Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
NATIONAL TECHTEAM, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-16284 38-2774613
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value (Title
of Class)
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. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The number of shares outstanding of the registrant's common stock as of March
18, 2002 was 10,905,984. The aggregate market value of the registrant's common
stock held by non-affiliates of the registrant as of March 18, 2002 was
approximately $45,259,834.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement, dated on or about April 8, 2002. Form 10-K referenced Part III,
Items 10, 11, 12 and 13.
This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E 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 herein and in other documents. Readers should carefully review the
risk factors that are described in the documents the Company has filed and
files, from time to time, with the Securities and Exchange Commission.
NATIONAL TECHTEAM, INC.
FORM 10-K
INDEX
---------------------------------------------------------------------------------------------------------------------
PAGE
NUMBER
---------------------------------------------------------------------------------------------------------------------
PART I
Item 1 Business 3-6
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
PART 2
Item 5 Market for Registrant's Common Equity and Related Stockholders Matters 7
Item 6 Selected Financial Data 8-9
Item 7 Management's Discussion and Analysis of Financial Condition and Results of 9-14
Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk 14
Item 8 Financial Statements and Supplementary Data 14
Report of Ernst & Young LLP, Independent Auditors 15
National TechTeam, Inc. and Subsidiaries Consolidated Statements
Operations 16
Financial Position 17-18
Shareholders' Equity 19
Cash Flows 20
Notes to Consolidated Financial Statements 21-35
Item 9 Disagreements on Accounting and Financial Disclosures 35
PART 3
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related 36
Stockholder Matters
Item 13 Certain Relationships and Related Transactions 36
PART 4
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 37-39
Signatures 40
Index of Exhibits 41-42
Exhibit 23.1 - Consent of Ernst & Young LLP 43
---------------------------------------------------------------------------------------------------------------------
2
PART I
- -------------------------------------------------------------------------------
ITEM 1. BUSINESS
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.; and TechTeam Europe, GmbH.
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.
The Company had total employees of 1,286 and 1,296 at December 31, 2001 and
2000, respectively.
INDUSTRY BACKGROUND
The IT industry is focused on delivering a new generation of hardware and
software designed to provide productivity improvements to the business
community. Businesses are investing principally in those technologies that
improve their financial results. The integration of new technologies into
business's current infrastructure means that mission critical information
systems are continuing to increase in complexity with multiple networks,
hardware platforms, and software applications. These complex systems, platforms
and applications require reliable and cost-effective support services to
effectively implement, maintain, and manage them. Businesses obtain this support
from internal staff, by outsourcing the responsibilities, or a combination
thereof. The IT support services industry provides the resources to businesses
that outsource their support service functions.
Organizations considering the purchase of outsourced IT and business process
support services generally are seeking to reduce the overall cost of support,
while improving the productivity of their IT investments. Their decision-making
processes often require them to take into account the cost of providing the
support internally, purchasing and maintaining the tools necessary to provide
the support, and establishing and maintaining best practices. They weigh these
considerations against the cost of the outsourced service, and the risk in
transferring some degree of control to the outsourced support service provider.
Organizations often choose to focus on their core strengths by outsourcing
non-core functions to outsourcing companies expert in the type of support
needed.
SERVICES
TechTeam commenced operations as a value-added reseller of computer hardware and
software that also provided training for its customers. During the late 1980's,
the Company added IT staffing and systems integration services as a complement
to its existing training business. In 1993, as a result of the Company's growing
expertise in providing IT staffing of on-site help desks, TechTeam entered the
technology support (help desk/call center) industry. The Company has recently
expanded into the business process outsourcing support services sector.
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 our customers.
3
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 Kana
Software, Inc. and others. TechTeam's customer management section of the portal
is able to access 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.
The Company has deployed the Support Portal technology internally and with many
of its existing customers. The technology has improved the efficiency of the
Company'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 provides multilingual help desk support for its
customers in as many as 12 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 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 its technical training programs.
Training in new technology, in advanced operating systems like Windows 2000 and
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 placed in technical
staffing positions where they can increase their compensation, while the Company
retains its most valuable resources. TechTeam considers its career pathing
program to be a competitive advantage relative to other staffing service
providers.
