<PAGE> 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: September 30, 2000
|_| 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)
835 Mason Street, Suite 200, Dearborn, MI 48124
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 277-2277
---------------
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, 2000 was 11,476,336.
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, 1999 PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
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PAGE
INDEX NUMBER
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Statements of Operations (Unaudited) 3
Three and Nine Months Ended
September 30, 2000 and 1999
Condensed Consolidated Statements of Financial Position (Unaudited) 4 - 5
September 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 6
Nine Months Ended
September 30, 2000 and 1999
Notes to the Condensed Consolidated Financial Statements - September 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 6.
Exhibits and Reports on Form 8-K 13
Signatures 14
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</TABLE>
2
<PAGE> 3
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES
Corporate Services
Corporate help desk services.................. $ 11,281 $ 9,283 $ 33,743 $ 27,775
Technical staffing............................ 4,403 5,153 13,431 17,042
Systems integration........................... 3,089 7,254 11,235 17,904
Training programs............................. 800 1,194 2,572 3,975
------------- -------------- ------------- -------------
Total Corporate Services......................... 19,573 22,884 60,981 66,696
------------- -------------- ------------- -------------
OEM Call Center Services......................... 4,301 6,384 12,882 21,278
Leasing Operations............................... 6,129 4,687 21,076 14,336
------------- -------------- ------------- -------------
TOTAL REVENUES....................................... 30,003 33,955 94,939 102,310
COST OF SERVICES DELIVERED........................... 23,107 28,059 73,855 84,069
------------- -------------- ------------- -------------
GROSS PROFIT......................................... 6,896 5,896 21,084 18,241
------------- -------------- ------------- -------------
OTHER EXPENSES
Selling, general and administrative.............. 5,184 4,883 15,803 15,320
Michigan Single Business Tax and other........... 825 205 1,200 618
------------- -------------- ------------- -------------
TOTAL OTHER EXPENSES................................. 6,009 5,088 17,003 15,938
------------- -------------- ------------- -------------
Operating income..................................... 887 808 4,081 2,303
------------- -------------- ------------- -------------
Gain on sale of GE Joint Venture..................... 322 322
Interest income...................................... 254 160 567 460
Interest expense..................................... 342 190 1,139 642
------------- -------------- ------------- -------------
NET INTEREST EXPENSE................................. 88 30 572 182
------------- -------------- ------------- -------------
Income before income taxes........................... 1,121 778 3,831 2,121
Income tax expense................................... 516 290 1,774 747
------------- -------------- ------------- -------------
NET INCOME........................................... $ 605 $ 488 $ 2,057 $ 1,374
============= ============== ============= =============
BASIC AND DILUTED EARNINGS PER SHARE................. $ 0.05 $ 0.04 $ 0.16 $ 0.10
============= ============== ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Basic............................................ 12,476 13,207 12,983 13,293
Net effect of dilutive stock options............. 0 10 5 18
------------- -------------- ------------- -------------
Diluted.......................................... 12,476 13,217 12,988 13,311
============= ============== ============= =============
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<S> <C> <C> <C> <C>
NET INCOME, AS SET FORTH ABOVE....................... $ 605 $ 488 $ 2,057 $ 1,374
Foreign currency translation adjustments............. (107) 103 (175) (62)
------------- -------------- ------------- -------------
COMPREHENSIVE INCOME................................. $ 498 $ 591 $ 1,882 $ 1,312
============= ============== ============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------------------------------------------------------------------ --------------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 11,899 $ 14,192
Securities available for sale...................................... 2,154
Accounts receivable (less allowances of $200,000 at
September 30, 2000 and $225,000 at December 31, 1999)........... 26,544 23,649
Refundable income tax.............................................. 712 1,039
Inventories........................................................ 309 1,388
Prepaid expenses and other......................................... 1,716 1,816
Deferred income tax................................................ 327 327
-------------------- --------------------
43,661 42,411
-------------------- --------------------
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Computer Equipment and Office Furniture............................ 17,530 19,572
Purchased software................................................. 7,206 5,340
Leasehold improvements............................................. 2,189 1,870
Transportation equipment........................................... 240 286
-------------------- --------------------
27,165 27,068
Less -- Accumulated depreciation and amortization.................. 18,951 19,249
-------------------- --------------------
8,214 7,819
-------------------- --------------------
OTHER ASSETS
Leased equipment and other investments in leases................... 46,593 49,500
Intangibles (less accumulated amortization of $13,805,000 at
September 30, 2000 and $10,831,000 at December 31, 1999)........ 6,313 9,287
Investment in GE Joint Venture..................................... 568
Deferred income tax................................................ 1,263 1,263
Other.............................................................. 1,263 1,459
-------------------- --------------------
55,432 62,077
-------------------- --------------------
TOTAL ASSETS........................................................... $ 107,307 $ 112,307
==================== ====================
</TABLE>
See accompanying notes.
