UNITED STATES
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: March 31, 2002
|_| 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 West 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 April 30, 2002 was 10,913,764.
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, 2001 PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
1
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)
Three Months Ended March 31, 2002 and 2001 3
Condensed Consolidated Statements of Financial Position (Unaudited)
March 31, 2002 and December 31, 2001 4 - 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
March 31, 2002 and 2001 6
Notes to the Condensed Consolidated Financial Statements (Unaudited) 7 - 9
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13
PART II -- OTHER INFORMATION
ITEM 1.
Legal Proceedings 13
ITEM 6.
Exhibits and Reports on Form 8-K 13
Signatures 14
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2
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
---------------------------------
2002 2001
--------------- ---------------
(In thousands,
except per share
data)
REVENUES
Corporate Services
Corporate help desk services............................................. $ 14,419 $ 13,013
Technical staffing....................................................... 2,808 4,368
Systems integration...................................................... 2,235 1,669
Training programs........................................................ 276 717
-------------- --------------
Total Corporate Services.................................................... 19,738 19,767
Leasing Operations.......................................................... 3,209 5,747
-------------- --------------
TOTAL REVENUES.................................................................. 22,947 25,514
COST OF SERVICES DELIVERED...................................................... 17,793 19,567
-------------- --------------
GROSS PROFIT.................................................................... 5,154 5,947
-------------- --------------
OTHER EXPENSES
Selling, general, and administrative........................................ 3,890 5,250
Michigan Single Business Tax................................................ 225 300
-------------- --------------
TOTAL OTHER EXPENSES............................................................ 4,115 5,550
-------------- --------------
OPERATING INCOME................................................................ 1,039 397
Interest income................................................................. 205 348
Interest expense................................................................ (70) (244)
-------------- --------------
NET INTEREST INCOME............................................................. 135 104
-------------- --------------
Income before income taxes...................................................... 1,174 501
Income tax expense.............................................................. 532 276
-------------- --------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE............................ $ 642 $ 225
Cumulative effect of accounting change -- Note E................................ (1,123) --
-------------- --------------
NET INCOME (LOSS)............................................................... $ (481) $ 225
============== ==============
BASIC AND DILUTED EARNINGS PER SHARE $ .06 $ .02
Income before cumulative effect of accounting change............................ (.10) --
Cumulative effect of accounting change ......................................... -------------- --------------
Basic and Diluted earnings (loss) per share .................................... $ (.04) $ .02
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Basic....................................................................... 10,903 10,702
Net effect of dilutive stock options........................................ 57 --
-------------- --------------
Diluted..................................................................... 10,960 10,702
============== ==============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------------------------------------------
NET INCOME, AS SET FORTH ABOVE.................................................. $ (481) $ 225
Foreign currency translation adjustments........................................ (97) (152)
-------------- ---------------
COMPREHENSIVE INCOME (LOSS)..................................................... $ (578) $ 73
============== ===============
3
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
ASSETS 2002 2001
--------------------------------------------------------------------------------- --------------- ---------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................................... $ 29,903 $ 30,251
Marketable Securities....................................................... 8,276 5,321
Accounts receivable (less allowances of $328 at March 31, 2002
and $433 at December 31, 2001)........................................... 18,262 17,721
Refundable taxes............................................................ 2,181 2,693
Inventories................................................................. 878 304
Prepaid expenses and other.................................................. 727 1,281
Deferred income tax......................................................... 1,230 1,230
--------------- ---------------
Total current assets........................................................ 61,457 58,801
--------------- ---------------
PROPERTY, EQUIPMENT, AND PURCHASED SOFTWARE
Computer equipment and office furniture..................................... 16,721 16,125
Purchased software.......................................................... 8,875 8,610
Leasehold improvements...................................................... 3,277 3,096
Transportation equipment.................................................... 213 213
--------------- ---------------
29,086 28,044
Less -- Accumulated depreciation and amortization........................... 20,131 19,371
--------------- ---------------
8,955 8,673
--------------- ---------------
OTHER ASSETS
Assets of leasing operations, net of amortization........................... 11,337 15,705
Intangibles (less accumulated amortization of $16,280 at
March 31, 2002 and $14,938 at December 31, 2001)......................... 2,090 3,432
Loans receivable............................................................ 64 77
Deferred income tax......................................................... 276 276
Other....................................................................... 157 157
--------------- ---------------
13,924 19,647
--------------- ---------------
TOTAL ASSETS.................................................................... $ 84,336 $ 87,121
=============== ===============
See accompanying notes.
