1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended NOVEMBER 30, 1997 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 1-9950 TEAM, INC. --------------------------------------- (Exact name of registrant as specified in its charter) Texas 74-1765729 - ---------------------------- ---------------- (State or other jurisdiction (I.R.S. Employer of incorporation Identification Number) or organization) 1019 South Hood Street, Alvin, Texas 77511 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (281) 331-6154 -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- On January 8, 1997, there were 6,047,342 shares of the Registrant's common stock outstanding.
2 TEAM, INC. INDEX <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION Page No. -------- <S> <C> Item 1. Financial Statements Consolidated Balance Sheets -- 3 November 30, 1997 and May 31, 1997 Consolidated Statements of Earnings -- 4 Three Months Ended November 30, 1997 and 1996 Six Months Ended November 30, 1997 and 1996 Consolidated Statements of Cash Flows -- 5 Six Months Ended November 30, 1997 and 1996 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis 6 of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 8 Item 6. Exhibits and Reports on Form 8-K 9 </TABLE>
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TEAM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> November 30, May 31, 1997 1997 --------------- --------------- ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents $ 932,000 $ 1,672,000 Accounts receivable, net of allowance for doubtful accounts of $60,000 and $61,000 8,991,000 7,211,000 Materials and supplies 6,317,000 6,310,000 Prepaid expenses and other current assets 898,000 820,000 --------------- --------------- Total Current Assets 17,138,000 16,013,000 Property, Plant and Equipment: Land and buildings 6,570,000 6,526,000 Machinery and equipment 10,797,000 11,292,000 --------------- --------------- 17,367,000 17,818,000 Less accumulated depreciation and amortization 11,646,000 12,010,000 --------------- --------------- 5,721,000 5,808,000 Other Assets 2,106,000 2,247,000 --------------- --------------- $ 24,965,000 $ 24,068,000 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 324,000 $ 300,000 Accounts payable 1,097,000 740,000 Other accrued liabilities 3,320,000 3,298,000 Current income taxes payable 91,000 166,000 --------------- --------------- Total Current Liabilities 4,832,000 4,504,000 Long-term Debt and Other Obligations 5,434,000 7,601,000 Stockholders' Equity: Preferred stock, cumulative, par value $100 per share, 500,000 shares authorized, none issued -- -- Common stock, par value $.30 per share, 10,000,000 shares authorized, 6,035,042 and 5,259,542 shares issued at 1,811,000 1,578,000 November 30, 1997 and May 31, 1997, respectively Additional paid-in capital 26,991,000 25,123,000 Accumulated deficit (14,006,000) (14,641,000) Treasury stock at cost, 9,700 shares (97,000) (97,000) --------------- --------------- 14,699,000 11,963,000 --------------- --------------- $ 24,965,000 $ 24,068,000 =============== =============== </TABLE> See notes to consolidated financial statements 3
4 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS <TABLE> <CAPTION> Three Months Ended Six Months Ended November 30, November 30, ---------------------------------- --------------------------------- 1997 1996 1997 1996 -------------- -------------- -------------- -------------- <S> <C> <C> <C> <C> Revenues $ 11,717,000 $ 11,271,000 $ 21,946,000 $ 21,426,000 Operating expenses 6,587,000 6,261,000 12,639,000 11,976,000 Selling, general and administrative expenses 4,215,000 4,221,000 7,998,000 8,393,000 Interest 104,000 228,000 235,000 473,000 -------------- -------------- -------------- -------------- Earnings from continuing operations before income taxes 811,000 561,000 1,074,000 584,000 Provision for income taxes 283,000 251,000 439,000 265,000 -------------- -------------- -------------- -------------- Earnings from continuing operations, net of income taxes 528,000 310,000 635,000 319,000 Earnings from Military Housing projects discontinued operations, net -- -- -- 182,000 Estimated loss on sale of Military Housing projects discontinued operations, net -- -- -- (181,000) -------------- -------------- -------------- -------------- Net earnings $ 528,000 $ 310,000 $ 635,000 $ 320,000 ============== ============== ============== ============== Net earnings per common share: Net earnings from continuing operations $ 0.09 $ 0.06 $ 0.11 $ 0.06 Net earnings from Military Housing projects discontinued operations -- -- -- 0.04 Net estimated loss on sale of Military Housing projects discontinued operations -- -- -- (0.04) -------------- -------------- -------------- -------------- Net earnings $ 0.09 $ 0.06 $ 0.11 $ 0.06 ============== ============== ============== ============== Weighted average number of shares outstanding 6,167,000 5,160,000 5,979,000 5,160,000 ============== ============== ============== ============== </TABLE> See notes to consolidated financial statements 4