4
<PAGE> 5
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------------------------------------------------------------------ -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable................................................... $ 2,022 $ 2,442
Accrued payroll, related taxes and withholdings.................... 4,174 3,285
Deferred revenues and unapplied receipts........................... 313 838
Accrued expenses and taxes......................................... 1,001 784
Current portion of long-term debt.................................. 10,820 10,568
Other.............................................................. 1,232 152
-------------------- -------------------
19,562 18,069
-------------------- -------------------
LONG-TERM DEBT......................................................... 6,726 10,030
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 and 16,717,400 shares at
September 30, 2000 and December 31, 1999, respectively.......... 167 167
Additional paid-in capital......................................... 110,628 111,092
Retained earnings.................................................. 4,328 2,271
Accumulated other comprehensive loss............................... (224) (49)
-------------------- -------------------
114,899 113,481
Less -- Treasury stock (4,881,364 and 3,451,323 shares
at September 30, 2000 and December 31, 1999, respectively)...... 33,880 29,273
-------------------- -------------------
Total shareholders' equity......................................... 81,019 84,208
-------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 107,307 $ 112,307
==================== ===================
</TABLE>
See accompanying notes.
5
<PAGE> 6
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
2000 1999
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................ $ 2,057 $ 1,374
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and Amortization............................... 19,711 15,250
Treasury stock contributed to 401(k) plan and other......... 606 592
Sale and equity earnings of GE joint venture................ (653)
Changes in operating assets and liabilities................. (53) (820)
----------------- -----------------
Net cash provided by operating activities................... 21,668 16,396
----------------- -----------------
INVESTING ACTIVITIES
Purchase of leased equipment, net................................. (9,793) (21,078)
Purchase of securities available-for-sale......................... (2,154) (1,641)
Proceeds from sale of GE joint venture and related assets......... 1,750
Investment in direct financing leases and residuals............... (692) 895
Purchase of property, equipment and software, net................. (4,277) (12)
Other ............................................................ 110 (62)
----------------- -----------------
Net cash used in investing activities.......................... (15,056) (21,898)
----------------- -----------------
FINANCING ACTIVITIES
Purchase of Company common stock.................................. (5,705) (2,497)
Payments on notes payable, net.................................... (3,052) (2,247)
Proceeds from issuance of common stock............................ 26 34
Other............................................................. (174) (62)
----------------- -----------------
Net cash used in financing activities.......................... (8,905) (4,772)
----------------- -----------------
Decrease in cash and cash equivalents.......................... (2,293) (10,274)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... 14,192 22,696
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 11,899 $ 12,422
================= =================
</TABLE>
See accompanying notes.
6
<PAGE> 7
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 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, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. 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, 1999.
Certain reclassifications have been made to the 1999 financial statements in
order to conform to the 2000 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 which represented ten percent or more of total revenue are
as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------- ----------------------------------------
(IN THOUSANDS)
--------------------------------------------------------------------------------
Three months ended AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL
September 30 ----------------- ----------------- ----------------- ----------------
------------
<S> <C> <C> <C> <C>
Ford Motor Company.................. $ 10,555 34.8% $ 6,264 18.5%
DaimlerChrysler..................... 5,457 18.0% 6,287 18.5%
GE TechTeam, L.P.................... 4,623 15.2% 6,255 18.4%
Nine months ended
September 30
------------
Ford Motor Company.................. $ 29,858 31.3% $ 18,367 17.9%
DaimlerChrysler..................... 17,214 18.1% 21,763 21.3%
GE TechTeam, L.P.................... 13,204 13.9% 21,149 20.7%
</TABLE>
NOTE C -- LEGAL PROCEEDINGS
Refer to Part II, Item 1 for a description of legal proceedings.