4
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2002 2001
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------- -------------- --------------
(In thousands)
CURRENT LIABILITIES
Accounts payable........................................................... $ 1,019 $ 1,981
Accrued payroll, related taxes and withholdings............................ 3,436 2,762
Accrued expenses and taxes................................................. 1,011 1,097
Current portion of notes payable........................................... 3,112 4,605
Deferred revenues.......................................................... 1,094 1,184
Other...................................................................... 2 117
-------------- --------------
Total current liabilities.................................................. 9,674 11,746
-------------- --------------
LONG-TERM LIABILITIES.......................................................... 588 805
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01, 5,000,000 shares authorized, none issued
Common stock, par value $.01, 45,000,000 shares authorized,
16,723,000 shares issued at
March 31, 2002 and December 31, 2001.................................... 167 167
Additional paid-in capital................................................. 108,106 108,212
Retained earnings.......................................................... 358 839
Accumulated other comprehensive loss -- foreign currency translation
adjustment.............................................................. (325) (227)
------------- -------------
108,306 108,991
Less -- Treasury stock (5,809,236 and 5,828,374 shares at March 31, 2002
and December 31, 2001, respectively).................................... 34,232 34,421
------------- -------------
Total shareholders' equity................................................. 74,074 74,570
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................... $ 84,336 $ 87,121
============= =============
See accompanying notes.
5
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
--------------------------------
2002 2001
-------------- --------------
(In thousands)
OPERATING ACTIVITIES
Income before cumulative effect of accounting change....................... $ 642 $ 225
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization........................................ 3,746 6,133
Treasury stock contributed to 401(k) plan and other.................. 83 177
Changes in current assets and liabilities............................ (629) (1,124)
------------- -------------
Net cash provided by operating activities............................... 3,842 5,411
------------- -------------
INVESTING ACTIVITIES
Purchase of marketable securities.......................................... (2,955) (3,715)
Disposal of leased equipment............................................... 1,424 142
Purchase of property, equipment and software, net.......................... (1,066) (640)
Decrease in investment in direct financing leases and residuals............ 216 1,087
Other...................................................................... (23) 35
------------- -------------
Net cash used in investing activities................................... (2,404) (3,091)
------------- -------------
FINANCING ACTIVITIES
Payments on notes payable, net............................................. (1,689) (2,851)
Purchase of Company common stock........................................... -- (609)
Other...................................................................... (97) (143)
-------------- --------------
Net cash used in financing activities................................... (1,786) (3,603)
------------- -------------
Decrease in cash and cash equivalents................................... (348) (1,283)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................... 30,251 15,995
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................................... $ 29,903 $ 14,712
============= =============
See accompanying notes.
6
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
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 three-month period ended March 31, 2002 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2002. 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, 2001.
Certain reclassifications have been made to the 2001 financial statements in
order to conform to the 2002 financial statement presentation.
NOTE A -- EARNINGS PER SHARE
Earnings per share is 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 that represented ten percent or more of total revenue are
as follows:
-----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
2002 2001
--------------------------------- ---------------------------------
(In thousands)
PERCENT OF
PERCENT OF AMOUNT TOTAL
AMOUNT TOTAL
--------------- ---------------- --------------- ---------------
Ford Motor Company.......................... $ 11,117 48.5 % $ 10,505 41.1%
DaimlerChrysler............................. 3,426 14.9 % 4,752 18.6%
NOTE C -- LEGAL PROCEEDINGS
Refer to Part II, Item 1 for a description of legal proceedings.
