1 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 FEBRUARY 28, 2001 ---------------------------------------- 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 April 4, 2001, there were 7,826,934 shares of the Registrant's common stock outstanding.
2 TEAM, INC. INDEX <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION Page No. -------- <S> <C> <C> Item 1. Financial Statements Consolidated Condensed Balance Sheets -- 1 February 28, 2001 (Unaudited) and May 31, 2000 Consolidated Condensed Statements of Operations (Unaudited) -- 2 Three Months and Nine Months Ended February 28, 2001 and 2000 Consolidated Condensed Statements of Cash Flows (Unaudited) -- 3 Nine Months Ended February 28, 2001 and 2000 Notes to Unaudited Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis 9 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure 11 about Market Risk PART II. OTHER INFORMATION Item 5. Other information 11 Item 6. Exhibits and Reports on Form 8-K 11 </TABLE>
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS <TABLE> <CAPTION> FEBRUARY 28, MAY 31, ASSETS 2001 2000 ------------ ------------ (Unaudited) <S> <C> <C> Current Assets: Cash and cash equivalents $ 676,000 $ 327,000 Accounts receivable, net of allowance for doubtful accounts of $333,000 and $251,000 13,503,000 13,580,000 Inventories 8,082,000 7,821,000 Prepaid expenses and other current assets 1,046,000 1,017,000 ------------ ------------ Total Current Assets 23,307,000 22,745,000 Property, Plant and Equipment, net of accumulated depreciation of $13,835,000 and $15,076,000 12,063,000 13,249,000 Goodwill, net of accumulated amortization of $579,000 and $373,000 10,410,000 10,616,000 Other Assets 1,427,000 1,878,000 ------------ ------------ Total Assets $ 47,207,000 $ 48,488,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,550,000 $ 1,611,000 Accounts payable 1,750,000 1,979,000 Other accrued liabilities 2,950,000 3,040,000 Income taxes payable 726,000 1,102,000 ------------ ------------ Total Current Liabilities 6,976,000 7,732,000 Long-term debt 14,970,000 15,728,000 Other long-term liabilities 1,637,000 2,060,000 Commitments and Contingencies Stockholders' Equity: Preferred stock, 500,000 shares authorized, none issued Common stock, par value $.30 per share, 30,000,000 shares authorized, 8,285,054 and 8,256,954 shares issued at February 28, 2001 and May 31, 2000, respectively 2,486,000 2,477,000 Additional paid-in capital 32,152,000 32,103,000 Accumulated deficit (9,701,000) (11,488,000) Unearned compensation (10,000) (27,000) Treasury stock at cost, 436,320 and 9,700 shares (1,303,000) (97,000) ------------ ------------ Total Stockholders' Equity 23,624,000 22,968,000 ------------ ------------ Total Liabilities and Stockholders' Equity $ 47,207,000 $ 48,488,000 ============ ============ </TABLE> See notes to unaudited consolidated condensed financial statements. -1-
4 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED FEBRUARY 28(29), FEBRUARY 28(29), ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revenues $ 18,656,000 $ 16,503,000 $ 54,977,000 $ 48,250,000 Operating expenses 11,343,000 9,765,000 33,157,000 27,766,000 ------------ ------------ ------------ ------------ Gross Margin 7,313,000 6,738,000 21,820,000 20,484,000 Selling, general and administrative expenses 6,189,000 5,814,000 18,244,000 18,027,000 Other expense (income), net 82,000 -- (278,000) -- ------------ ------------ ------------ ------------ Earnings before interest and taxes 1,042,000 924,000 3,854,000 2,457,000 Interest 373,000 404,000 1,248,000 1,192,000 ------------ ------------ ------------ ------------ Earnings before income taxes 669,000 520,000 2,606,000 1,265,000 Provision (benefit) for income taxes (8,000) 159,000 820,000 502,000 ------------ ------------ ------------ ------------ Net income $ 677,000 $ 361,000 $ 1,786,000 $ 763,000 ============ ============ ============ ============ Net income per common share: Basic $ 0.09 $ 0.04 $ 0.22 $ 0.09 ============ ============ ============ ============ Diluted $ 0.08 $ 0.04 $ 0.22 $ 0.09 ============ ============ ============ ============ Weighted average number of shares outstanding: Basic 7,893,000 8,247,000 8,167,000 8,235,000 ============ ============ ============ ============ Diluted 8,068,000 8,247,000 8,272,000 8,282,000 ============ ============ ============ ============ </TABLE> See notes to unaudited consolidated condensed financial statements. -2-
