sold (990,760) Selling, general and administrative expenses (255,960) Interest expense, net (31,368) Other income, net 30,238 --------- Loss before income taxes $(836,281) =========
(b) The losses arising from the operations of the discontinued Alsana subsidiary are summarized as follows:
1997 loss before income taxes (Note 9(a)) (836,281) Credit for income taxes (Note 4) 179,267 ----------- Net loss - 1997 (657,014) Loss allocated to the minority interest of Alsana's 25% shareholders 86,704 ----------- Balance of 1997 losses (570,310) Estimated 1998 loss before income taxes (623,904) Credit for income taxes (Note 4) -0- ----------- Losses from operations of Alsana $(1,194,214) ===========
Page 17 20 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- 9. DISCONTINUED OPERATIONS - Continued
(c) The estimated loss on the disposal of Alsana is as follows: Acquisition of Alsana stock 1,090,556 Intercompany loans and advances 941,637 ----------- 2,032,193 Consideration for sale, representing assumption of amounts due to former shareholders of Alsana 439,557 ----------- 1,592,636 Less operating losses already recorded by the Company (Note 9(b)) (1,194,214) ----------- 398,422 Elimination of intercompany profit on equipment sold by Alsana to Climax 53,349 Unamortized organizational costs 1,332 ----------- Estimated loss on disposal $ 453,103 ===========
Potential deferred tax assets arising from the loss on disposal were fully provided against with a valuation allowance, due to their uncertainty (Notes 1, 4). (d) The estimated loss on the disposal of Alsana, Inc. as reflected on the accompanying balance sheet at December 31, 1997 consists of the following:
Accrual of 1998 losses 623,904 Estimated loss on disposal 453,103 ---------- 1,077,007 Goodwill arising from acquisition of Alsana, Inc. and eliminated upon disposal (770,441) ---------- Accrual for estimated losses $ 306,566 ==========
Page 18 21 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 - ------------------------------------------------------------------------------- 9. DISCONTINUED OPERATIONS - Continued (e) The components of the net current assets and net long-term liabilities for discontinued operations included in the accompanying consolidated balance sheet as of December 31, 1997 were as follows:
Net current assets Cash 30,684 Accounts receivable 219,283 Inventory 335,843 Other current assets 8,635 Accounts payable (110,865) Accrued payroll and expenses (45,700) Current portion of long-term debt (199,269) ---------- Net current assets - discontinued operations $ 238,611 ========== Net long-term liabilities Property, plant and equipment, less accumulated depreciation of $708,159 324,145 Deferred income taxes 99,334 Other non-current assets 2,984 Long-term debt, less current portion (702,336) ---------- Net long-term liabilities - discontinued operations $ (275,873) ==========
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION a) Cash paid during the year for interest was $149,603 ($135,483 - 1996). b) Cash paid during the year for taxes was $455,717 ($9,573 - 1996). c) During 1997, in connection with the acquisition of Alsana, Inc. the Company issued a note payable to the selling shareholders in the amount of $404,557, and incurred a contractual obligation of $70,322 as of December 31, 1997. d) As of December 31, 1997, the Company recorded a provision for losses from discontinued operations through August 31, 1998, and a related loss on disposal of Alsana, Inc. (Note 9). Page 19 22 CLIMAX PORTABLE MACHINE TOOLS, INC. Newberg, Oregon CONSOLIDATED BALANCE SHEET JUNE 30, 1998 - ------------------------------------------------------------------------------ (unaudited)
1998 ----------- ASSETS CURRENT ASSETS Cash and cash equivalents 68,102 Accounts receivable, less provision for doubtful accounts of $114,643 1,885,468 Inventory (Note 2) 1,809,907 Other receivables 118,680 Prepaid expenses 148,956 Deferred tax asset 99,520 ---------- Total current assets 4,130,633 PROPERTY, PLANT AND EQUIPMENT (Note 3) Cost, less accumulated depreciation of $3,129,252 3,018,760 OTHER ASSETS Cash surrender value of officers' life insurance 50,642 Other 124,357 ---------- Total assets $7,324,392 ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 394,592 Bank line of credit 830,000 Customer deposits 44,535 Accrued payroll and payroll taxes 427,251 Accrued profit sharing contributions 295,000 Accrued expenses 277,493 Accrued income taxes 21,530 Current portion of long-term debt 229,167 ---------- Total current liabilities 2,519,568 LONG-TERM DEBT Notes payable, less current portion 1,865,690 Other liabilities 55,302 NET LONG-TERM LIABILITIES - discontinued operations (Note 4) 10,539 SHAREHOLDERS' EQUITY 2,873,293 ---------- Total liabilities and shareholders' equity $7,324,392 ==========