7
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D -- SEGMENT REPORTING
------------------------------------------------------------------------------------------------------------------------
CORPORATE SERVICES
-----------------------------------------------------------------
CORPORATE TECHNICAL SYSTEMS TRAINING LEASING
HELP DESK STAFFING INTEGRATION PROGRAMS TOTAL OPERATIONS TOTAL
SERVICES
------------ ------------ ----------- ------------ ------------ ----------- ------------
(In thousands)
Three months ended
March 31, 2002
--------------------------
Revenues................. $ 14,419 $ 2,808 $ 2,235 $ 276 $ 19,738 $ 3,209 $ 22,947
Gross profit............. 3,907 357 591 67 4,922 232 5,154
Depreciation and
amortization......... 686 7 3 2 698 2,733 3,431
Expenditures for
property............. 723 8 3 -- 734 -- 734
Three months ended
March 31, 2001
--------------------------
Revenues................. $ 13,013 $ 4,368 $ 1,669 $ 717 $ 19,767 $ 5,747 $ 25,514
Gross profit (loss)...... 3,833 851 587 85 5,356 591 5,947
Depreciation and
amortization......... 509 106 4 24 643 4,648 5,291
Expenditures for
property............. 368 67 2 -- 437 -- 437
Segment Assets
--------------------------
March 31, 2002........... $ 17,069 $ 2,212 $ 1,736 $ 226 $ 21,243 $ 15,403 $ 36,646
December 31, 2001........ 14,575 2,307 2,803 518 20,203 19,647 39,850
-------------------------------------------------------------------
GEOGRAPHIC INFORMATION
--------------------------------------------------------------------
REVENUE ASSETS
--------------------------------- --------------------------------
THREE MONTHS ENDED MARCH 31, MARCH 31, DECEMBER 31,
--------------------------------- --------------- ---------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
(In thousands)
United States................................... $ 19,175 $ 22,504 $ 77,964 $ 81,676
European........................................ 3,772 3,010 6,372 5,445
--------------- --------------- --------------- ---------------
Total........................................... $ 22,947 $ 25,514 $ 84,336 $ 87,121
=============== =============== =============== ===============
8
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D -- SEGMENT REPORTING (continued)
A reconciliation of the totals reported for the operating segments to the
applicable line item in the consolidated financial statements are as follows:
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2002 2001
--------------- ---------------
(In thousands)
Depreciation and amortization
Total for reportable segments.............................................. $ 3,431 $ 5,291
Corporate assets........................................................... 315 842
--------------- ---------------
Total depreciation and amortization..................................... $ 3,746 $ 6,133
=============== ===============
-------------- --------------
MARCH 31, DECEMBER 31,
2002 2001
--------------- ---------------
(In thousands)
Assets
Total assets for reportable segments....................................... $ 36,646 $ 39,850
Corporate assets........................................................... 47,690 47,271
--------------- ---------------
Total assets............................................................ $ 84,336 $ 87,121
=============== ===============
NOTE E -- EFFECTS OF ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets."
Under Statement 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually for impairment, or more frequently if
impairment indicators arise. Separable intangible assets that have finite lives
will continue to be amortized over their useful lives. In the fourth quarter of
2001, TechTeam announced that $1.1 million of goodwill related to leasing
operations would become impaired after adoption of SFAS 142. As of January 1,
2002 the Company adopted SFAS 142. Accordingly, the Company has taken a charge
of $1.1 million in the first quarter of 2002. Under SFAS 142, the charge
recognized upon adoption of the statement is reported as the cumulative effect
of an accounting change. Reported income and earnings per share adjusted to
exclude goodwill amortization is as follows:
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2002 2001
---------------------------------
(In thousands)
Reported income before cumulative effect of accounting change.................. $ 642 $ 225
Add back goodwill amortization................................................. -- 284
--------------- ---------------
Adjusted income before cumulative effect of accounting change.................. $ 642 $ 509
=============== ===============
Basic and diluted earnings per share:
Income before cumulative effect of accounting change as reported........... $ 0.06 $ 0.02
Goodwill amortization ..................................................... -- 0.03
--------------- ---------------
Income before cumulative effect of accounting change as adjusted........... $ 0.06 $ 0.05
=============== ===============
9
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 year ended December 31, 2001.
