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: September 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 West 11 Mile Road, Southfield, MI 48034
---------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 357-2570
---------------
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 October 31, 2001 was 10,661,048.
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.
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 and Nine Months Ended
September 30, 2001 and 2000 3
Condensed Consolidated Statements of Financial Position (Unaudited)
September 30, 2001 and December 31, 2000 4 - 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30, 2001 and 2000 6
Notes to the Condensed Consolidated Financial Statements -- September 30, 2001 (Unaudited) 7 - 10
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 5.
Other Information 13
ITEM 6.
Exhibits and Reports on Form 8-K 14
Signatures 15
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2
PART 1 -- FINANCIAL INFORMATION
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
ITEM 1 -- FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- --------------- -------------- --------------
(In Thousands, except per share data)
REVENUES
Corporate Services
Corporate help desk services.................. $ 12,098 $ 11,281 $ 37,360 $ 36,918
Technical staffing............................ 3,575 4,403 11,588 13,431
Systems integration........................... 1,413 3,089 4,523 8,060
Training programs............................. 386 800 1,706 2,572
-------------- --------------- -------------- --------------
Total Corporate Services......................... 17,472 19,573 55,177 60,981
-------------- --------------- -------------- --------------
OEM Call Center Services......................... 104 4,301 332 12,882
Leasing Operations............................... 4,591 6,129 15,693 21,076
-------------- --------------- -------------- --------------
TOTAL REVENUES....................................... 22,167 30,003 71,202 94,939
COST OF SERVICES DELIVERED........................... 18,191 23,107 55,782 73,323
-------------- --------------- -------------- --------------
GROSS PROFIT......................................... 3,976 6,896 15,420 21,616
-------------- --------------- -------------- --------------
OTHER EXPENSES
Selling, general and administrative.............. 5,597 5,184 16,911 16,198
Michigan Single Business Tax and other........... 240 825 750 1,200
-------------- --------------- -------------- --------------
TOTAL OTHER EXPENSES................................. 5,837 6,009 17,661 17,398
-------------- --------------- -------------- --------------
Operating income (loss).............................. (1,861) 887 (2,241) 4,218
-------------- --------------- -------------- --------------
Gain on sale of GE Joint Venture..................... 0 322 0 322
Interest income...................................... 301 254 947 567
Interest expense..................................... 506 342 934 1,139
-------------- --------------- -------------- --------------
NET INTEREST EXPENSE (INCOME)........................ 205 88 (13) 572
-------------- --------------- -------------- --------------
Income (loss) before income taxes.................... (2,066) 1,121 (2,228) 3,968
Income tax expense (credit).......................... (171) 516 355 1,911
-------------- --------------- -------------- --------------
NET INCOME (LOSS).................................... $ (1,895) $ 605 $ (2,583) $ 2,057
============== =============== ============== ==============
BASIC AND DILUTED EARNINGS LOSS PER SHARE............ $ (.18) $ 0.05 $ (.24) $ 0.16
============== =============== ============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Basic............................................ 10,606 12,476 10,585 12,983
Net effect of dilutive stock options............. 0 0 0 5
-------------- --------------- -------------- --------------
Diluted.......................................... 10,606 12,476 10,585 12,988
============== =============== ============== ==============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS), AS SET FORTH ABOVE................ $ (1,895) $ 605 $ (2,583) $ 2,057
Foreign currency translation adjustments............. 179 (107) (22) (175)
-------------- --------------- -------------- --------------
COMPREHENSIVE INCOME (LOSS).......................... $ (1,716) $ 498 $ (2,605) $ 1,882
============= ============== ============= =============
See accompanying notes.