SYSTEMS INTEGRATION
4
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 maintenance services
for the client, ranging from desk-side support to network monitoring. Through
its TechTeam Cyntergy, L.L.C. subsidiary, the Company offers deployment and
implementation services to entities in hospitality, retail and food service
industries throughout the United States.
TRAINING
The Company 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.
PRODUCT SUPPORT SERVICES AND EQUIPMENT LEASING
TechTeam provides help desk services to the customers of corporations who sell
technical products. In these circumstances, TechTeam's agents answer the
questions about the corporation's products to the end user of the product.
TechTeam utilizes its tools described above under "Help Desk Services" to
deliver this support.
TechTeam Capital Group, L.L.C. ("Capital Group"), a subsidiary of the Company
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 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 one year.
IMPACT OF BUSINESS WITH MAJOR CLIENTS
Historically, TechTeam has been heavily dependent upon two or three major
clients for a substantial portion of its revenues. Any loss of (or failure to
retain a significant amount of business with) these key clients would have a
material adverse impact on the Company. The Company's major clients include Ford
Motor Company ("Ford") and DaimlerChrysler. For the years ended December 31,
2001, 2000 and 1999 respectively, Ford accounted for 43.6%, 32.3% and 19.2%,
DaimlerChrysler accounted for 17.5%, 18.2% and 19.3% of revenues. In 1999 and
2000, the Company's Joint Venture GE TechTeam, LP accounted for 20.6% and 13.0%
respectively, of the Company's revenue.
Management continues to seek to diversify its client base from both a client and
industry perspective. Nevertheless, because TechTeam believes that its existing
client base presents opportunities for cross marketing its services, the Company
will continue to seek additional business from its largest clients. The Company
anticipates that its major clients will continue to account for a high
percentage of TechTeam's revenues in the future, although no assurance can be
given in this regard.
COMPETITION
The Company is engaged in a highly competitive business. While there are many
companies that provide similar services, no one company is dominate. Competition
for many of TechTeam's services is often in the form of competitive bidding in
response to requests for proposals. The Company competes principally on the
basis of service excellence, the ability to provide best-in-class help desk
services, price, experience and reputation in the industry, technological
capabilities, ISO quality practices, responsiveness to client needs, and
referrals from existing clients.
The Company believes the following factors may provide it with competitive
advantages over certain of its competitors:
- Strong Internationally-Recognized Client Base -- TechTeam's existing
multinational clients provide TechTeam with a strong foundation for the
development of new business.
- Qualified Technical Staff -- TechTeam focuses on developing and
retaining high quality talent. The
5
Company's employees are trained and offered a career path to higher
level positions.
- Quality Client-Driven Metrics and Service Excellence -- As an ISO 9001
certified company, TechTeam follows a well-defined quality system with a
focus on continuous improvement.
- Technology -- The Company believes that its proprietary integration of
industry-leading technology enables it to maintain its position as a
leading provider of IT support services.
- Core Expertise -- Ability to deliver mission critical IT and business
process solutions.
EUROPEAN OPERATIONS
TechTeam services its clients in Europe through three wholly-owned subsidiaries:
TechTeam Europe, Ltd., in Chelmsford, England; TechTeam Europe, NV/SA, in
Brussels, Belgium; and TechTeam Europe, GmbH, in Cologne, Germany.
TechTeam Europe, Ltd. and TechTeam Europe, GmbH provide clients with technical
staffing and help desk services. TechTeam Europe, NVSA primarily provides
TechTeam's clients with multilingual help desk support. A significant proportion
of the Company's business in Europe is driven by its client base in the United
States.
The Company's international business is subject to risks customarily encountered
in foreign operations, including changes in a specific country's or region's
political or economic conditions, trade protection measures, import or export
licensing requirements, the overlap of different tax structures, unexpected
changes in regulatory requirements, and natural disasters. The Company is also
exposed to foreign currency exchange rate risk, inherent in its sales
commitments, anticipated sales, and assets and liabilities denominated in
currencies other than the U.S. dollar. While these risks are believed to be
manageable, no assurances can be given.