OVERVIEW
NATIONAL TECHTEAM, INC. ("TechTeam" or "Company") is a global provider of
information technology and business process outsourcing support services to
entities, including Fortune 1000 companies, multinational companies, product
providers, and governments. These services are provided with a single point of
contact philosophy centralized on TechTeam's help desk support services.
TechTeam also offers other services, including technology deployment and
migration services, consulting, systems integration, training, and technical
staffing. TechTeam provides support services in Europe through its subsidiaries:
TechTeam Europe, NV/SA; TechTeam Europe, Ltd.; TechTeam Europe, GmbH, and
TechTeam Europe AB.
National TechTeam is incorporated under the laws of the State of Delaware. The
Company's common stock is traded on the Nasdaq Stock Market under the symbol
"TEAM". TechTeam's client base includes Ford Motor Company, DaimlerChrysler,
Deere & Company, Cendant Corporation, Liberty Mutual Insurance Company,
Schering-Plough Research Institute, and other companies in the manufacturing,
office equipment, insurance, logistics, hospitality, food service and retail
industries, among others.
CORPORATE SERVICES
TechTeam's Corporate Services primarily consist of technical help desk services,
technical staffing, systems integration, and training programs, integrated to
provide total and flexible solutions for its customers.
HELP DESK SERVICES
TechTeam's help desk solutions provide corporate end users with around-the-clock
technical support from the client's facilities or from TechTeam's help desk
sites. TechTeam supports the full range of a client's IT and business process
infrastructure, from network environments to computing systems, and shrink-wrap
to advanced proprietary and acquired application systems. TechTeam's flexibility
and business processes enable it to tailor its delivery to meet the needs of
supporting the customer's IT environment, including proprietary business
applications.
TechTeam follows a "single point of contact" (SPOC) model to enable the customer
to consolidate its incident resolution support functions into a 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 application features and functionality to wide area network failures. If
the technician is not able to resolve the problem with the end user, the call is
escalated to the appropriate resource to solve the problem. Data collected by
TechTeam technicians show trends in IT usage and trouble spots. TechTeam
implements advanced data analytics to identify the cause(s) of problem areas.
From this analysis, TechTeam offers to its clients improvement opportunities.
As end users often want different channels of communications to resolve problems
other than the telephone, the Company has invested in and developed an
integrated, Internet-enabled, help desk technology tool, called TechTeam's
Support Portal. From the Support Portal web site, an individual seeking support
may access a knowledge base to obtain solutions to problems, submit a problem
for resolution to a support technician, or check the status of a help desk
incident. TechTeam's incident management tool, the Global Call Center, has been
integrated with knowledge management and solution products licensed from a
number of leading software vendors. TechTeam's
10
customer management section of the portal provides the customer with access to
detailed performance reports and other management tools. The Support Portal's
knowledge management, data analytics, computer diagnostics and tracking
technology are designed to help 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.
TechTeam has deployed the Support Portal technology internally and with many of
its existing customers. The technology has improved the efficiency of the
TechTeam's service delivery. The Support Portal is an important part of the
Company's help desk solutions.
The Company operates major help desks in the United States from its Southfield
and Dearborn, Michigan and Davenport, Iowa locations. From its facility in
Brussels, Belgium, TechTeam has the capability to provide multilingual help desk
support for its customers in as many as 20 languages. TechTeam also provides
help desk services from many of its customers' sites.
TECHNICAL STAFFING
The Company maintains a staff of trained technical personnel to provide IT and
business process support to its clients at their facilities. The Company
recruits a technically proficient employee base. TechTeam enhances its
employees' proficiency by providing access to its technical training programs.
Training in new technology, in advanced operating systems like Windows 2000, XP
and Unix, and in sophisticated applications such as SAP and PeopleSoft, allows
TechTeam to provide its clients with highly skilled professionals trained and
certified in the latest technology.