3
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
ASSETS 2001 2000
----------------------------------------------------------------------- --------------------- --------------------
(In Thousands)
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 29,179 $ 15,995
Securities available for sale...................................... 3,752 2,725
Accounts receivable (less allowances of $431 at
September 30, 2001 and $313 at December 31, 2000)............... 16,790 18,937
Refundable taxes................................................... 643 859
Inventories........................................................ 107 238
Prepaid expenses and other......................................... 1,386 1,883
Deferred income tax................................................ 348 348
--------------------- --------------------
52,205 40,985
--------------------- --------------------
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Computer equipment and office furniture............................ 15,525 16,528
Purchased software................................................. 8,754 8,035
Leasehold improvements............................................. 2,661 2,668
Transportation equipment........................................... 213 240
--------------------- --------------------
27,153 27,471
Less -- Accumulated depreciation and amortization.................. 19,028 18,151
--------------------- --------------------
8,125 9,320
--------------------- --------------------
OTHER ASSETS
Assets of leasing operations, net of amortization.................. 23,023 41,209
Intangibles (less accumulated amortization of $16,563 at
September 30, 2001 and $14,894 at December 31, 2000)............ 3,348 5,297
Deferred income tax ............................................... 1,688 1,689
Loans receivable .................................................. 133 1,008
Other.............................................................. 1,153 1,266
--------------------- --------------------
29,345 50,469
--------------------- --------------------
TOTAL ASSETS........................................................... $ 89,675 $ 100,774
===================== ====================
See accompanying notes.
4
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
----------------------------------------------------------------------- --------------------- --------------------
(In Thousands)
CURRENT LIABILITIES
Accounts payable................................................... $ 1,195 $ 3,417
Accrued payroll, related taxes and withholdings.................... 3,184 3,217
Deferred revenues.................................................. 789 264
Accrued expenses and taxes......................................... 1,567 681
Current portion of notes payable................................... 6,382 9,790
Other.............................................................. 214 471
--------------------- --------------------
13,331 17,840
--------------------- --------------------
LONG-TERM DEBT......................................................... 879 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
September 30, 2001 and December 31, 2000........................ 167 167
Additional paid-in capital......................................... 108,726 110,011
Retained earnings.................................................. 1,834 4,417
Accumulated other comprehensive loss - foreign currency
translation adjustment.......................................... (140) (118)
--------------------- --------------------
110,587 114,477
Less -- Treasury stock (6,084,372 and 6,041,755 shares
at September 30, 2001 and December 31, 2000, respectively)...... 35,122 36,360
--------------------- --------------------
Total shareholders' equity......................................... 75,465 78,117
--------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 89,675 $ 100,774
===================== ====================
See accompanying notes.
5
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2001 2000
------------------ ------------------
(In Thousands)
OPERATING ACTIVITIES
Net income (loss)................................................. $ (2,583) $ 2,057
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization............................... 17,300 19,711
Treasury stock contributed to 401(k) plan and other......... 536 606
Sale and equity earnings of GE joint venture................ - (653)
Changes in operating assets and liabilities................. 2,294 (53)
------------------ ------------------
Net cash provided by operating activities................... 17,547 21,668
------------------ ------------------
INVESTING ACTIVITIES
Net change in investment in direct financing leases and residuals. 2,542 (692)
(Purchase) disposal of leased equipment, net...................... 2,237 (9,793)
Purchase of property, equipment and software, net................. (1,288) (4,277)
Purchase of securities available-for-sale......................... (1,027) (2,154)
Decrease in loans receivable...................................... 875 56
Acquisition of assets............................................. 250 -
Other-net......................................................... (2) 54
Proceeds from sale of GE joint venture and related assets......... - 1,750
------------------ ------------------
Net cash provided by (used in) investing activities............ 3,587 (15,056)
------------------ ------------------
FINANCING ACTIVITIES
Payments on notes payable......................................... (7,346) (3,052)
Purchase of Company common stock.................................. (609) (5,705)
Other-net......................................................... 5 (148)
------------------ ------------------
Net cash used in financing activities.......................... (7,950) (8,905)
------------------ ------------------
Increase (decrease) in cash and cash equivalents............... 13,184 (2,293)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 15,995 14,192
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 29,179 $ 11,899
================== ==================
See accompanying notes.
6
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited condensed 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 generally accepted accounting principles 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 nine-month period ended September 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 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:
----------------------------------------------------------------------------------------------------------
2001 2000
-------------------------------- --------------------------------
AMOUNT PERCENT OF AMOUNT PERCENT OF
TOTAL TOTAL
-------------- -------------- -------------- --------------
(In Thousands)
Three months ended September 30
-----------------------------------
Ford Motor Company.................. $ 10,096 45.5% $ 10,555 34.8%
DaimlerChrysler..................... 3,938 17.7% 5,457 18.0%
GE TechTeam, L.P.................... - -% 4,623 15.2%
Nine months ended September 30
------------------------------------
Ford Motor Company.................. $ 30,482 42.8% $ 29,858 31.3%
DaimlerChrysler..................... 12,963 18.2% 17,214 18.1%
GE TechTeam, L.P.................... - -% 13,204 13.9%
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 nine
month period ended September 30, 2001, the Company repurchased 229,000 shares
for $609,000 under this program.