The accompanying notes are an integral part of these financial statements. Page 20 23 CLIMAX PORTABLE MACHINE TOOLS, INC. CONSOLIDATED STATEMENT SIX MONTH PERIOD ENDED OF SHAREHOLDERS' EQUITY JUNE 30, 1998 - ------------------------------------------------------------------------------- (unaudited)
1998 ---------- CAPITAL STOCK Common stock, no par value Authorized - 50,000 shares Issued and outstanding - 24,235 94,450 ---------- PAID-IN CAPITAL 10,959 ---------- RETAINED EARNINGS Balance - Beginning of period 2,194,161 Net income (loss) 573,723 ---------- Balance - End of period 2,767,884 ---------- TOTAL SHAREHOLDERS' EQUITY $2,873,293 ==========
The accompanying notes are an integral part of these financial statements. Page 21 24 CLIMAX PORTABLE MACHINE TOOLS, INC. CONSOLIDATED SIX MONTH PERIODS ENDED STATEMENTS OF OPERATIONS JUNE 30,1998 AND 1997 - ------------------------------------------------------------------------------ (unaudited)
1998 1997 ----------- ----------- SALES, less discounts and allowances of $275,944 and $178,555 $ 6,099,425 $ 4,779,151 COST OF GOODS SOLD 2,937,063 2,663,140 ----------- ----------- GROSS PROFIT 3,162,362 2,116,011 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,850,104 1,443,671 ----------- ----------- INCOME FROM OPERATIONS 1,312,258 672,340 ----------- ----------- OTHER EXPENSE Interest expense, net of interest income of $25,767 and $14,983 (116,718) (61,721) Profit sharing contributions ESOP (295,000) (225,000) Research, development and miscellaneous expenses (182,774) (6,922) ----------- ----------- Total other expense (594,492) (293,643) ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 717,766 378,697 PROVISION FOR INCOME TAXES 144,043 142,800 ----------- ----------- INCOME FROM CONTINUING OPERATIONS $ 573,723 $ 235,897 ----------- ----------- DISCONTINUED OPERATIONS Losses from operations from discontinued Alsana subsidiary Estimated loss on disposal -- -- ----------- ----------- -- -- ----------- ----------- NET INCOME $ 573,723 $ 235,897 =========== ===========
The accompanying notes are an integral part of these financial statements. Page 22 25 CLIMAX PORTABLE MACHINE TOOLS, INC. CONSOLIDATED SIX MONTH PERIODS ENDED STATEMENTS OF CASH FLOWS JUNE 30,1998 AND 1997 - ------------------------------------------------------------------------------- (unaudited)
1998 1997 --------- --------- OPERATING ACTIVITIES Net income (loss) 573,723 235,897 Loss from discontinued operations -- -- --------- --------- Income from continuing operations 573,723 235,897 Adjustments to reconcile income from continuing operations to net cash used by continuing operating activities - Depreciation and amortization 284,317 234,445 Gain on disposition of equipment (13,812) -- Provision for losses on accounts receivable -- 1,715 Deferred income taxes 617 21,526 Changes in operating assets and liabilities: Accounts receivable (507,361) (329,115) Inventory (831,318) (122,109) Income taxes (245,700) (189,667) Accounts payable and accrued expenses 527,906 (80,464) Accrued profit sharing contributions (263,182) (200,027) Other assets and liabilities (124,140) 393,210 --------- --------- Net cash used by continuing operating activities (598,950) (34,589) --------- --------- Cash flows from discontinued operations Loss from discontinued operations -- -- Adjustments to reconcile net loss from discontinued operations to net cash used by discontinued operating activities - Depreciation 85,189 -- Accrued losses from discontinued operations (566,375) -- Provision for losses on accounts receivable 45,200 -- Gain on disposition of equipment (65,000) -- Deferred income taxes 102,969 -- Changes in operating assets and liabilities - Current assets 225,475 -- Current liabilities (78,235) -- --------- --------- Net cash used by discontinued operating activities (250,777) -- --------- --------- Net cash used by operating activities (849,727) (34,589) --------- ---------
The accompanying notes are an integral part of these financial statements. Page 23 26 CLIMAX PORTABLE MACHINE TOOLS, INC. CONSOLIDATED SIX MONTH PERIODS ENDED STATEMENTS OF CASH FLOWS - CONTINUED JUNE 30,1998 AND 1997 - ------------------------------------------------------------------------------- (unaudited)