5 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> NINE MONTHS ENDED FEBRUARY 28 (29), 2001 2000 ------------ ------------ <S> <C> <C> Cash Flows from Operating Activities: Net income $ 1,786,000 $ 763,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other 2,155,000 2,222,000 Other income (360,000) Allowance for doubtful accounts and other 100,000 Equity in losses of unconsolidated subsidiaries 93,000 Change in assets and liabilities (Increase) decrease: Accounts receivable (90,000) (1,990,000) Inventories (261,000) 896,000 Prepaid expenses and other current assets (29,000) (240,000) Increase (decrease): Accounts payable (229,000) 715,000 Other accrued liabilities (90,000) (640,000) Income taxes payable (376,000) 415,000 ------------ ------------ Net cash provided by operating activities 2,699,000 2,141,000 ------------ ------------ Cash Flows From Investing Activities: Capital expenditures (1,325,000) (1,086,000) Additions to rental and demo machines (464,000) Disposal of property and equipment 1,652,000 49,000 Other 177,000 (947,000) ------------ ------------ Net cash provided by (used in) investing activities 40,000 (1,984,000) ------------ ------------ Cash Flows From Financing Activities: Payments under debt agreements and other long-term obligations (1,475,000) (617,000) Proceeds from issuance of long-term debt 233,000 Repurchase of common stock (1,206,000) Issuance of common stock 58,000 135,000 ------------ ------------ Net cash used in financing activities (2,390,000) (482,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents 349,000 (325,000) Cash and cash equivalents at beginning of year 327,000 1,035,000 ------------ ------------ Cash and cash equivalents at end of period $ 676,000 $ 710,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 1,282,000 $ 1,178,000 ============ ============ Income taxes paid $ 1,203,000 $ 264,000 ============ ============ </TABLE> See notes to unaudited consolidated condensed financial statements. -3-
6 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 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, 2000. New Accounting Standards In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment of FASB No. 133", which effectively delays the application of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133" which amends and supercedes various sections of SFAS No. 133. Management is currently studying SFAS No. 133 and its amendments for their possible impact on the consolidated financial statements when they are adopted in June 2001. 2. Dividends and Stock Repurchases No dividends were paid during the nine months ended February 28, 2001 or 2000. 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. On July 13, 2000, the Board of Directors approved a stock repurchase plan of up to 10% of the outstanding common stock of the Company. Stock repurchases must be made on the open market and are subject to certain regulatory restrictions which, generally, limit the number of shares that can be acquired on a daily basis and limits the price per share that can be paid. As a part of the stock repurchase program, in December 2000, the Company reacquired a 200,000-share block that was part of 650,000 shares of common stock formerly owned by Armstrong International, Inc. All of the Armstrong shares were sold in a privately negotiated transaction between Armstrong, several individual buyers, and Team at a price of $2.81 per share. As of February 28, 2001, 426,620 shares of common stock had been reacquired at an average price of $2.82 per share. The stock repurchase program was suspended in April 2001, as a result of the announcement of a proposed cash tender offer to reacquire an additional 1.2 million shares. (See Part II, Item 5). -4-
7 3. Earnings Per Share There is no significant 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 only 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. 4. Inventories Inventories consists of: <TABLE> <CAPTION> February 28, May 31, 2001 2000 ------------ ----------- <S> <C> <C> Raw materials $ 797,000 $ 947,000 Finished goods and work in progress 7,285,000 6,874,000 ------------ ----------- Total $ 8,082,000 $ 7,821,000 ============ =========== </TABLE> 5. Long-Term Debt Long-term debt consists of: <TABLE> <CAPTION> February 28, May 31, 2001 2000 ------------ ----------- <S> <C> <C> Revolving loan $ 7,020,000 $ 6,620,000 Term and mortgage notes 9,393,000 10,504,000 Capital lease obligations 107,000 215,000 ------------ ----------- 16,520,000 17,339,000 Less current portion 1,550,000 1,611,000 ------------ ----------- Total $ 14,970,000 $15,728,000 ============ =========== </TABLE> Effective November 30, 2000, the maturity date of the revolving loan was extended by one year to September 30, 2002. 6. Other income On November 30, 2000, the Company sold rental property for $1.575 million in cash (net). The property was carried as a corporate asset unrelated to either of the Company's operating segments. The transaction resulted in a gain of $440,000, which is the significant component of other income for the nine months ended February 28, 2001. On February 27, 2001, the Company completed the sale of substantially all of the assets and operations of a small operating subsidiary located in the United Kingdom ("UK"). The loss on disposal of the business of $82 thousand is reflected as a reduction in the line item "other income" for the three months and nine months ended February 28, 2001. The operations of the UK subsidiary were not material to the Company's business. -5-