7
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E -- SEGMENT REPORTING
------------------------------------------------------------------------------------------------------------------------------
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
September 30, 2001
---------------------
Revenues.............. $ 12,098 $ 3,575 $ 1,413 $ 386 $ 17,472 $ 104 $ 4,591 $ 22,167
Gross profit (loss)... 3,458 612 453 77 4,600 4 (628) 3,976
Depreciation and
amortization...... 511 105 4 12 632 - 3,794 4,426
Expenditures for
property.......... 47 - - - 47 - - 47
Three months ended
September 30, 2000
---------------------
Revenues.............. $ 11,281 $ 4,403 $ 3,089 $ 800 $ 19,573 $ 4,301 $ 6,129 $ 30,003
Gross profit.......... 3,491 506 1,076 32 5,105 1,106 685 6,896
Depreciation and
amortization...... 307 169 19 49 544 44 5,072 5,660
Expenditures for
property.......... 478 11 19 - 508 - - 508
Nine months ended
September 30, 2001
---------------------
Revenues.............. $ 37,360 $ 11,588 $ 4,523 $ 1,706 $ 55,177 $ 332 $ 15,693 $ 71,202
Gross profit.......... 11,165 2,021 1,581 251 15,018 106 296 15,420
Depreciation and
amortization...... 1,537 316 11 56 1,920 - 12,733 14,653
Expenditures for
property.......... 840 120 5 - 965 - - 965
Nine months ended
September 30, 2000
---------------------
Revenues.............. $ 36,918 $ 13,431 $ 8,060 $ 2,572 $ 60,981 $ 12,882 $ 21,076 $ 94,939
Gross profit.......... 11,363 2,080 2,151 250 15,844 1,369 4,403 21,616
Depreciation and
amortization...... 817 400 54 100 1,371 178 15,267 16,816
Expenditures for
property.......... 1,730 634 26 - 2,390 - - 2,390
Segment Assets
---------------------
September 30, 2001 $ 14,544 $ 3,888 $ 1,200 $ 483 $ 20,115 $ - $ 26,449 $ 46,564
December 31, 2000 12,090 4,439 2,501 1,049 20,079 1,049 45,732 66,860
8
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 condensed consolidated financial statements is as
follows:
--------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
2001 2000
------------------ -----------------
(In Thousands)
Depreciation and amortization
Total for reportable segments.................... $ 14,653 $ 16,816
Corporate assets................................. 2,647 2,895
------------------ -----------------
Total depreciation and amortization........... $ 17,300 $ 19,711
================= =================
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------------ -----------------
(In Thousands)
Assets
Total assets for reportable segments.............
Corporate assets................................. $ 46,564 $ 66,860
Total assets.................................. 43,111 33,914
------------------ -----------------
$ 89,675 $ 100,774
================== =================
NOTE F -- ACQUISITION
On September 28, 2001, TechTeam's newly formed subsidiary, TechTeam Cyntergy,
LLC, ("TTC") acquired certain assets of Cyntergy Corporation, a privately held
company, in a two step transaction.
First, TTC purchased and took an assignment of certain credit facilities and
promissory notes from Cyntergy's principal lender. As a result, TTC acquired all
of the lender's rights as a secured creditor under the Financing and Security
Agreement and other documentation of the credit facility. The Cyntergy
Corporation debt was in excess of $6 million dollars. The purchase price of the
credit facility was $1,050,000, of which $250,000 was paid in September.
Second, TTC entered into an Agreement for Conveyance In Lieu of Foreclosure with
Cyntergy Corporation. Under this agreement, TTC acquired certain assets of
Cyntergy Corporation by forgiving $4.5 million dollars of the total debt. These
assets included accounts receivable, notes receivable, various fixed assets, and
certain customer contracts. TTC is currently providing services to many of
Cyntergy Corporation's former customers. Annual revenue derived from these
customers is estimated at $3.5 million dollars.
NOTE G -- SALE OF INTEREST IN GE TECHTEAM, L.P.