ITEM 2. PROPERTIES
TechTeam's World Headquarters and principal executive offices are located in
Southfield, Michigan. The following table sets forth certain information
regarding the principal properties used by TechTeam, all of which are leased:
- ------------------------------------------------------------------------------------------------------------------------
LEASE TERM BEGINNING SQUARE
LOCATION FUNCTION AND EXPIRING FOOTAGE
- ------------------------------------------------------------------------------------------------------------------------
Southfield, MI World Headquarters and Call Center 11/01/93 - 12/31/05 100,657
Brussels, Belgium European Headquarters and Call Center 08/01/97 - 07/31/06 22,869
Dearborn, MI Call Center and Training Center 04/01/97 - 03/31/06 30,182
Davenport, IA Call Center 10/15/99 - 10/14/04 22,263
Chelmsford, England Sales and Administrative Office 11/01/00 - 11/01/03 3,340
Cologne, Germany Sales and Administrative Office 06/01/99 - 04/30/02 1,000
TechTeam believes that the facilities it occupies are well maintained and in
good operating condition, and are adequate to meet its needs for the foreseeable
future. These facilities include general office space and computer training
classrooms. Because some TechTeam services are performed at client sites, the
cost of maintaining multiple offices is minimized.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various 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 condition or
results of operations, although no assurances can be given in this regard.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
6
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the reported high and low sales prices of the
Company's common stock for the quarters indicated as reported by The Nasdaq
Stock Market(R). The Company's common stock trades on The Nasdaq Stock Market(R)
under the symbol "TEAM".
- -----------------------------------------------------------------------------------------------------------
YEAR AND QUARTER HIGH LOW
- -----------------------------------------------------------------------------------------------------------
2001
First Quarter...................................................... 4.000 2.125
Second Quarter..................................................... 3.200 2.125
Third Quarter...................................................... 3.200 2.150
Fourth Quarter..................................................... 3.250 2.200
2000
First Quarter...................................................... 7.500 4.438
Second Quarter..................................................... 5.875 3.188
Third Quarter...................................................... 4.375 3.000
Fourth Quarter .................................................... 3.563 1.875
The Company has never paid any dividends on its common stock. Any future
decision as to payment of dividends will be at the discretion of the Company's
Board of Directors and will depend upon the Company's earnings, financial
position, capital requirements, and such other factors as the Board of Directors
deems relevant.
TechTeam had 546 shareholders of record as of February 5, 2002. Management
estimates there are an additional 3,500 beneficial owners of the Company's stock
held in street name.
7
ITEM 6. SELECTED FINANCIAL DATA
The following table presents information derived from the Company's consolidated
financial statements for the five years ended December 31, 2001. This
information should be read in conjunction with "Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operation," and the "Item 8
Financial Statements and Supplementary Data." The results of operations
presented below are not necessarily indicative of the results of operations that
may be achieved in the future.
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Revenues
Corporate Services
Corporate help desk services ............. $ 50,877 $ 48,619 $ 39,314 $ 30,672 $ 17,650
Technical staffing ....................... 14,522 18,874 23,002 25,716 25,011
Systems integration ...................... 6,918 9,679 17,818 14,436 12,537
Training programs ........................ 2,005 3,485 4,888 6,622 7,005
--------- --------- --------- --------- ---------
Total Corporate Services .................... 74,322 80,657 85,022 77,446 62,203
Product Support Services .................... 439 16,150 27,306 25,376 19,124
Leasing Operations .......................... 19,849 27,349 20,477 14,099 --
--------- --------- --------- --------- ---------
Total revenues .................................. 94,610 124,156 132,805 116,921 81,327
Cost of services delivered ...................... 75,777 95,860 109,417 97,523 70,925
--------- --------- --------- --------- ---------
Gross profit .................................... 18,833 28,296 23,388 19,398 10,402
--------- --------- --------- --------- ---------
Other expenses
Selling, general, and administrative ........ 22,290 21,969 19,349 20,805 15,704
Class action litigation and related matters . -- -- 92 3,439 499
Michigan Single Business Tax ................ 700 1,710 450 496 180
--------- --------- --------- --------- ---------
Total other expenses ............................ 22,990 23,679 19,891 24,740 16,383