8 7. Income taxes The UK subsidiary (see note 6) had incurred losses since the early 1990's; however, no tax benefit had been recognized since the utilization of such benefits could not be assured prior to the liquidation of the subsidiary. With the sale of the subsidiary, the Company will be able to effectively utilize the benefit of the losses in its fiscal year 2001 Federal income tax return. Accordingly, a tax benefit of $400,000 was recognized in the three months ended February 28, 2001. Such amount will reduce cash Federal income taxes payable for the fiscal year 2001. 8. Industry Segment Information The Company discloses 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. The Company has two reportable segments: industrial services and equipment sales and rentals. The industrial services segment includes services consisting of leak repair, hot tapping, emissions control monitoring, field machining, and mechanical inspection. The equipment sales and rental segment consists of the Climax business. The Company evaluates performance based on earnings before interest and income taxes. Inter-segment sales are eliminated in the operating measure used by the company to evaluate segment performance and has been eliminated in the following schedule. Interest is not allocated to the segments. -6-
9 8. Industry Segment Information (Continued) THREE MONTHS ENDED FEBRUARY 28, 2001 <TABLE> <CAPTION> Industrial Equipment Corporate Services Sales& Rentals & Other Total ------------ -------------- ------------ ------------ <S> <C> <C> <C> <C> Revenues $ 16,144,000 $ 2,512,000 $ 0 $ 18,656,000 ============ ============== ============ ============ Earnings before interest & taxes 1,864,000 183,000 (1,005,000) 1,042,000 Interest 0 0 373,000 373,000 ------------ -------------- ------------ ------------ Earnings before income taxes 1,864,000 183,000 (1,378,000) 669,000 ============ ============== ============ ============ Depreciation and amortization 414,000 180,000 91,000 685,000 ============ ============== ============ ============ Capital expenditures 240,000 5,000 13,000 258,000 ============ ============== ============ ============ Identifiable assets $ 31,321,000 $ 12,214,000 $ 3,672,000 $ 47,207,000 ============ ============== ============ ============ </TABLE> THREE MONTHS ENDED FEBRUARY 29, 2000 <TABLE> <CAPTION> Industrial Equipment Corporate Services Sales& Rentals & Other Total ------------ -------------- ------------ ------------ <S> <C> <C> <C> <C> Revenues $ 13,806,000 $ 2,697,000 $ 0 $ 16,503,000 ============ ============== ============ ============ Earnings before interest & taxes 1,729,000 194,000 (999,000) 924,000 Interest 0 0 404,000 404,000 ------------ -------------- ------------ ------------ Earnings before income taxes 1,729,000 194,000 (1,403,000) 520,000 ============ ============== ============ ============ Depreciation and amortization 435,000 177,000 99,000 711,000 ============ ============== ============ ============ Capital expenditures 397,000 114,000 0 511,000 ============ ============== ============ ============ Identifiable assets $ 31,385,000 $ 11,473,000 $ 5,790,000 $ 48,648,000 ============ ============== ============ ============ </TABLE> -7-
10 8. Industry Segment Information (continued) NINE MONTHS ENDED FEBRUARY 28, 2001 <TABLE> <CAPTION> Industrial Equipment Corporate Services Sales& Rentals & Other Total ------------ -------------- ------------ ------------ <S> <C> <C> <C> <C> Revenues $ 48,270,000 $ 6,707,000 $ 54,977,000 Earnings before interest & taxes 6,541,000 (274,000) (2,413,000) 3,854,000 Interest -- -- 1,248,000 1,248,000 ------------ -------------- ------------ ------------ Earnings before income taxes 6,541,000 (274,000) (3,661,000) 2,606,000 ============ ============== ============ ============ Depreciation and amortization 1,236,000 586,000 333,000 2,155,000 ============ ============== ============ ============ Capital expenditures 1,160,000 147,000 18,000 1,325,000 ============ ============== ============ ============ Identifiable assets $ 31,321,000 $ 12,214,000 $ 3,672,000 $ 47,207,000 ============ ============== ============ ============ </TABLE> NINE MONTHS ENDED FEBRUARY 29, 2000 <TABLE> <CAPTION> Industrial Equipment Corporate Services Sales& Rentals & Other Total ------------ -------------- ------------ ------------ <S> <C> <C> <C> <C> Revenues $ 40,528,000 $ 7,722,000 $ -- $ 48,250,000 ============ ============== ============ ============ Earnings before interest & taxes 4,985,000 350,000 (2,878,000) 2,457,000 Interest -- -- 1,192,000 1,192,000 ------------ -------------- ------------ ------------ Earnings before income taxes 4,985,000 350,000 (4,070,000) 1,265,000 ============ ============== ============ ============ Depreciation and amortization 1,287,000 637,000 298,000 2,222,000 ============ ============== ============ ============ Capital expenditures 808,000 252,000 26,000 1,086,000 ============ ============== ============ ============ Identifiable assets $ 31,385,000 $ 11,473,000 $ 5,790,000 $ 48,648,000 ============ ============== ============ ============ </TABLE> -8-
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED FEBRUARY 28, 2001 COMPARED TO THREE MONTHS ENDED FEBRUARY 29, 2000 Revenues for the quarter ended February 28, 2001 were $18.7 million compared to $16.5 million for the corresponding period of the preceding year, an increase of 13%. Operating margins (shown as "gross margin" in the Condensed Statements of Operations) declined to 39% in the 2001 quarter compared to 41% in the 2000 quarter and net income increased to $677 thousand, or $0.09 per share as compared to $361 thousand ($0.04 per share) in the 2000 quarter. The industrial services business segment, which represents about 87% of consolidated revenues, continued its strong year over year growth. Services segment revenues were $16.1 million in the 2001 quarter compared to $13.8 million in the 2000 quarter, an increase of 17%. Management believes that the Company's service revenues are related, in part, to the operating margins experienced by its customers--particularly in the refining, pipeline and petrochemical industries. Generally, as those customers' margins improve, more funds are expended for the specialized industrial services offered by the Company. The Company experienced improved demand for its services in the 2001 quarter as compared to the 2000 quarter because of the generally good business conditions of its refining, pipeline and petro-chemical customers. While Industrial Services revenues were up 17%, operating profits for that segment (earnings before interest and taxes) were up by only 8%--$1.9 million in the 2001 quarter versus $1.7 million in the 2000 quarter. Operating profit in the 2001 quarter was negatively impacted by the liquidation of the Company's operating subsidiary in the United Kingdom, which resulted in a pre-tax loss of $161 thousand during the quarter, including $82 thousand (reported on the consolidated statement of earnings as other expense) associated with the loss on disposal of its assets. (The United Kingdom subsidiary was not material to the overall services segment, with revenues of only $115 thousand for the 2001 quarter). Industrial Service Segment operating profit was also negatively impacted in the quarter by cost increases for employee benefits (primarily medical insurance) and generally rising utility costs. The Equipment Sales and Rental Segment (the "Climax" business) reported significantly improved results compared to the first two quarters of the current fiscal year, but was still slightly behind the same quarter of 2000. Revenues were $2.5 million for the quarter compared to $2.7 million for the same quarter of 2000. Operating profit in the 2001 quarter was $183 thousand compared to $194 thousand in the 2000 quarter. Operating margins in the Climax business actually improved over the 2000 levels (45.5% versus 43.5%). That improvement is a result of aggressive efforts to bring cost levels down to existing sales rates. (The operating margin was only 39% for the second quarter of the current fiscal year). While management is pleased with the results of the cost reduction effort that have been realized in the third quarter, the focus is on strengthening sales, which are running below prior year levels. The consolidated results for the 2001 quarter reflect a tax benefit of $8 thousand compared to tax expense of $159 thousand in the 2000 quarter. The current quarter's net tax benefit reflects the recognition of a $400 thousand tax benefit that is associated with the liquidation of the UK subsidiary. This tax benefit will directly reduce cash taxes payable for fiscal year 2001 and arises because of cumulative losses--which had not previously been tax affected-- since the acquisition of the UK company by Team in the early 1990's. (The 2000 quarter's tax expense was also net of a one-time tax benefit of $150 thousand associated with Climax tax refunds relating to pre-acquisition periods). -9-