5 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> SIX MONTHS ENDED NOVEMBER 30, ------------------------------------ 1997 1996 --------------- --------------- <S> <C> <C> Cash Flows From Operating Activities: Net earnings $ 635,000 $ 320,000 Earnings from discontinued operations -- (1,000) --------------- --------------- Net earnings from continuing operations 635,000 319,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 721,000 723,000 Noncurrent deferred income taxes 349,000 -- Gain on sale of assets -- (21,000) Change in assets and liabilities: (Increase) decrease: Accounts receivable (1,780,000) 196,000 Materials and supplies (7,000) (160,000) Prepaid expenses and other assets (78,000) 83,000 Increase (decrease): Accounts payable 357,000 325,000 Other accrued liabilities 22,000 (137,000) Income taxes payable (75,000) 41,000 --------------- --------------- Net cash provided by continuing operating activities 144,000 1,369,000 Cash Flows From Discontinued Operations: Earnings from discontinued operations -- 1,000 Depreciation -- 729,000 Decrease in current assets -- 221,000 Increase in current liabilities -- 148,000 --------------- --------------- Net cash provided by discontinued operations -- 1,099,000 --------------- --------------- Net cash provided by operating activities 144,000 2,468,000 Cash Flows From Investing Activities: Capital expenditures (541,000) (916,000) Disposal of property and equipment 5,000 183,000 Decrease (increase) in other assets (122,000) 205,000 --------------- --------------- Net cash used in investing activities (658,000) (528,000) Cash Flows From Financing Activities: Payments under debt agreements and capital lease obligations - continuing (2,327,000) (1,437,000) Payments under debt agreements - discontinued -- (510,000) Issuance of common stock 2,101,000 -- --------------- --------------- Net cash used in financing activities (226,000) (1,947,000) --------------- --------------- Net decrease in cash and cash equivalents (740,000) (7,000) Cash and cash equivalents at beginning of year 1,672,000 2,037,000 --------------- --------------- Cash and cash equivalents at end of period $ 932,000 $ 2,030,000 =============== =============== Supplemental disclosure of cash flow information: Cash paid during the period for interest: Operating $ 268,000 $ 480,000 Discontinued -- 1,648,000 --------------- --------------- $ 268,000 $ 2,128,000 =============== =============== Income taxes paid $ 167,000 $ 10,000 =============== =============== Income taxes refunded $ -- $ 4,000 =============== =============== </TABLE> See notes to consolidated financial statements 5
6 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Method of Presentation General The interim financial statements are unaudited, but in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report for the fiscal year ended May 31, 1997. 2. Dividends No dividends were paid during the first six months of fiscal 1998 or 1997. Pursuant to the Company's Credit Agreement, the Company may not pay quarterly dividends without the consent of its senior lender. Future dividend payments will depend upon the Company's financial condition and other relevant matters. 3. Other Subsequent to the end of the second quarter, the Company extended its bank credit agreement. The revised agreement provides a $10,000,000 line of credit and the term was extended one year to December 31, 1999. The amount available for borrowings at the end of the quarter was $5.3 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 1996 For the three-month period ended November 30, 1997, revenues were $11.7 million, a 4 percent improvement over revenues of $11.3 million reported in the same period of the prior fiscal year. Three of the Company's five service lines - - hot tapping, concrete repair and energy management services - showed sales gains during the quarter while leak repair and emissions control services had revenue declines. Gross margins were stable at 44 percent when comparing quarters. Selling, general and administrative expenses for the current quarter showed modest improvement over the same period of the prior fiscal year. Interest expense of $104,000 in the second quarter of fiscal 1998 6
7 was 54 percent lower than in the same period of the prior year due to reduced average borrowing levels. Pre-tax earnings of $811,000 for the second quarter increased from 1997 second quarter pre-tax earnings of $561,000 as a result of increased revenues and reduced interest costs. Six Months Ended November 30, 1997 Compared to Six Months Ended November 30, 1996 For the six-month period ended November 30, 1997, revenues totaled $21.9 million, 2 percent higher than revenues of $21.4 million reported in the same period last year. The increase in revenues was primarily due to significantly improved sales in the Company's hot tapping service line as well as improved sales in concrete repair and energy management services. This improvement was somewhat offset by declines in emissions control and leak repair services revenue. Although our emissions control revenues are off from the prior year, management believes the market is stabilizing; and with our technology driven productivity increases, this product line has become more profitable. The leak repair revenue decline is due primarily to increased customer turnaround activity which limits the opportunities for leak repair services. Gross margins declined from 44 percent to 42 percent for the first six months of fiscal 1997 due to increases in operating expenses. Ordinary compensation and insurance expenses were factors in the increase. Selling, general and administrative expenses of $8.0 