--------- --------- --------- --------- ---------
Operating income (loss) ......................... (4,157) 4,617 3,497 (5,342) (5,981)
Gain on sale of GE Joint Venture ................ -- 322 -- -- --
Interest income ................................. 1,186 887 644 1,845 3,039
Interest expense ................................ (779) (1,435) (914) (1,484) (69)
--------- --------- --------- --------- ---------
Net interest income (expense) ................... 407 (548) (270) 361 2,970
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............... (3,750) 4,391 3,227 (4,981) (3,011)
Income tax expense (credit) ..................... (172) 2,245 1,717 (1,233) (1,053)
--------- --------- --------- --------- ---------
Net income (loss) ............................... $ (3,578) $ 2,146 $ 1,510 $ (3,748) $ (1,958)
========= ========= ========= ========= =========
Basic earnings (loss) per share ................. $ (0.33) $ 0.17 $ 0.11 $ (0.24) $ (0.12)
========= ========= ========= ========= =========
Diluted earnings (loss) per share ............... $ (0.33) $ 0.17 $ 0.11 $ (0.24) $ (0.12)
========= ========= ========= ========= =========
Weighted average number of common shares
Basic ....................................... 10,771 12,554 13,280 14,758 15,664
Diluted ..................................... 10,771 12,554 13,303 14,758 15,664
8
- --------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------
STATEMENT OF FINANCIAL POSITION DATA: 2001 2000 1999 1998 1997
- -------------------------------------------------- ---------- ---------- ---------- ---------- ---------
(In thousands)
Current assets................................... $ 58,801 $ 40,985 $ 40,463 $ 52,606 $ 96,307
Current liabilities.............................. 11,746 17,840 18,069 19,972 10,560
Total assets..................................... 87,121 100,774 112,307 111,618 121,289
Long-term liabilities............................ 805 4,817 10,030 7,312 1,129
Total shareholders' equity....................... 74,570 78,117 84,208 84,334 109,600
ITEM 7. 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. 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. Forward-looking
statements may involve known and unknown risks, uncertainties and other factors,
which may cause the actual results, performance or achievements of National
TechTeam to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Among the
factors that could cause actual results to vary are those described in the
subsection of this Item 7 entitled "Factors Affecting Future Results."
The following discussion and analysis shall be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto initiated in
"Item 8 Financial Statements and Supplementary Data".
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
Revenues decreased $29.6 million, or 23.8%, to $94.6 million in 2001 from $124.2
million in 2000. The decrease resulted primarily from decreases in Product
Support Services of $15.7 million, Leasing Operations of $7.5 million, Technical
Staffing Services of $4.4 million, System Integration Services of $2.8 million,
and Training Services of $1.5 million offset, in part, by increases in Corporate
Help Desk Services of $2.3 million. Product Support Service revenues were down
due largely 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
2001. Revenues from Leasing Operations decreased primarily due to the Company's
decision to cease looking for new leasing opportunities. Systems Integration
revenues decreased due mainly to a reduction in computer upgrade and
installation work at an automotive client as well as the completion of systems
work at two smaller customers in 2000. Technical Staffing revenues decreased in
large part due to the Company's two major automotive customers making cuts in
subcontracted staffing to reduce their cost structure. Training revenues
decreased mostly 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. Corporate Help Desk revenues increased
principally due to new business with a company in the pharmaceutical industry
commencing in 2000 and increased business with one of the Company's major
automotive customers.
Gross Profit as a percentage of sales decreased to 19.9% in 2001 from 22.8% in
2000. The decrease was due to a series of factors, including, but not
necessarily limited to, a net loss from the sale of equipment coming off lease
of ($2.2) million in 2001 as compared to a gain of $0.7 million in 2000, an
increase of the Company's residual reserve by $1.5 million to $1.9 million and
the reduction in revenues, all in the Leasing Operations, a reduction in
revenues in the Product Support Services, and a reduction of gross profit margin
in the Corporate Help Desk segment due primarily to the effects of a 4th quarter
acquisition.
9
Selling, general and administrative expenses increased to $22.3 million in 2001
from $22.0 million in 2000. The $22.3 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 $300,000 for administrative
employees that were terminated, write-offs of $200,000 for remaining goodwill
and equity interest of prior acquisitions determined to be impaired, an $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 items, selling, general and administrative costs would have
decreased by approximately $900,000 in 2001.