7
<PAGE> 8
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D -- STOCK REPURCHASES
In May 2000, the Company announced a fourth stock repurchase program to purchase
up to an additional 2,000,000 shares of common stock during the period ending
May 2, 2001, unless extended. During the third quarter, the Company repurchased
1,043,100 shares for $3,878,000. Shares repurchased under this plan total
1,527,200 shares for $5,705,000. In October 2000, the Company extended this
program to repurchase an additional 2,000,000 shares over the next year.
NOTE E -- SEGMENT REPORTING
<TABLE>
<CAPTION>
CORPORATE SERVICES
---------------------------------------------------------------
CORPORATE OEM CALL
HELP DESK TECHNICAL SYSTEMS TRAINING CENTER LEASING
SERVICES STAFFING INTEGRATION PROGRAMS TOTAL SERVICES OPERATIONS TOTAL
------------ ------------------------ ------------ ------------ ------------------------ ------------
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Three months ended
September 30, 1999
------------------
Revenues............ $ 9,283 $ 5,153 $ 7,254 $ 1,194 $ 22,884 $ 6,384 $ 4,687 $ 33,955
Gross profit
(loss)............ 2,169 839 1,299 (65) 4,242 637 1,017 5,896
Depreciation and
amortization...... 791 44 35 132 1,002 23 3,627 4,652
Nine months ended
September 30, 2000
------------------
Revenues............ $ 33,743 $ 13,431 $ 11,235 $ 2,572 $ 60,981 $ 12,882 $ 21,076 $ 94,939
Gross profit........ 10,409 1,548 3,105 250 15,312 1,369 4,403 21,084
Depreciation and
amortization...... 817 400 54 100 1,371 178 15,267 16,816
Nine months ended
September 30, 1999
------------------
Revenues............ $ 27,775 $ 17,042 $ 17,904 $ 3,975 $ 66,696 $ 21,278 $ 14,336 $ 102,310
Gross profit........ 6,023 3,844 3,481 180 13,528 1,375 3,338 18,241
Depreciation and
amortization...... 2,606 138 110 404 3,258 23 10,169 13,450
Segment Assets
--------------
September 30, 2000 15,533 6,262 3,815 1,190 26,800 0 50,845 77,645
December 31, 1999 9,023 4,735 6,142 948 20,848 4,841 64,608 90,297
</TABLE>
8
<PAGE> 9
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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2000 1999
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Depreciation and amortization
Total for reportable segments................. $ 16,816 $ 13,450
Corporate assets.............................. 2,895 1,800
-------------- --------------
Total depreciation and amortization........ $ 19,711 $ 15,250
============== ==============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Assets
Total assets for reportable segments.......... $ 77,645 $ 90,297
Corporate assets.............................. 29,662 22,010
-------------- --------------
Total assets............................... $ 107,307 $ 112,307
============== ==============
</TABLE>
NOTE F -- 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 will continue to provide staffing
services to GEWM at least 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 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 National TechTeam's
share in partnership revenue by $531,000.
9
<PAGE> 10
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, 1999 and the Quarterly
Reports on Form 10-Q filed by the Company in fiscal 2000.
COMPANY OVERVIEW
National TechTeam, Inc. ("TechTeam" or "Company") is a leading provider of
information technology ("IT") outsourcing support services to large national and
multinational corporations, government agencies, and service organizations. The
Company offers its services through three global units: (1) Corporate Services,
which provides corporations with help desk support, technical staffing, systems
integration, and custom training; (2) OEM Call Center Services, which provides
end user customers of its clients with inbound telephone support for their
computer products; and (3) Leasing Operations, which consists primarily of
leasing computer-related hardware and integrated services to corporate
customers.