million for the first six months were $395,000 or 5 percent lower than in the prior year. The continuing impact of cost reduction programs previously implemented has resulted in lower personnel and general expense. Interest expense of $235,000 in the first six months of fiscal 1998 was 50 percent lower than in the same period of 1997 due to reduced borrowing levels. Pre-tax earnings of $1.07 million for the first six months increased from pre-tax earnings of $584,000 as a result of reduced interest and selling, general and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES At November 30, 1997, the Company's working capital totaled $12.3 million, an increase of approximately $800,000 from working capital of $11.5 million at May 31, 1997. The Company has been able to finance its working capital requirements through its internally generated cash flow. As of November 30, 1997, cash and cash equivalents totaled $932,000, decreasing $740,000 in the first six months of the current fiscal year. This cash decrease resulted mainly from $658,000 used in the Company's investing activities, $226,000 used in the Company's financing activities offset by $144,000 provided by the Company's operating activities. See "Consolidated Statements of Cash Flows" for additional detail. Management expects that capital expenditures which are intended to provide for normal replacement of assets and new assets to support planned growth will approximate $1.5 million for fiscal 1998. All planned capital expenditures are discretionary and will be made based on available funds. 7
8 The Company's current and long-term debt and other obligations were $5.8 million compared to $7.9 million at May 31, 1997. Of this amount, $2.5 million was owed to the Company's primary bank lender. The company paid down the revolving line of credit in the amount of $2.0 million during the first six months. Subsequent to the end of the second quarter, the Company extended its bank credit agreement. The revised agreement provides a $10,000,000 line of credit with the term extended one year to December 31, 1999. The amount available for borrowings at the end of the quarter was $5.3 million. As previously reported, the Company completed the sale of 650,000 shares of Team's common stock for $3.00 per share to Armstrong International, Inc. in a private placement transaction. Armstrong then owned approximately 10 percent of the Company's outstanding common shares on a fully diluted basis. Proceeds from the sale were used to reduce the Company's long-term debt. The Company also entered into an Alliance Agreement with Armstrong to provide certain specialized energy management and other industrial services to new and shared customers. It is anticipated that this strategic alliance will result in a Team-Armstrong joint venture in China. Also, as previously reported, the Company signed a letter of intent with Wescon, S.A. of Singapore to provide leak sealing and hot tapping services in Singapore, Malaysia, Indonesia and Brunei. The Company's management anticipates finalizing the joint venture agreement with Wescon, S.A. and commencing operations before the end of the fiscal year. In addition, in the first quarter the Company signed a letter of intent for the potential sale of newly issued common stock to Wingate Partners, L.P. at $3.125 per share representing 50 percent of Team's issued and outstanding shares. This transaction is contingent upon the negotiation and consummation of a mutually acceptable business acquisition. It is expected that the proceeds of such a stock sale to Wingate would be used for the purchase consideration for such a business acquisition. The Company has extended this letter of intent with Wingate Partners through June 1998. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1997 Annual Meeting of Shareholders of the Company was held on October 30, 1997. At the meeting, Messrs. Jack M. Johnson, Jr. and E. Theodore Laborde were reelected to serve as Class II Directors for a term of three years. The votes with respect to the election of each such director were as follows: <TABLE> <CAPTION> NAME FOR WITHHELD ---- --- -------- <S> <C> <C> Mr. Jack M. Johnson, Jr. 4,591,659 197,675 Mr. E. Theodore Laborde 4,540,689 248,645 </TABLE> The three directors continuing in office until the expiration of their respective terms are Messrs. William A. Ryan, Sidney B. Williams and George W. Harrison. 8
9 The shareholders also approved the appointment of Deloitte & Touche as independent certified public accountants to audit the Company's accounts for the fiscal year ending May 31, 1998 by the following vote: <TABLE> <CAPTION> FOR AGAINST ABSTAIN --- ------- ------- <S> <C> <C> 4,671,972 88,472 28,890 </TABLE> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K There were no Form 8-K Reports filed during the quarter ended November 30, 1997. 9
10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. TEAM, INC. (Registrant) Date: January 13, 1998 /s/WILLIAM A. RYAN ---------------------------------------- William A. Ryan, Chairman of the Board, President and Chief Executive Officer /s/MARGIE E. ROGERS ---------------------------------------- Margie E. Rogers, Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer
11 EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION - ------ ----------- <S> <C> Ex-27 Financial Data Schedule </TABLE>