1998 1997 ----------- ----------- Net cash provided by operating activities (849,727) (34,589) INVESTING ACTIVITIES Purchases of machinery and equipment - Continuing operations (273,378) (107,379) Additions to equipment for self-constructed assets (190,793) (104,021) Proceeds from disposition of equipment - Continuing operations 114,867 1,856 Increase in cash value of officers' life insurance (6,000) 4,664 Purchases of machinery and equipment - Discontinued operations (29,167) -- Proceeds from disposition of equipment - Discontinued operations 65,000 -- ----------- ----------- Net cash used by investing activities (319,471) (204,880) FINANCING ACTIVITIES Proceeds from (payments on) bank line of credit, net 830,000 (65,000) Payments on long-term debt - Continuing operations (142,950) (74,560) Redemption of common stock -- (19,998) Proceeds from borrowings on long-term debt - Continuing operations 421,478 -- Payments on long-term debt - Discontinued operations (118,345) -- ----------- ----------- Net cash used by financing activities 990,183 (159,558) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (179,015) (399,027) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 247,117 1,010,782 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 68,102 $ 611,755 =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION a) Cash paid during the period for interest was $103,100 ($61,722 - 1997). b) Cash paid during the period for taxes was $389,074 ($337,569 - 1997). The accompanying notes are an integral part of these financial statements. Page 24 27 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 - ------------------------------------------------------------------------------- 1. GENERAL The interim financial statements are unaudited, but in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report for the fiscal year ended December 31, 1997. 2. INVENTORY Inventory consists of the following at June 30:
1998 ---------- Raw materials 163,974 Finished parts 1,463,072 Work in process 143,117 Finished machines 439,334 ---------- 2,209,497 Less: LIFO reserve 399,590 ---------- $1,809,907 ==========
During the six month period ended June 30, 1998, certain items of rental and demonstration equipment which had originally been capitalized, were transferred back from property, plant and equipment to inventory for eventual resale to customers. These transfers were at original cost less accumulated depreciation, and totaled $190,793 for the six month period ended June 30, 1998. 3. PROPERTY, PLANT AND EQUIPMENT The major categories of property, plant and equipment at six month period end were as follows:
1998 ----------- Land and land improvements 97,607 Building I 750,241 Building II and fixtures 709,186 Machinery and equipment (including approximately $200,248 under capital leases) 4,000,515 Undeveloped land and preliminary development costs 317,118 Assets leased to customers 274,345 ---------- 6,149,012 Less accumulated depreciation (3,130,252) ---------- $3,018,760 ==========
Depreciation expense was $284,315 for the six month period ended June 30, 1998. Page 25 28 CLIMAX PORTABLE MACHINE TOOLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 - ------------------------------------------------------------------------------- 4. DISCONTINUED OPERATIONS On August 31, 1998 the Company disposed of its wholly owned subsidiary, Alsana, Inc. All estimated future losses were accrued for at December 31, 1997. Operating losses during the six month period ended June 30, 1998 were charged against this accrual. A summary of the assets and liabilities of the discontinued operations as of June 30, 1998 follows:
Assets: Current assets $579,944 Property, plant, and equipment 268,123 Other long-term assets 2,984 -------- 851,051 Liabilities: Current liabilities 246,909 Long-term debt 614,681 -------- 861,590 Net liabilities of discontinued operations $ 10,539 ========
Page 26 29 Team, Inc. Pro Forma Consolidated Financial Statements (Unaudited) On August 28, 1998, Team, Inc. ("Team" or the "Company") acquired all of the outstanding capital stock of Climax Portable Machines Tools, Inc., an Oregon corporation ("Climax"), in exchange for cash in the amount of $6,400,000 and 200,000 newly-issued shares of Team's common stock, $0.30 par value per share. In order to finance the acquisition of the Climax Shares, Team closed a credit facility with NationsBank, N.A. of Houston 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. Team terminated the previously existing $10,000,000 revolving credit facility. The following unaudited pro forma consolidated statements of operations for the twelve months ended May 31, 1998 and the three months ended August 31, 1998 give effect to the purchase by the Company of the capital stock of Climax as if the acquisition and related financing occurred on June 1, 1997 (the beginning of fiscal 1998). A pro forma consolidated