The Michigan Single Business Tax decreased in 2001 primarily because in 2000 the
Company reversed certain credits that it had previously expected to receive.
Interest income increased to $1.2 million in 2001 from $0.9 million in 2000, due
to an improved cash position, which resulted from the Company's decision to no
longer underwrite new leasing business. Interest expense decreased due to the
reduction in the outstanding notes payable related to the leasing business.
TechTeam recognized an income tax credit of ($0.2) million on a pretax loss of
($3.8) million in 2001. The consolidated income tax provision is due to the
combination of a net income tax credit from U.S. operations, offset in part by
an income tax expense from European operations. The Company's effective tax
rates for the European operations are not significantly different than the
statutory rates. The Company's effective tax rate for the US operations differs
from the statutory tax rate primarily due to nondeductible goodwill and other
intangible asset amortization.
SIGNIFICANT ACCOUNTING ESTIMATES
At December 31, 2001, 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
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 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 the future results.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
Revenues decreased 6.5% to $124.2 million in 2000 from $132.8 million in 1999.
The decrease resulted primarily from revenue decreases in Product Support
Services of $11.2 million, System Integration Services of $8.1 million, and
Technical Staffing of $4.1 million offset by increases in part in Corporate Help
Desk Services of $9.3 million and leasing operations of $6.9 million. The
decrease in Product Support Services is due in large part to discontinuing
business during 2000 with several low margin original equipment manufacturers in
the computer industry through the GE Joint Venture. Systems integration revenues
decreased due to non-recurring revenue related to year 2000 remediation services
that were provided to a local government in 1999. Technical Staffing revenues
decreased due to non-recurring revenues related to the implementation of a
quality system program for a major client that took place in 1999 combined with
other various non-recurring staffing projects ending with the Company's two
major customers. The increase in corporate help desk services was due
principally to a major customer expanding its help desk to other business units
within its organization and in Europe as well as a new help desk project with
the European Commission that provides information and assistance to European
citizens. Leasing revenues increased due to new leases of telecom and computer
equipment to existing customers.
Gross profit as a percentage of sales increased to 22.8% in 2000 from 17.6% in
1999. The increase was primarily due to improved margins on existing corporate
help desk projects through expansion, while concurrently containing any related
incremental costs. Other contributing factors included the discontinuance of
certain low margin projects within the GE Joint Venture as discussed above,
along with the completion of non-recurring year 2000 remediation services
provided in 1999 to a local government agency. The remediation services included
an
10
equipment replacement component that was provided at lower margins than those
normally realized by the Company. Gross margins were positively impacted by a
net gain from sales of equipment that came off lease of $0.7 million in 2000 and
$1.1 million in 1999. There can be no assurance that similar gains will occur in
future years.
Selling, general and administration expenses increased to $22.0 million in 2000
from $19.3 million in 1999. The increase resulted primarily from costs related
to the development of the Company's call center Support Portal technology,
additional administration overhead costs required at the Company's European
offices, settlement costs related to a dispute with former employees of the
Company's leasing operations, and costs to retain investor relations
consultants. The increased administrative costs were required in Europe to
support revenue increases in 2000 at the three European offices (Belgium,
England and Germany).
The Michigan Single Business Tax increased because the Company did not qualify
for certain credits that it previously expected.
Interest income increased to $0.9 million in 2000 from $0.6 million in 1999. The
increase resulted from having a higher average cash and cash equivalent balance
during 2000.
Interest expense increased due to additional debt related to leasing operations.
TechTeam recognized $2.2 million of income tax in 2000, resulting in an
effective tax rate of 51.1% compared to an effective tax rate of 53.2% for
1999. The difference between the statutory tax rate of 34% and the effective tax
rates in 2000 and 1999 was mainly due to the tax effect of amortization expense
of purchased goodwill and other intangible assets, which is not deductible for
tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW PROVIDED FROM OPERATIONS
Cash flow provided from operating activities was $20.5 million in 2001. This
positive cash flow was due to non-cash depreciation and amortization expense of
$23.2 million, primarily related to the leasing operations, reduced by the
operating loss of $3.6 million.