12 NINE MONTHS ENDED FEBRUARY 28, 2001 COMPARED TO THE NINE MONTHS ENDED FEBRUARY 29, 2000 Revenues for the nine months ended February 28, 2001 were $55.0 million as compared to $48.3 million for the corresponding period of the preceding year, an increase of 14%. Operating margins declined to 40% in the 2001 period compared to 43% in the nine month period ended in 2000. Net income for the nine months of 2001 was $1.8 million ($.22 per share) compared to $763 thousand ($.09 per share) in the 2000 period, an increase of 134%. The growth in revenues is attributable to increased demand in the Services segment, which was offset by declining revenues in the Climax business. For the nine-month period, services segment revenues were $48.3 million, or $7.8 million higher (19%) than the $40.5 million in same period of 2000. For the nine months, revenues from the newest service lines (inspection, field-machining, and technical bolting) were $10.8 million or 34% higher than the previous year. Revenues from the more established service lines were 16% higher than the same period of 2000 ($37.5 million compared to $32.4 million). Overall operating margins for the nine month period in 2001 declined from 2000 percentages for the reasons described in the current and prior quarter's analysis--new service lines earned lower operating margins than the more mature services, operating cost increases in the third quarter, and, for the reasons discussed below, Climax margins were substantially less than 2000. Notwithstanding the reduced margins, the Services segment achieved significant operating leverage on the 19% increase in revenues for the nine months ended February 28, 2001. Operating profit was $6.5 million for the 2001 period compared to $5.0 million in the 2000 period--an increase of 31%. The Climax business has experienced two consecutive quarters of sluggish performance in the first half of the current year, followed by substantially improved results in the third quarter, as discussed above. For the nine months ended February 28 2001, revenues were $6.7 million, or $1 million less than the $7.7 million achieved in the same period of 2000. The 13% reduction in revenues, coupled with higher product costs, resulted in a decline in operating margins from approximately 45% in the 2000 period to 41% in the 2001 period. The combination of falling revenues and margins resulted in an operating loss of $274 thousand in the 2001 period compared to a profit of $350 thousand in the 2000 period. As discussed above, there was a significant turnaround in operating results in the third quarter and management is cautiously optimistic about the near term outlook for this business segment. In the second quarter, of the current year, the Company realized a gain on the sale of real estate of $440 thousand that was unrelated to either of its operating segments. The gain is included in "other income, net" in the consolidated condensed statement of operations. Also included in that line item in the 2001 period is the $82 thousand expense (discussed in the three month analysis) associated with the liquidation of the Company's UK subsidiary. The nine month provision for income taxes of $820 thousand in the 2001 period and $502 thousand in the 2000 period reflects the third quarter recognition of tax benefits discussed in the three month analysis. LIQUIDITY AND CAPITAL RESOURCES At February 28, 2001, the Company's liquid working capital (cash and accounts receivable, less current liabilities) totaled $7.2 million, an increase of approximately $1.0 million since May 31, 2000. The Company utilizes excess operating funds to automatically reduce the amount outstanding under the revolving credit facility. At February 28, 2001, the outstanding balance under the revolving credit facility was $7.0 million and approximately $4.8 million was available to borrow under the facility. As of April 4, 2001, the Company has re-acquired 448,420 thousand shares of its common stock for a total consideration of approximately $1.3 million. Financing of the stock-buy back has come from operating cash flows and the revolving credit facility. On April 4, 2001, the Company announced its intention to make a cash -10-