On August 22, 2000 the Company sold its 47% interest in the GE TechTeam, LP and
its 49% membership interest in Support Central, LLC to the majority partner, GE
Warranty Management, Inc. (GEWM). The Company recorded a pre-tax gain of
$322,000 on this transaction. The Company provided staffing services to GEWM
through the end of 2000. The Company has also entered into an agreement with
GEWM to provide technology services, which include ongoing call center software
maintenance, upgrades and customization.
Until the date of sale, TechTeam shared in profits and losses of the GE Joint
Venture OEM call center services
9
business based on its partnership interest. Such earnings amounted to $568,000
for the quarter ended September 30, 2000 and $331,000 for the nine-month period
ended September 30, 2000. As disclosed in the 1999 10K, the GE Joint Venture
changed its overhead allocation method, but such change was not agreed to by the
Company. The change in 1999 resulted in an additional $531,000 of costs to
National TechTeam previously borne by GE Appliances. In the quarter ended
September 30, 2000 the change in the allocation method was reversed. The effect
of the reversal increased TechTeam's share in partnership revenue by $531,000.
NOTE H -- EFFECTS OF ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," was issued by the Financial Accounting Board (FASB) in June 2001.
SFAS 141 eliminates the pooling-of-interest method of accounting for business
combinations except for qualifying business combinations initiated after prior
to July 1, 2001. In addition, SFAS 141 changes the criteria to recognized
intangible assets apart from goodwill. In accordance with the requirements of
the SFAS 141, the Company adopted the new standard effective July 1, 2001.
Also in June 2002, 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 impairments indicators arise. Separable intangible assets that
have finite lives will continue to be amortized over their useful lives. The
Company intends to conform to the requirements of the new SFAS upon its required
adoption date of January 1, 2002. The company believes that goodwill related to
leasing operations may be impaired under SFAS 142 as of the adoption date. At
December 31, 2001 the leasing operations goodwill is expected to be $1,123,000.
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
and 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, 2000.
OVERVIEW
NATIONAL TECHTEAM, INC. is a global provider of information technology and
business process outsourcing 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
10
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 the 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 and TechTeam's customers are
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 to certain of its
existing customers. The Support Portal is an important part of the help desk
solutions provided to new customers.
The Company operates major help desks in the United States from its Dearborn,
Michigan, 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.
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, 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, 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 two
years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SEPTEMBER 30, 2000
Revenues decreased 26% to $22.2 million from $30.0 million. The decrease
resulted from revenue decreases in
11
OEM Call Center Services of $4.2 million, system integration revenues of $1.7
million, leasing operations revenue of $1.5 million and Technical Staffing
revenues of $0.8, offset by an increase in Corporate Help Desk services of $0.8
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 December 31,
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 in 2000. Technical staffing revenues also decreased due to one of
the Company's major automotive customers making cuts in subcontracted staffing
to reduce their cost structure. Corporate help desk services increased due to
obtaining a new customer in the pharmaceutical industry during 2001.
Gross profit as a percentage of sales decreased to 17.9% from 23.0%. The
decrease was primarily due to the gains or (losses) from lease residuals of
($1.1) million in 2001 compared to a gain of $0.1 million in 2000.
Selling, General and Administrative expenses were $5.6 million compared to $5.2
million in 2000. The $5.6 million in 2001 includes severance costs of $140,000
for administrative employees terminated during the third quarter and write offs
of $215,000 for assets determined to be impaired, including goodwill related to
the acquisition of a company in 1996.
The Michigan Single Business tax decreased because in 2000 the Company reversed
certain credits that it had previously expected to receive.
Interest expense increased due to interest accumulated from an underpayment of
prior years federal income taxes. 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 primarily
due to nondeductible goodwill amortization.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SEPTEMBER 30, 2000
Revenues decreased 25% to $71.2 million from $94.9 million. The decrease
resulted from revenue decreases in OEM Call Center Services of $12.6 million,
leasing operations revenue of $5.4 million, system integration revenues of $3.5
million, and technical staffing revenues of $1.8 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. Leasing revenues decreased due to the Company's decision to
cease looking for new leasing opportunities. 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. 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 decreased as a percentage of sales to 21.7% from 22.8%. The
decrease was due to the impact of the change in net gains or (losses) from lease
residuals of ($1.3) million in 2001 and $1.3 million in 2000 offset by the
non-recurrence of low margin OEM call center services provided to the GE Joint
Venture.
