1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-16284
NATIONAL TECHTEAM, INC.
-------------------------
(Name of issuer in its charter)
DELAWARE 38-2774613
--------- -------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
27335 W. 11 Mile Road, Southfield, MI 48034
--------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 357-2866
--------------
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.
[X] Yes [ ] No
The number of shares of the registrant's only class of common stock
outstanding at July 31, 2001 was 10,595,673.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS
COULD DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS DESCRIBED IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 2000 PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
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NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
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PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Statements of Operations (Unaudited) 3
Three and Six Months Ended
June 30, 2001 and 2000
Condensed Consolidated Statements of Financial Position (Unaudited) 4 - 5
June 30, 2001 and December 31, 2000
Condensed Consolidated Statements of Cash Flows (Unaudited) 6
Six Months Ended
June 30, 2001 and 2000
Notes to the Condensed Consolidated Financial Statements - June 30, 2000 (Unaudited) 7 - 9
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 12
PART II - OTHER INFORMATION
ITEM 1.
Legal Proceedings 13
ITEM 4.
Submission of Matters to a Vote of Security Holders 13
ITEM 5.
Other Information 13 - 14
ITEM 6.
Exhibits and Reports on Form 8-K 14
Signatures 14
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PART 1 -- FINANCIAL INFORMATION
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
ITEM 1 -- FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- --------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES
Corporate Services
Corporate help desk services.................. $ 12,373 $ 12,446 $ 25,262 $ 24,534
Technical staffing............................ 3,645 4,573 8,013 9,028
Systems integration........................... 1,441 2,655 3,110 6,074
Training programs............................. 603 953 1,320 1,772
-------------- --------------- -------------- --------------
Total Corporate Services......................... 18,062 20,627 37,705 41,408
-------------- --------------- -------------- --------------
OEM Call Center Services......................... 104 3,716 228 8,581
Leasing Operations............................... 5,355 8,616 11,102 14,947
-------------- --------------- -------------- --------------
TOTAL REVENUES....................................... 23,521 32,959 49,035 64,936
COST OF SERVICES DELIVERED........................... 18,024 24,843 37,591 50,544
-------------- --------------- -------------- --------------
GROSS PROFIT......................................... 5,497 8,116 11,444 14,392
-------------- --------------- -------------- --------------
OTHER EXPENSES
Selling, general and administrative.............. 5,810 5,567 11,060 10,823
Michigan Single Business Tax and other........... 210 200 510 375
-------------- --------------- -------------- --------------
TOTAL OTHER EXPENSES................................. 6,020 5,767 11,570 11,198
-------------- --------------- -------------- --------------
Operating income (loss).............................. (523) 2,349 (126) 3,194
-------------- --------------- -------------- --------------
Interest income...................................... 298 153 646 313
Interest expense..................................... 184 430 428 797
Loss on disposal of assets........................... 254 - 254 -
-------------- --------------- -------------- --------------
NET OTHER EXPENSE.................................... 140 277 36 484
-------------- --------------- -------------- --------------
Income (loss) before income taxes................... (663) 2,072 (162) 2,710
Income tax expense................................... 250 961 526 1,258
-------------- --------------- -------------- --------------
NET INCOME (LOSS).................................... $ (913) $ 1,111 $ (688) $ 1,452
============== =============== ============== ==============
BASIC AND DILUTED EARNINGS PER SHARE................. $ (0.09) $ 0.08 $ (0.07) $ 0.11
============== =============== ============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Basic............................................ 10,543 13,188 10,530 13,164
Net effect of dilutive stock options............. - - - -
-------------- --------------- -------------- --------------
Diluted.......................................... 10,543 13,188 10,530 13,177
============== =============== ============== ==============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS), AS SET FORTH ABOVE................ $ (913) $ 1,111 $ (688) $ 1,452
Foreign currency translation adjustments............. (49) (15) (201) (68)
-------------- --------------- -------------- --------------
COMPREHENSIVE INCOME (LOSS).......................... $ (962) $ 1,096 $ (889) $ 1,384
============== =============== ============== ==============
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
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JUNE 30, DECEMBER 31,
ASSETS 2001 2000
------------------------------------------------------------------------ -------------------- --------------------
(IN THOUSANDS)
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 19,577 $ 15,995
Securities available for sale...................................... 7,110 2,725
Accounts receivable (less allowances of $423 at
June 30, 2001 and $313 at December 31, 2000).................... 18,615 18,937
Refundable taxes................................................... 472 859
Inventories........................................................ 346 238