CORPORATE SERVICES
As a provider of Single Point of Contact help desk and desktop management
programs, TechTeam provides centralized delivery of IT technical support
services. TechTeam's Corporate Services consists of corporate help desk
services, technical staffing, systems integration, and training programs.
Corporate Help Desk Services
TechTeam provides help desk services to assist major companies in managing their
internal IT systems. The Company's technical staff uses its experience and
knowledge in launching and delivering corporate help desk programs to define and
execute corporate IT support solutions to meet its clients' specific needs. The
Company's help desk solutions include numerous options for call tracking,
Internet-based callback support, telecommunications systems, product knowledge
bases, statistical reporting, real-time scheduling, and forecasting.
Systems Integration
TechTeam's systems integration team performs all phases of network
implementations, from project planning and management, to full-scale network
server and workstation installations. After the implementation, the systems
integration team performs a wide range of maintenance services to the client
ranging from desk-side support to network monitoring.
Technical Staffing
TechTeam maintains a staff of trained technical personnel to provide computer
and technical support to its clients at the clients' facilities. Services most
often provided are on-site help desk, programming, consulting, and systems
implementation and maintenance. The Company's adaptive management and proactive
methodology enables its staff to work closely with its clients, understand their
computing environments, and work together to design and install technology to
meet their business needs.
Training Programs
Training programs include a wide array of applications within the office
automation, network, and client-server
10
<PAGE> 11
marketplace. Clients are offered a full spectrum of delivery options including
course catalogs, registration services, computer equipment, networks, course
materials, certified trainers, evaluation options, desk-side tutorials, testing,
feedback to help desks, and reporting.
OEM CALL CENTER SERVICES
TechTeam offers OEM call center services through the GE Joint Venture. TechTeam
provides the Joint Venture with technicians to answer support calls related to
extended warranty contracts for the personal computer industry. See Note F in
the notes to the consolidated financial statements for additional information on
the GE TechTeam Joint Venture.
LEASING OPERATIONS
TechTeam Capital Group previously wrote leases for computer, telecommunications,
and many forms of capital equipment ranging in lease terms from 2 - 5 years. In
March 2000, the Company restructured its leasing operations and as a result the
leasing business will be significantly reduced.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999
Revenues decreased 11.6% to $30.0 million from $34.0 million. The decrease
resulted primarily from revenue decreases in OEM call center services of $2.1
million and systems integration services of $4.1 million, technical staffing of
$0.8 million and training programs of $0.4 million offset by increases in
leasing operations of $1.4 million and corporate help desk services of $2.0
million. OEM call center services decreased due to discontinuing business with a
large customer at the GE TechTeam joint venture. Systems integration revenues
decreased due to reduction in revenue related to Year 2000 remediation services
which were provided to a local government agency in 1999. Technical staffing
revenues decreased due to non-recurring revenue related to the implementation of
a quality system program for a major client which took place in 1999. Training
revenues decreased due to the completion of non-recurring training programs at
two large customers. The Leasing operations revenue increase was due to
additional equipment lease sales with existing customers. Corporate help desk
services increased due to expanding services to several major existing clients.
Gross profit increased as a percentage of sales to 23.0% from 17.4%. The
increase resulted primarily from corporate help desk services margins increasing
through expansion of ongoing projects while at the same time containing related
incremental costs, and systems integration margins increasing due to not
repeating certain low margin business that took place in 1999.
The Selling, General and Administrative expense increase was primarily due to
the legal settlement described in Item 1 - Legal Proceedings.
The Michigan Single Business tax increased because the company did not receive
certain credits that it previously expected.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999
Revenues decreased 7.2% to $95.0 million from $102.3 million. The decrease
resulted primarily from revenue decreases in OEM call center services of $8.4
million, technical staffing services of $3.6 million, systems integration
services of $6.7 million and training programs of $1.4 million offset by
increased revenue in leasing operations of $6.7 million and Corporate help desk
services of $6.0 million. OEM call center services decreased due to
discontinuing business with a large customer at the GE TechTeam joint venture.