Selling, general and administrative expenses were $16.9 million compared to 16.2
million in 2000. The $16.9 million in 2001 includes a net settlement of $370,000
related to earn out and release agreements with former officers of TechTeam
Capital Group, severance payments of $260,000 for administrative employees that
were terminated, write-offs of $200,000 for remaining goodwill and equity
interest of prior acquisitions determined to be impaired, a $87,000 loss on
disposal of assets due to the closing of a call center office and a $95,000 loss
related to the write-off of a supply agreement no longer being used. In
addition, a $165,000 write down was taken due to the Company's decision to cease
making payments on insurance contracts for an officer of the Company. Without
these costs, selling, general and administrative costs would have decreased by
approximately $500,000 for the nine-month period.
The Michigan Single Business tax decreased because in 2000 the Company reversed
certain credits that it had previously expected to receive.
12
Interest expense increased due to interest accumulated from an underpayment of
prior years federal income taxes. 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 primarily
due to nondeductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided from Operations
Cash flow provided from operating activities was $17.5 million for the nine
months ended September 30, 2001. Cash flow from operations was due to a net
operating loss of $2.6 million, offset by the add back of $17.3 million of
non-cash depreciation and amortization expense mainly related to the leasing
operations and a net cash increase of $2.3 million due to changes in operating
assets and liabilities.
Cash Flow Provided by Investing Activities
Cash flow provided by investing activities was $3.6 million. The Company
received $4.8 million from the sale of assets used in leasing operations and
$0.9 million from loans receivable, offset by $1.3 million to purchase assets to
be used on help desk service projects and $1.0 million to purchase available for
sale securities.
Cash Flow Used in Financing Activities
Cash flow used in financing activities was $8.0 million. The Company used $7.3
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 condensed consolidated financial statements for more discussion on
the stock repurchase program).
The Company's working capital position at September 30, 2001 was $38.9 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.
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 5 -- OTHER INFORMATION
On August 1, 2001, the Company entered into a one-year contract with Ford Motor
Company under which the Company will provide SPOC (Single Point of Contact)
support services for clients who utilize Ford Motor Company's IT products and
services. The program scope encompasses support center, desk-side support, and
program management services for Ford Motor Company, Ford Financial, and Ford
Motor Company's Premier Auto Group. The purchase orders for the program total
approximately $25 million dollars. The program staff is distributed throughout
North America and Europe and the Support Centers handle support related requests
from Ford Motor Company locations in the United States and Europe.
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ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.19 Assignment of Credit Facilities and Financing Documents between
TechTeam Cyntergy, LLC and Bank of America dated September 28,
2001.
10.20 Financing and Security Agreement between Cyntergy Corporation
and Bank of America dated January 29, 1999.
10.21 Agreement for Conveyance in Lieu of Foreclosure and Other
Matters between TechTeam Cyntergy, LLC and Robert N. Grimes and
Beth Grimes dated September 28, 2001.
10.22 Employment Agreement between National TechTeam, Inc. and William
F. Coyro, Jr. dated August 9, 2001.
10.23 Agreement with Ford Motor Company dated August 1, 2001.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the
quarter ended September 30, 2001.
ITEMS 2, 3, AND 4 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: 11/14/01 By: /s/William F. Coyro, Jr.
------------------------
William F. Coyro, Jr.
Chief Executive Officer
and President
Date: 11/14/01 By: /s/Jean Francois D. Delpy
-------------------------
Jean Francois D. Delpy
Chief Financial Officer and Treasurer
15
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
10.19 Assignment of Credit Facilities and Financing Documents between
TechTeam Cyntergy, LLC and Bank of America dated September 28,
2001.
10.20 Financing and Security Agreement between Cyntergy Corporation
and Bank of America dated January 29, 1999.
10.21 Agreement for Conveyance in Lieu of Foreclosure and Other
Matters between TechTeam Cyntergy, LLC and Robert N. Grimes and
Beth Grimes dated September 28, 2001.
10.22 Employment Agreement between National TechTeam, Inc. and William
F. Guyro, Jr. dated August 9, 2001.
10.23 Agreement with Ford Motor Company dated August 1, 2001.