Prepaid expenses and other......................................... 889 1,883
Deferred income tax................................................ 348 348
-------------------- --------------------
47,357 40,985
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PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Computer Equipment and office furniture............................ 16,058 16,528
Purchased software................................................. 8,655 8,035
Leasehold improvements............................................. 2,591 2,668
Transportation equipment........................................... 239 240
-------------------- --------------------
27,543 27,471
Less -- Accumulated depreciation and amortization.................. 18,869 18,151
-------------------- --------------------
8,674 9,320
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OTHER ASSETS
Assets of leasing operations, net of amortization.................. 27,889 41,209
Intangibles (less accumulated amortization of $16,174 at
June 30, 2001 and $14,894 at December 31, 2000)................. 4,012 5,297
Deferred income tax................................................ 1,689 1,689
Loans receivable................................................... 210 1,008
Other.............................................................. 1,235 1,266
-------------------- --------------------
35,035 50,469
-------------------- --------------------
TOTAL ASSETS........................................................... $ 91,066 $ 100,774
==================== ====================
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
(UNAUDITED)
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JUNE 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
------------------------------------------------------------------------ -------------------- --------------------
(IN THOUSANDS)
CURRENT LIABILITIES
Accounts payable................................................... $ 1,002 $ 3,417
Accrued payroll, related taxes and withholdings.................... 2,143 3,217
Deferred revenues.................................................. 561 264
Accrued expenses and taxes......................................... 530 681
Current portion of notes payable................................... 7,555 9,790
Other.............................................................. 410 471
-------------------- --------------------
12,201 17,840
-------------------- --------------------
LONG-TERM DEBT......................................................... 1,864 4,817
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01, 5,000,000 shares authorized,
none issued
Common stock, par value $ .01, 45,000,000 shares authorized,
issued -- 16,723,000 shares at
June 30, 2001 and December 31, 2000............................. 167 167
Additional paid-in capital......................................... 109,153 110,011
Retained earnings.................................................. 3,729 4,417
Accumulated other comprehensive loss - foreign currency
translation adjustment..................................... (319) (118)
-------------------- --------------------
112,730 114,477
Less -- Treasury stock (6,145,629 and 6,041,755 shares
at June 30, 2001 and December 31, 2000, respectively)........... 35,729 36,360
-------------------- --------------------
Total shareholders' equity......................................... 77,001 78,117
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 91,066 $ 100,774
==================== ====================
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
----------------------------------------
2001 2000
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(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)................................................. $ (688) $ 1,452
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization............................... 11,865 13,186
Treasury stock contributed to 401(k) plan and other......... 365 419
Changes in operating assets and liabilities................. (1,462) 798
------------------ ------------------
Net cash provided by operating activities...................... 10,080 15,855
------------------ ------------------
INVESTING ACTIVITIES
Purchase of securities available-for-sale......................... (4,385) -
(Purchase) disposal of leased equipment, net...................... 2,181 (11,545)
Net change in investment in direct financing leases and residuals. 2,143 (907)
Purchase of property, equipment and software, net................. (1,284) (2,321)
Other ............................................................ 828 (953)
------------------ ------------------
Net cash used in investing activities.......................... (517) (15,726)
------------------ ------------------
FINANCING ACTIVITIES
Proceeds (payments) on notes payable, net......................... (5,188) 163
Purchase of Company common stock.................................. (609) (1,827)
Proceeds from issuance of common stock............................ - 26
Other............................................................. (184) (67)
------------------ ------------------
Net cash used in financing activities.......................... (5,981) (1,705)
------------------ ------------------
Increase (decrease) in cash and cash equivalents............... 3,582 (1,576)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 15,995 14,192
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 19,577 $ 12,616
================== ==================
See accompanying notes.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited consolidated financial statements have been prepared
by National TechTeam, Inc. ("TechTeam" or "Company") in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company and
Subsidiaries' annual report on Form 10-K for the year ended December 31, 2000.