Further, the technical staffing business helps TechTeam to provide its employees
with a diverse career path. As help desk technicians learn technology and use
the Company's internal training programs, they can be migrated to technical
staffing positions where they can increase their compensation and knowledge,
while the Company retains its most valuable resources. TechTeam considers its
career pathing program to be a competitive advantage relative to other staffing
and help desk service providers and an excellent tool to prevent employee
turnover.
SYSTEMS INTEGRATION
TechTeam provides systems integration, technology deployment and implementation
services from project planning and management, to full-scale network server and
workstation installations. TechTeam offers a wide range of information
technology services for the client, ranging from desk-side support to network
monitoring. Through it's TechTeam Cyntergy, L.L.C. subsidiary, the Company
offers deployment, training and implementation services to entities in
hospitality, retail and food service industries throughout the United States.
TRAINING
TechTeam provides custom training and documentation solutions that include a
wide spectrum of options including computer-based training (CBT), distance
learning, course catalogs, registration, instructional design consultants,
customized course materials, certified trainers, evaluation options, desk-side
tutorials, and custom reports. The Company provides customized training programs
for many of its customers' proprietary applications.
EQUIPMENT LEASING
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 actively looking for new leasing
opportunities. Capital Group is currently running out its lease portfolio. With
the exception of renewals of existing leases, the portfolio will run off in
approximately one year. The Company cannot predict how many lease renewals it
will receive or for how long they will be in effect.
11
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO MARCH 31, 2001
Income Statement
Revenues decreased $2.6 million or 10% from $25.5 million in the first quarter
of 2001, to $22.9 million, in the first quarter of 2002. The decrease was
primarily due to decreases in revenues from the Leasing Operations of $2.5
million, Technical Staffing of $1.6 million and Training of $0.4 million which
were in part offset by revenue increases in Systems Integration of $0.6 million
and Corporate Help Desk services of $1.4 million. Leasing Operations decreased
due to the Company's decision to cease looking for new leasing opportunities.
Technical Staffing revenues decreased, in large part, due to the Company's two
major automotive customers cuts in their subcontracted technical staff and
"across-the-board" price reductions for the staff that remained engaged and
reductions in the Company's Non-automotive staffing businesses including the ERP
technical staffing business. Training revenues decreased primarily due to the
discontinuance of the Company's training contract with Sun Microsystems, Inc.
and a reduction in services provided to one of the Company's major automotive
customers. System Integration revenues increased due to work for new customers
acquired in the Cyntergy transaction finalized in the third quarter of 2001.
Corporate Help Desk revenues increased principally due to increased business
with one of the Company's major automotive customers in both the US and Europe,
and the acquisition of help desk businesses supporting the hospitality, retail
and food service industries resulting from the Cyntergy transaction.
Gross Margin as a percentage of sales decreased from 23.3% in the first quarter
of 2001, to 22.5% in the first quarter of 2002, or $0.8 million, from $5.9
million in the first quarter of 2001 to $5.1 million in the first quarter of
2002. Overall, the decrease in margin can be attributed to both a decrease in
business segment margin, which accounts for $0.2 million of the total decrease,
and a reduction in revenues, which accounts for $0.6 million of the total
decrease. By segment, the margin decrease in the leasing operations accounted
for $0.4 million of the total gross margin decrease, due evenly from a reduction
in lower margins and lower revenues. The margin decrease in the technical
staffing business accounted for $0.5 million of the total decrease, two-thirds
of which was due to lower margins caused by an "across-the-board" price
reduction imposed by the Company's major automotive customers. Margins improved
in the corporate help desk segment by $0.1 million, due to increased revenue.
Selling, general and administrative expenses decreased from $5.3 million in the
first quarter of 2001 to $3.9 million in the first quarter of 2002, or $1.4
million. The reduction in selling, general and administrative charges was
primarily due to the reduction in amortization charges of $0.5 million, as a
consequence of the change in accounting for goodwill and intangibles, see Note E
-- Effects of Accounting Pronouncements, pg 9; certain write-downs to intangible
assets taken in 2001; a reduction in employee recruiting and outside service
expenses; a reduction in excess office space and numerous other cost saving
measures.