balance sheet as of August 31, 1998 is not presented as the transaction is already reflected in such balance sheet previously filed by the Company on Form 10-Q. The pro forma financial information is based on the historical consolidated financial statements of the Company and the historical consolidated financial statements of Climax and should be read in conjunction with such financial statements and accompanying notes. Climax's historical statements of income are for the twelve months ended June 30, 1998 and the three months ended August 31, 1998. Net sales and income from continuing operations for the one-month ended June 30, 1998 of $924,000 and $98,000 respectively, have been included in the pro forma results of operations for both the year ended May 31, 1998 and the three months ended August 31, 1998. The purchase method of accounting was used to prepare the pro forma financial statements using estimated fair values of the assets and liabilities of Climax. The purchase accounting adjustments to reflect the fair values of the assets and liabilities of Climax were based on management's evaluation as of this filing date and are subject to change pending final evaluation of the fair values of the assets and liabilities. The pro forma financial information does not purport to be indicative of either a) the results of operations which would have actually been obtained if the acquisition had occurred on the dates indicated, or b) the results of operations which will be reported in the future. -27- 30 TEAM, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 1998 (UNAUDITED)
CLIMAX PORTABLE MACHINE TOOLS, PRO FORMA PRO FORMA TEAM, INC. INC. ADJUSTMENTS CONSOLIDATED ----------- ------------- ----------- ------------ Revenues $ 45,457,000 $ 12,194,000 $ 57,651,000 Operating expenses 25,933,000 5,775,000 (20,000) (1) 31,688,000 Selling, general and administrative expenses 16,610,000 4,882,000 (121,000) (2) 21,371,000 Interest expense 450,000 135,000 460,000 (3) 1,045,000 ----------- ----------- ---------- ----------- Income from continuing operations before income taxes 2,464,000 1,402,000 (319,000) 3,547,000 Provision for income taxes 1,071,000 400,000 (82,000) (4) 1,389,000 ----------- ----------- ---------- ----------- Net income from continuing operations $ 1,393,000 $ 1,002,000 $ (237,000) $ 2,158,000 =========== =========== ========== =========== Net income per common share: Basic $ 0.23 $ 0.35 Diluted $ 0.22 $ 0.34 Weighted average number of shares outstanding: Basic 6,147,000 6,147,000 Diluted 6,312,000 6,312,000
-28- 31 TEAM, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1998 (UNAUDITED)
CLIMAX PORTABLE MACHINE TOOLS, PRO FORMA PRO FORMA TEAM, INC. INC. ADJUSTMENTS CONSOLIDATED ------------ ----------- ----------- ------------ Revenues $ 11,368,000 $ 2,303,000 $ 13,671,000 Operating expenses 6,492,000 1,255,000 (32,000) (1) 7,715,000 Selling, general and administrative expenses 4,241,000 1,123,000 (180,000) (2) 5,184,000 Interest expense 95,000 99,000 50,000 (3) 244,000 ------------ ----------- --------- ------------ Income (loss) from continuing operations before income taxes 540,000 (174,000) 162,000 528,000 Provision (Benefit) for income taxes 248,000 (59,000) 62,000 (4) 251,000 ------------ ----------- --------- ------------ Net income (loss) from continuing operations $ 292,000 $ (115,000) $ 100,000 $ 277,000 ============ =========== ========= ============ Net income per common share: Basic $ 0.04 $ 0.04 Diluted $ 0.04 $ 0.04 Weighted average number of shares outstanding: Basic 7,392,000 7,392,000 Diluted 7,685,000 7,685,000
-29- 32 TEAM, INC NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 1998 AND THE THREE MONTHS ENDED AUGUST 31, 1998 (UNAUDITED) (1) To adjust depreciation expense of Climax from $506,000 to $486,000 for the twelve months ended May 31, 1998 and from $153,000 to $121,000 for the three months ended August 31, 1998, based upon the estimated fair values of the assets over the estimated useful line ranging from 3 to 25 years. (2) To eliminate $200,000 in special bonuses given to key employees and former shareholders in connection with the acquisition, and to record goodwill amortization based on the goodwill resulting from the acquisition on a straight-line basis over a 40-year period. (3) To eliminate Climax's interest expense on debt repaid and record interest expense at 7%, which approximates the interest rate in effect during the periods presented, on the $8.5 million borrowed to finance the purchase of Climax. (4) To record the tax effect of the taxable pro forma adjustments at the statutory rate of 34%. -30- -----END PRIVACY-ENHANCED MESSAGE-----