Technical staffing decreased due to non-recurring revenue related to the
implementation of a quality system program for a major client which took place
in 1999. Systems integration revenues decreased due to non-recurring revenue
related to a large contract with a local government agency to replace
workstations and upgrade internal networks in 1999. The Leasing operations
revenue
11
<PAGE> 12
increase was due to the sale of $1.8 million of certain leased assets to
a third party combined with increased equipment lease sales with existing
customers. Corporate help desk services increased due to expanding services to a
major existing client and additional revenues generated by new business in
Belgium related to the European Commission help desk.
Gross profit increased as a percentage of sales to 22.2% from 17.8%. The
increase resulted primarily from corporate help desk services margins increasing
through expansion of ongoing projects while at the same time containing related
incremental costs, and systems integration margins increasing due to not
repeating certain low margin business that took place in 1999.
The Selling, General and Administrative expense increase was primarily due to
the legal settlement described in Item 1 - Legal Proceedings.
The Michigan Single Business tax increased because the company did not receive
certain credits that it previously expected.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided from Operations
Cash flow provided from operating activities was $21.7 million for the nine
months ended September 30, 2000. Cash flow provided was primarily due to
earnings, combined with $19.7 million of non-cash depreciation and amortization
expense mainly related to the leasing operations and $0.7 million of proceeds
from the sale of the GE joint venture.
Cash Flow Used by Investing Activities
Cash flow used by investing activities was $15.1 million. The Company used $9.8
million to purchase equipment to be leased to customers for the leasing
operations, $2.1 million was invested in short term securities and $4.3 million
to purchase assets to be used on help desk service projects offset by $1.8
million from the sale of the GE joint venture.
Cash Flow Used in Financing Activities
Cash flow used in financing activities was $8.9 million. The Company used $5.7
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) and to repay long term debt.
The Company's working capital position at September 30, 2000 was $24.1 million
compared to $24.3 million at December 31, 1999.
The Company has a line-of-credit agreement with Bank One which provides for
short-term borrowings of up to $25 million at the prime rate. The line-of-credit
is unsecured. There were no borrowings under this line at September 30, 2000.
The Company believes that cash flows from operations, together with current
short-term assets and borrowings available under the Company's lines-of-credit
will continue to be sufficient to meet its ongoing working capital needs.
12
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In August 2000, TechTeam Capital Group, L.L.C., National TechTeam, Inc., Harry
A. Lewis, and M. Anthony Tam, were named as defendants in a lawsuit brought by
Newco Consultants, L.L.C. ("Newco") filed in the Oakland County Circuit Court,
State of Michigan. Newco's members are former officers and employees of TechTeam
Capital Group, L.L.C. Newco claimed, among other things, that the defendants
violated certain contractual provisions to pay Newco for services performed
under a Service and Remarketing Agreement between Capital Group and Newco,
signed when the Company restructured its leasing operations earlier in the year.
In September 2000, the defendants filed an answer and affirmative defenses
denying any liability to Newco. The defendents also filed a Counter-Claim
against Newco for material breach of the Service and Remarketing Agreement, and
a Third Party Complaint against members of Newco.
On November 9, 2000, subsequent to earnings announcement by the Company, the
parties in the litigation entered into a Mutual Release and Settlement Agreement
through which all parties' claims were resolved and the entire action was
dismissed with prejudice. As a result of the settlement the Service and
Remarketing Agreement between Capital Group and Newco has been terminated, and
the Company has recognized a pre-tax charge of approximately $500,000 in the
third quarter of 2000.
The Company is also 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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the quarter
ended September 30, 2000.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED
13
<PAGE> 14
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: 11/14/00 By: /s/Harry A. Lewis
--------------------
Harry A. Lewis
Chief Executive Officer
and President
Date: 11/14/00 By: /s/M. Anthony Tam
--------------------
M. Anthony Tam
Vice President,
Chief Financial Officer and Treasurer
14
<PAGE> 15
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