Certain reclassifications have been made to the 2000 financial statements in
order to conform to the 2001 financial statement presentation.
NOTE A -- EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consist of stock options and are calculated using the treasury stock method.
NOTE B -- REVENUES FROM MAJOR CLIENTS
Revenues from clients which represented ten percent or more of total revenue are
as follows:
-----------------------------------------------------------------------------------------------------------------------------------
2001 2000
---- ----
AMOUNT PERCENT OF AMOUNT PERCENT OF
TOTAL TOTAL
---------------------------------------------------------------------------------
(IN THOUSANDS)
Three months ended
June 30
-------
Ford Motor Company ............................. $ 9,880 42.0% $10,365 31.4%
DaimlerChrysler ................................ 4,273 18.2% 5,557 16.9%
GE TechTeam, L.P. .............................. -- -- % 3,716 11.3%
Six months ended
June 30
-------
Ford Motor Company ............................. $20,385 41.6% $19,303 29.7%
DaimlerChrysler ................................ 9,025 18.4% 11,757 18.1%
GE TechTeam, L.P. .............................. -- -- % 8,581 13.2%
NOTE C -- LEGAL PROCEEDINGS
Refer to Part II, Item 1 for a description of legal proceedings.
NOTE D -- STOCK REPURCHASES
In May 2000, the Company announced a stock repurchase program to repurchase up
to 2,000,000 shares of common stock. In October 2000, the Company extended this
program to repurchase an additional 2,000,000 shares. During 2000 the Company
repurchased 2,790,450 shares for $9,069,000 under this program. For the six
month period ended June 30, 2001, the Company repurchased 229,000 shares for
$609,000 under this program.
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E -- SEGMENT REPORTING
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CORPORATE SERVICES
---------------------------------------------------------------
CORPORATE OEM CALL
HELP DESK TECHNICAL SYSTEMS TRAINING CENTER LEASING
SERVICES STAFFING INTEGRATION PROGRAMS TOTAL SERVICES OPERATIONS TOTAL
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
Three months ended
June 30, 2001
-------------
Revenues............ $ 12,373 $ 3,645 $ 1,441 $ 603 $ 18,062 $ 104 $ 5,355 $ 23,521
Gross profit........ 3,931 558 541 89 5,119 45 333 5,497
Depreciation and
amortization....
517 105 3 20 645 - 4,291 4,936
Expenditures for
property........
397 81 3 - 481 - - 481
Three months ended
June 30, 2000
-------------
Revenues............ $ 12,446 $ 4,573 $ 2,655 $ 953 $ 20,627 $ 3,716 $ 8,616 $ 32,959
Gross profit........ 3,920 527 1,047 166 5,660 98 2,358 8,116
Depreciation and
amortization.... 316 159 28 38 541 67 5,224 5,832
Expenditures for
property........
138 9 5 - 152 - - 152
Six months ended
June 30, 2001
-------------
Revenues............ $ 25,262 $ 8,013 $ 3,110 $ 1,320 $ 37,705 $ 228 $ 11,102 $ 49,035
Gross profit........ 7,707 1,409 1,128 174 10,418 102 924 11,444
Depreciation and
amortization.... 1,026 211 7 44 1,288 - 8,939 10,227
Expenditures for
property........