CASH FLOW PROVIDED BY INVESTING ACTIVITIES
Cash flow provided by investing activities was $3.8 million in 2001. Net cash
used for the purchase and sale of securities available for sale was $2.6
million, purchase of property, equipment and software totaled $2.7 million,
primarily for the development of the Support Portal and leasehold improvements
at the Southfield and Brussels offices, and the purchase of subsidiary assets
for TechTeam Cyntergy L.L.C., was $0.8 million. These expenditures were offset
by the proceeds from the sale of off-lease equipment and marketing rights
related to the leasing operations in the amount of $4.0 million.
CASH FLOW USED IN FINANCING ACTIVITIES
Cash flow used in financing activities was $10.1 million in 2001. The company
reduced debt by $9.4 million in 2001 as compared to $12.2 million in 2000 and
used $0.6 million to repurchase Company stock in accordance with the stock
repurchase program.
The Company's working capital position at December 31, 2001 was $47.1 million
compared to $23.1 million at December 31, 2000. The company believes that cash
flow from operating activities will continue to be sufficient to meet its
ongoing working capital needs.
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 prior to July
1, 2001. In
11
addition, SFAS 141 changes the criteria to recognize 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 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. 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 is impaired under SFAS 142 as of the adoption date.
Accordingly, the Company believes it will take this charge in the first quarter
of 2002. At December 31, 2001, the leasing operations goodwill is $1,123,000.
Goodwill amortization related to leasing operations was $895,000 in 2001.
FACTORS AFFECTING FUTURE RESULTS
The risk factors listed in this section, as well as any other cautionary
language in this report, provide examples of just a few of the many risks,
uncertainties and events that may cause the Company's actual results to differ
materially from the expectations described in the forward-looking statements,
and could have a significant impact on the Company's business financial
condition and results of operations.
IMPACT OF BUSINESS WITH MAJOR CLIENTS:
As set forth in "Item 1 Business", TechTeam depends upon major clients in the
U.S. automotive industry for a substantial portion of its revenues. The loss of
any significant customer or a reduction in economic activity in the U.S.
automotive industry could have a material adverse impact on the Company's
business, financial condition and results of operations.
RISKS INHERENT IN LEASING:
In leasing of computer equipment, it is often difficult to determine, at the
time of the lease, the expected value of the equipment after the expiration of
the lease. Accordingly, variation in the residual value of equipment leased to
clients and the sale price of the equipment can lead to fluctuation in the
performance of TechTeam Capital Group, which could have a material adverse
effect on the Company's business, financial condition, and results of
operations.
COMPETITION:
The Company faces intense competition for all of its services, including the
help desk and call center markets. Some competitors have substantially greater
resources, including more locations, greater financial resources, a larger
client base, and more name recognition. As a result, the Company has experienced
and continues to anticipate significant pricing pressure from its customers in
order to remain a preferred vendor.
CONTRACT RISKS:
The great majority of the Company's non-leased related contracts are terminable
without cause on short notice, often upon 90 days notice. Terminations and
non-renewals of major contracts could have a material adverse impact upon the
Company's business, financial condition and results of operations. Moreover,
increasing portions of the Company's projects are billed on a managed service
basis (where the fee is fixed to perform specified services) as opposed to time
and materials. The Company's inability to estimate accurately the resources and
related expenses required for the managed service project or failure to complete
the Company's contractual obligations in a manner consistent with the
contractual obligations upon which fixed-fee contract was based could adversely
affect the business.
RELIANCE ON SENIOR MANAGEMENT:
The success of the Company is highly dependent upon the efforts, direction, and
guidance of its senior management. The Company does not have employment
agreements with all members of our senior management. The loss of any of these
senior executives or the Company's inability to attract, retain, or replace key
management personnel in the future, could have a material adverse effect on the
Company's business, financial condition and
12
results of operations.