13 tender offer for up to 1.2 million additional shares at $3.00 per share. The tender is expected to commence near the end of April 2001 and will be financed under the existing credit facility. In the opinion of management, cash flow from operations, cash balances and available borrowings will be sufficient for the foreseeable future to finance anticipated working capital requirements, capital expenditures, debt service requirements, and to finance the proposed cash tender offer to re-acquire shares. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company holds certain floating-rate obligations. The exposure of these obligations to increases 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 nine months of fiscal 2001 in the Company's market risk sensitive instruments. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION A. ANNOUNCEMENT OF PROPOSED CASH TENDER OFFER On April 4, 2001, the Company announced that its Board of Directors has proposed a cash tender offer to purchase up to 1.2 million shares of the Company's common stock at a price of $3.00 per share. Commencement of the tender offer is expected to commence by the end of April 2001 after completion of all regulatory filings and preparation of required information statements. The Company had previously announced a stock repurchase program of up to 10% of its outstanding stock. Pursuant to that program, which has now been suspended as a result of the proposed tender offer, the Company reacquired 448,420 shares on the open market. B. DISCUSSIONS WITH SEC STAFF REGARDING TIMING OF EXPENSE RECOGNITION IN FY 1999. After substantial review and discussions among the Company and the staff of the SEC Division of Corporate Finance, the Company received a notice from the staff on April 11, 2001 requesting that the Company revise previously issued financial statements to change the timing of expense recognition of payments being made to two retired former officers. The issue involves $627,000 of expense accrued by the Company in FY 1999, which represented payments identified in the underlying agreements with the former officers as being for future consulting services. Management believed it was appropriate to expense all future payments to those individuals in the third quarter of FY 1999 because the Company did not intend to utilize the individuals as consultants in the future and there was an oral agreement with them to that effect. The SEC staff has objected to the full accrual of the future payments in FY 1999 because the underlying agreements--which required the former officers to be available for future consulting--provide that all modifications to the agreements must be in writing. The underlying agreements were formally amended to eliminate the consulting requirements in January 2001. The Company has not utilized either of the former officers for consulting services since January 1999. The Company continues to believe that the original timing of expense recognition was appropriate in light of the facts and circumstances, and is continuing to discuss the matter with the SEC staff. In the event that previously issued financial statements are restated, the following would be the effect on previously reported net income and earnings per share for the fiscal years 2000 and 1999 and for the three months and nine months ended February 28, 2001 (A restatement would not impact reported operating results of either of the Company's business segments and would have no impact on the Company's cash flows): <TABLE> <CAPTION> Periods ended Feb. 28, 2001 ------------------------------ Years ended May 31, Three Nine -------------------------- Months Months 2000 1999 ------ ------ ---- ---- <S> <C> <C> <C> <C> Net income, as reported $ 677,000 $1,786,000 $1,484,000 $ 276,000 ========= ========== ========== ========= Effect on net income if restatement required Decrease (increase) in other expenses (312,000) (384,000) (153,000) 537,000 Related deferred tax expense effect 119,000 146,000 58,000 (204,000) Proforma change to net income (193,000) (238,000) (95,000) 333,000 --------- ---------- ---------- --------- Pro-Forma Restated net income $ 484,000 $1,548,000 $1,389,000 $ 609,000 ========= ========== ========== ========= Basic earnings per share, as reported $ 0.09 $ 0.22 $ 0.18 $ 0.04 Pro forma restated basic earnings per share, if restatement required $ 0.07 $ 0.19 $ 0.17 $ 0.08 </TABLE> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) Reports on Form 8-K No reports on Form 8-K were filed this quarter. -11-
14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. TEAM, INC (Registrant) Date: April 16, 2001 /s/ PHILIP J. HAWK ----------------------------------------------- Philip J. Hawk Chief Executive Officer and Director /s/ TED W. OWEN ----------------------------------------------- Ted W. Owen, Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) -12-