765 148 5 - 918 - - 918
Six months ended
June 30, 2000
-------------
Revenues............ $ 24,534 $ 9,028 $ 6,074 $ 1,772 $ 41,408 $ 8,581 $ 14,947 $ 64,936
Gross profit........ 7,468 1,246 1,479 218 10,411 263 3,718 14,392
Depreciation and
amortization.... 510 231 35 51 827 134 10,195 11,156
Expenditures for
property........
1,252 623 7 - 1,882 - - 1,882
Segment Assets
--------------
June 30, 2001 $ 15,756 $ 4,216 $ 1,313 $ 740 $ 22,025 $ - $ 32,954 $ 54,979
December 31, 2000 12,090 4,439 2,501 1,049 20,079 1,049 45,732 66,860
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NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E -- SEGMENT REPORTING (continued)
A reconciliation of the totals reported for the operating segments to the
applicable line item in the consolidated financial statements is as follows:
--------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
---------------------------------
2001 2000
--------------- ---------------
(IN THOUSANDS)
Depreciation and amortization
Total for reportable segments................. $ 10,227 $ 11,156
Corporate assets.............................. 1,638 2,030
--------------- ---------------
Total depreciation and amortization........ $ 11,865 $ 13,186
=============== ===============
JUNE 30, DECEMBER 31,
2001 2000
--------------- ---------------
(IN THOUSANDS)
Assets
Total assets for reportable segments.......... $ 54,979 $ 66,860
Corporate assets.............................. 36,087 33,914
--------------- ---------------
Total assets............................... $ 91,066 $ 100,774
=============== ===============
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain of the statements contained in this report that are not historical facts
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Our actual results may differ materially from those
included in the forward-looking statements. We caution readers not to place
undue reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. We do not undertake an obligation to revise
or publicly release the results of any revisions to these forward-looking
statements. You should carefully review the risk factors described in other
documents the Company files from time to time with the SEC, including the Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
OVERVIEW
NATIONAL TECHTEAM, INC. ("TechTeam" or "Company") is a provider of technology
and knowledge management support solutions and services to Fortune 1000,
multinational companies and governments worldwide. The core services provided by
TechTeam are its integrated help desk support services. TechTeam also provides
technical staffing, systems integration, and training services. TechTeam
provides these support services in Europe through its subsidiaries, TechTeam
Europe, NV/Sa; TechTeam Europe, Ltd.; and TechTeam Europe, GmbH.
CORPORATE SERVICES
TechTeam's Corporate Services primarily consist of corporate help desk services,
technical staffing, systems integration, and training programs.
HELP DESK SERVICES
TechTeam provides customized help desk solutions, which provide corporate end
users with around-the-clock technical support provided either from the client's
facilities or from TechTeam's help desk sites. TechTeam supports the full range
of a client's IT infrastructure, from network environments to computing systems,
and shrink-wrap to advanced proprietary and acquired application systems.
TechTeam follows a "single point of contact" (SPOC) model to enable corporations
to consolidate their incident resolution support functions into one centralized
help desk. TechTeam's technicians are specially trained in the customer's
products and applications to diagnose problems and answer technical questions.
The Company's technicians answer questions and diagnose technical problems
ranging from simple error messages to wide area network failures. If the
technician is not able to resolve the problem with the end user over the phone,
the call is escalated to the appropriate resource to solve the problem.
In line with its focus on help desk solutions, the Company has developed an
integrated, Internet-based, help desk technology tool, called TechTeam's Support
Portal. From the Support Portal web site, an individual seeking support may
access a knowledgebase to obtain a solution to their problem, use self-healing
software to solve the problem, submit a problem for resolution to a support
technician, or check the status of their help desk incident. TechTeam's
proprietary call tracking tool, the Global Call Center, has been integrated with
robust knowledge management and solution products licensed from Broadbase
Software, Inc. and Motive Communications, Inc. TechTeam's customer management is
able to access detailed performance reports and other management tools. The
Company believes that the Support Portal's knowledge management, data analytics,
computer diagnostics and tracking technology will help to increase the Company's
efficiency in providing support, improve the end user's experience with the help
desk, and enable TechTeam's customers to benefit from lower cost and improved
efficiency of their users.