The Michigan Single Business Tax deceased reflecting the expected lower levels
of payroll and property in service in 2002 than was expected in the first
quarter of last year for 2001.
Despite an increase in cash equivalents, interest income decreased in the first
quarter of 2002, due to a decline in the earnings rate obtained from investing
activities. The decline in the earnings rate is consistent with the decline the
overall market interest rates over the past year. Interest expense decreased due
to the reduction in the outstanding Notes related to the leasing business.
The Company recognized $0.5 million of income tax expense on pretax income
before the effect of the accounting change of $1.1 million. The consolidated
income tax expense includes a tax provision for European operations based on
effective tax rates, which are not significantly different than the statutory
rates, and includes a provision for US operations based on a effective tax rates
which differs from the statutory rate due to certain nondeductible items.
As of January 1, 2002 the Company adopted SFAS 142. The Company has determined
that goodwill related to leasing operations is impaired under SFAS 142.
Accordingly, the Company has taken a charge of $1.1 million in the first quarter
of 2002.
SIGNIFICANT ACCOUNTING ESTIMATES
At March 31, 2002, the Company had deferred tax assets of $1.5 million,
primarily related to alternative minimum tax credit carry forwards in the United
States, which do not expire. Realization of the deferred tax assets depends upon
sufficient levels of future taxable income. Based on historical and expected
future taxable income, the Company believes it is more likely than not that
deferred tax assets will be realized. If at any time the Company believes that
12
current or future taxable income will not support the realization of deferred
tax assets, a valuation allowance would be provided.
The Company periodically reviews its estimate of residual values of leased
assets, which consist principally of computer equipment. The values of the
leased assets are impacted by a number of factors including the speed of
technological change, the status of used computer equipment market, the attitude
of customers regarding renewals of the leases and the ability of the Company to
offer alternatives to its customers. There can be no assurances that the
Company's estimates of residual values will accurately reflect future results.
LIQUIDITY AND CAPITAL RESOURCES
Balance Sheet
As of March 31, 2002 the Company's balance sheet reflects a high degree of
liquidity and little financial leverage.
Cash, cash equivalents and marketable securities increased $2.6 million in the
first quarter of 2002 from $35.6 million to $38.2 million. The Company's working
capital position increased by $4.7 million in the first quarter of 2002, from
$47.1 million as of December 31, 2001 to $51.8 million as of March 31, 2002.
The current portion of notes payable and long term liabilities decreased by $1.7
million in the first quarter of 2002 from a balance of $5.4 million on December
31, 2001 to $3.7 million on March 31, 2002. The Company's debt to total asset
ratio fell from 14.4% on December 31, 2001 to 12.2% as of March 31, 2002.
As of March 31, 2002 the Company's book value per share was $6.79 and its market
to book ratio was 64%.
Cash Flow Provided from Operations
Cash flow provided from operating activities was $3.8 million in the first
quarter of 2002. The positive cash flow was due to non-cash depreciation and
amortization expense of $3.7 million, primarily related to the leasing
operations, and the net operating income of $0.6 million for the quarter offset
in part by the net changes in working capital of $0.6 million.
Cash Flow Used by Investing Activities
Cash Flow used by investing activities was $2.4 million in the first quarter of
2002. The Company received $1.4 million from the sale of assets used in the
leasing operations, offset by $1.1 million to purchase assets to be used on help
desk service projects and $3.0 million to purchase marketable securities.
Cash Flow Used in Financing Activities
Cash flow used in financing activities was $1.8 million, of which $1.7 million
was used to pay down debt related to leasing operations, in the first quarter of
2002.
The Company believes that cash flows from operations will continue to be
sufficient to meet its ongoing working capital needs.
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
The Company is a party to legal proceedings that 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 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- None
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the
quarter ended March 31, 2001.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED
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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: 5/3/02 By: /s/ William F. Coyro, Jr.
---------------------------------
William F. Coyro, Jr.
President and Chief
Executive Officer
Date: 5/3/02 By: /s/ Jean Francios Delpy
---------------------------------
Jean Francios Delpy
Chief Financial Officer and
Treasurer
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