The Company has deployed the technology internally, and is currently in the
process of deploying the Support Portal to certain of its existing customers.
The Support Portal is an important part of its help desk solutions provided to
new customers, and in its sales efforts.
The Company operates major help desks in the United States from its Southfield,
Michigan and Davenport, Iowa locations. From its facility in Brussels, Belgium,
TechTeam provides multi-lingual help desk support for its customers in as many
as 12 languages. TechTeam also provides these services from its customers'
sites.
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TECHNICAL STAFFING
The Company maintains a staff of trained technical personnel to provide computer
and technical support to its clients at the clients' facilities. The Company
recruits a technically proficient employee base. TechTeam enhances its
employees' proficiency by providing access to extensive technical training
programs. Training in new Internet technology, in advanced operating systems
like Windows NT and Unix, and sophisticated applications such as SAP and
PeopleSoft, allows TechTeam to provide its clients with highly skilled
professionals, trained and certified in the latest technology.
SYSTEMS INTEGRATION
TechTeam provides systems integration and implementation services from project
planning and management, to full-scale network server and workstation
installations. TechTeam performs a wide range of maintenance services to the
client ranging from desk-side support to network monitoring.
TRAINING
The Company provides custom training and documentation solutions that include a
wide spectrum of options including computer based training, distance learning,
course catalogs, instructional design consultants, customized course materials,
certified trainers, evaluation options, desk-side tutorials, and custom reports.
OEM SERVICES AND EQUIPMENT LEASING
In August 2000, TechTeam sold its interest in GE TechTeam LP to GE Warranty
Management, Inc. As a result of this sale, TechTeam provided personnel to the
new ownership through December 31, 2000, when TechTeam's employees providing OEM
support through GE TechTeam LP were transitioned to the new owner. TechTeam
continues to look in the OEM industry for business opportunities.
TechTeam Capital Group, L.L.C. (Capital Group) previously wrote leases for
computer, telecommunications, and other types of capital equipment, with initial
lease terms ranging from 2 to 5 years. Effective March 31, 2000, TechTeam
restructured Capital Group. At that time, the majority of the Capital Group
staff was terminated, and Capital Group ceased looking for new leasing
opportunities. Capital Group is currently running out its lease portfolio. With
the exception of renewals, the portfolio will run off in approximately three
years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000
Revenues decreased 29% to $23.5 million from $33.0 million. The decrease
resulted from revenue decreases in OEM Call Center Services of $3.6 million,
system integration revenues of $1.2 million, and leasing operations revenue of
$3.3 million. OEM Call Center revenues were down due to the Company selling its
interest in the GE Joint Venture as previously announced and ceasing to provide
personnel services to the new owner of the Joint Venture as of year ended 2000.
Systems integration revenues decreased due to a reduction in computer upgrades
and installation work at a major automotive client as well as the completion of
systems work at two smaller customers in 2000. Leasing revenues decreased due to
the Company's decision to cease looking for new leasing opportunities as well as
gains from lease residual interest of $1.3 million in the second quarter of
2000, which did not take place in 2001. Technical staffing revenues also
decreased by $1.0 million due to the Company's two major automotive customers
making cuts in subcontracted staffing to reduce their cost structure. Corporate
help desk services remained consistent at $12.4 million in revenues.
Gross profit as a percentage of sales decreased to 23.4% from 24.6%. The
decrease was primarily due to the gains or (losses) from lease residuals ($0.3)
million in 2001 compared to a gain of $1.3 million in 2000. This decrease was
offset by the nonrecurrence of low margin OEM Call Center Services provided to
the GE Joint Venture and overall improvement in the margins on Corporate
Services revenues.
Selling, General and Administrative expenses were $5.8 million compared to $5.6
million in 2000. The $5.8 million in 2001 includes a net settlement of $370,000
related to earnout and release agreements with former officers of TechTeam
Capital Group and severance payments of $120,000 that were paid to
administrative employees
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terminated during the second quarter. In addition, a $165,000 write down was
taken due to the Company's decision to cease making payments on insurance
contracts for a former officer of the Company. Without these costs, selling,
general and administrative costs would have decreased by approximately $400,000
for the quarter.
Interest expense decreased due to less debt related to leasing operations.
Interest income increased due to an improved cash position, which resulted from
the Company's decision to no longer underwrite new lease business.
Loss on disposal of assets includes $167,000 related to the write off of an
equity interest in a Company acquired in 1999 and $87,000 due to the closing of
a call center office in Michigan.
The Company's effective tax rate differs from the statutory tax rate due to
nondeductible goodwill amortization.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000
Revenues decreased 24.5% to $49.0 million from $64.9 million. The decrease
resulted from revenue decreases in OEM Call Center Services of $8.4 million,
system integration revenues of $3.0 million, leasing operations revenue of $3.8
million, and technical staffing revenues of $1.0 million. OEM Call Center
revenues were down due to the Company selling its interest in the GE Joint
Venture and ceasing to provide personnel services to the new owner of the Joint
Venture in 2000. Systems integration revenues decreased due to a reduction in
computer upgrade and installation work at a major automotive client as well as
the completion of systems work at two smaller customers in 2000. Leasing
revenues decreased due to the Company's decision to cease looking for new
leasing opportunities. Technical staffing revenues decreased due to the
Company's two major automotive customers making cuts in subcontracted staffing
to reduce their cost structure.
Gross profit increased as a percentage of sales to 23.3% from 22.2%. The
increase was due to the non-recurrence of low margin OEM call center services
provided to the GE Joint Venture offset by the impact of the change in net gains
or (losses) from lease residuals of $1.3 million in 2000 and ($0.3) million in
2001.
Selling, General and Administrative expenses were comparable for the six month
period at $11.1 million in 2001 and $10.8 million in 2000.
Interest expense decreased due to less debt related to leasing operations.
Interest income increased due to an improved cash position, which resulted from
the Company's decision to no longer underwrite new lease business.
The Company's effective tax rate differs from the statutory tax rate due to
nondeductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided from Operations
Cash flow provided from operating activities was $10.1 million for the six
months ended June 30, 2001. Cash flow provided was primarily due to $11.9
million of non-cash depreciation and amortization expense mainly related to the
leasing operations, offset by a net cash decrease of $1.5 million due to changes
in operating assets and liabilities and a net operating loss of $0.7 million.
Cash Flow Used by Investing Activities
Cash flow used by investing activities was $0.5 million. The Company used $4.4
million to purchase investments and $1.3 million to purchase assets to be used
on help desk service projects which was offset by $4.3 million received from the
sale of assets used in leasing operations.
Cash Flow Used in Financing Activities
Cash flow used in financing activities was $6.0 million. The Company used $5.2
million to pay down debt related to leasing operations and $0.6 million to
repurchase Company stock in accordance with the stock repurchase program (see
notes to the financial statements for more discussion on the stock repurchase
program).
The Company's working capital position at June 30, 2001 was $35.2 million
compared to $23.1 million at December 31, 2000. The Company believes that cash
flows from operations will continue to be sufficient to meet its ongoing working
capital needs.
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PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is a party to legal proceedings, which are routine and incidental
to its business. Although the consequences of these proceedings are not
presently determinable, in the opinion of management, they will not have a
material adverse affect on the Company's liquidity, financial position or
results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 9, 2001. The holders
of 9,832,181 shares were present in person or by proxy, representing attendance
by at least 85% of the outstanding shares. The following is a summary of the
matters voted on at that meeting.
(a) The following persons were elected to the Company's Board of
Directors. The number of shares cast in favor and withheld were as
follows:
Name For Withheld
--------- --------
Kim A. Cooper 9,753,545 78,636
Peter T. Kross 9,751,701 80,480
Kenneth G. Meade 9,753,688 78,493
Wallace D. Riley 9,749,238 82,943
Richard G. Somerlott 9,750,485 81,696
Gregory C. Smith 9,749,135 83,046
M. Anthony Tam 9,748,410 83,771
Ronald T. Wong 9,748,863 83,318
(b) Ratification of Ernst & Young as independent auditors:
For Withheld
--------- --------
9,777,569 54,612
ITEM 5. OTHER INFORMATION
On August 9, 2001, the Board of Directors of the Company removed M. Anthony Tam
as the Company's President and Chief Executive Officer and replaced him with
William F. Coyro, Jr. Dr. Coyro will report directly to the Company's Chairman
of the Board, Wallace D. Riley. Mr. Tam remains as a director of the Company.
Dr. Coyro, age 58, founded the Company in 1987. For the past eighteen months,
Dr. Coyro has been an employee of the Company performing special projects for
the Board of Directors. Prior to such time, he served as Chairman of the Board
and President and Chief Executive Officer of the Company from its inception
through February 2000 and December 1998, respectively. The Company and Dr. Coyro
are currently negotiating the terms of an appropriate employment agreement.
Effective June 24, 2001, the Board of Directors appointed Jean F. Delpy, C.F.A.
as the Company's Chief Financial Officer to replace Mr. Tam, whose term expired
at such time. Mr. Delpy, age 42, joined the Company in May 2000 as Director of
Finance and Planning, and he has also served as the Company's Treasurer since
June 2000. Prior to joining the Company, Mr. Delpy was C.F.O. at Libralter
Engineered Plastics Systems, an OEM supplier of engineered plastic components to
the automotive industry, from January 1998 through April 2000. He also served as
a financial consultant at Watson Wyatt from January 1997 through 1998. Prior to
that time, he held various positions, including director of Corporate Finance at
ARINC, Inc. Corp. from April 1989 through December 1997.
A copy of the Company's press release, dated August 13, 2001, announcing the
foregoing management changes is filed as Exhibit 10.20 to this Quarterly Report
on Form 10-Q.
SHAREHOLDER PROPOSALS OR NOMINATIONS
In accordance with the Company's Bylaws, any shareholder proposal or nomination
of a person for election to the Board of Directors must be submitted in writing
to the Secretary of the Company not less than 90 nor more than 120 days in
advance of the date specified in the Company's proxy statement in connection
with the previous year's Annual Meeting of shareholders. The submission must
include certain specified information concerning the proposal or nominee, as the
case may be, and information about the proponent's ownership of the Company's
common stock.
Proposals or nominations not meeting these requirements will not be entertained
at the Annual Meeting. A proponent should contact the Secretary regarding the
proper form and content of submissions.
CHANGE OF CONTROL AGREEMENTS
In the 2nd quarter, the Company entered into Change of Control Agreements with
13 of its management group including M. Anthony Tam, President and CEO, Douglas
H. Tayler, V.P. of Sales and Marketing and Jeffrey J. Ruffini, V.P. of
Operations. Among other things, these agreements provide 1 year salary payments
to these
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individuals in the event of their employment termination as a result of a Change
of Control of the Board of Directors or sale of substantially all of the
Company's assets. The potential cost of these agreements for Executive
Management listed in the 2001 Proxy is approximately $550,000. See Item 6a.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.19 Employment Agreement Relating to Change of Control.
10.20 Second quarter press release
(b) Reports on Form 8-K. No reports were filed during the quarter ended June
30, 2001.
ITEMS 2 AND 3 ARE NOT APPLICABLE AND HAVE BEEN OMITTED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National TechTeam, Inc.
------------------------
(Registrant)
Date: 8/14/01 By: /s/ William F. Coyro Jr.
----------------------------
William F. Coyro Jr.
President and Chief Executive
Officer
Date: 8/14/01 By: /s/ Kenneth G. Shelton
--------------------------
Kenneth G. Shelton
Controller
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Exhibit Index
Exhibit No. Description
10.19 Employment Agreement Relating to Change or Control.
10.20 Second quarter press release