ATTRACTION AND RETENTION OF EMPLOYEES:
The Company's business involves the delivery of professional services and is
labor intensive. The Company's success depends in large part upon its ability to
attract, develop, motivate, and retain highly skilled technical, clerical, and
administrative employees. Qualified personnel are in great demand and are likely
to remain a limited resource for the foreseeable future. Accordingly, the
Company expects to experience increased compensation costs that may not be
offset through either increased productivity or higher pricing. Moreover no
assurance can be given that TechTeam will be able to attract and retain
sufficient numbers of qualified employees in the future. The failure to do so
could have a material adverse effect on the Company's business, financial
condition and results of operations.
INTERRUPTION OF TELECOMMUNICATIONS SERVICES:
The Company's operations are dependent upon its ability to protect its technical
and customer support centers and its information databases against damages that
may be caused by fire and other disasters, power failure, telecommunications
failures, unauthorized intrusion, computer viruses and other emergencies. The
temporary or permanent loss of such systems could have a material adverse effect
on the Company's business, financial condition, and results of operations.
Notwithstanding precautions taken by the Company to protect itself and its
clients from events that could interrupt delivery of its services, there can be
no assurance that a fire, natural disaster, human error, equipment malfunction
or inadequacy, or other event would not result in a prolonged interruption in
the Company's ability to provide support services to its clients. Such an event
could have a material adverse effect on the Company's business, financial
condition and results of operations.
GROWTH THROUGH ACQUISITIONS AND NEW PRODUCTS:
The Company's business strategy has included growth through acquisitions of
businesses and technology sources complementary to the Company's business.
Acquisitions involve special risks such as diversion of management's attention,
unanticipated events, legal liabilities, and amortization of intangibles, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS:
Certain risks are inherent in the Company's business strategy, which includes
plans for the global expansion of the Company's operations. The Company may
encounter difficulties in marketing, selling, and delivering its services
outside the United States due, among other things, to differences in cultures,
languages, labor and employment policies, and differing political and social
systems. In addition, the Company's business, financial condition and results of
operations may be materially affected as a result of currency fluctuations and
differing tax laws in countries other than the United States.
RAPID TECHNOLOGICAL CHANGES; DEPENDENCE ON NEW SOLUTIONS:
The Company's success depends in part on its ability to develop IT solutions
that keep pace with continuing changes in IT, evolving industry standards, and
changing client preferences. There can be no assurance that the Company will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, the Company will be successful in the
marketplace.
INTELLECTUAL PROPERTY RIGHTS:
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secrets, copyright, and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance, however, that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
13
Although the Company believes that its services and/or software do not infringe
upon the intellectual property rights of others and that it has all rights
necessary to utilize the intellectual property employed in its business, the
Company is subject to the risk of litigation alleging infringement of
third-party intellectual property rights. Any such claims could require the
Company to spend significant sums in litigation, pay damages, develop non
infringing intellectual property, or acquire licenses of the intellectual
property that is the subject of asserted infringement.
VOLATILITY OF STOCK PRICE:
The market price of the Company's common stock has fluctuated over a wide range
during the past several years and may continue to do so in the future. (See
"Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.")
The market price of the Company's common stock could be subject to significant
fluctuations in response to various factors or events, including, among other
things, the depth and liquidity of the trading market of the common stock,
quarterly variations and actual anticipated operating results, growth rates,
market conditions in the industry in which the Company competes, announcements
by competitors, regulatory actions, litigation including class action
litigation, and general economic conditions. In addition, the stock market has
from time to time experienced significant price and volume fluctuations, which
have particularly affected the market prices of the stocks of technology
companies. As a result of the foregoing, the Company's operating results and
prospects from time to time may be below the expectations of public market
analysts and investors. Any such event could have a material adverse effect on
the price of the Company's common stock.
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material market risk sensitive instruments and does not
believe its exposure to market risk associated with derivative financial
instruments, derivative commodity instruments and other financial instruments is
material. Substantially all of the Company's operations are in the United
States. The Company's debt obligations have fixed interest rates and relatively
short lives. The Company is exposed to foreign currency exchange rate risk,
inherent in its sales commitments, anticipated sales, and assets and liabilities
denominated in currencies other than the U.S. dollar.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of National TechTeam, Inc. and
Subsidiaries are included in Item 8:
- --------------------------------------------------------------------------------------------------------------------------
PAGE
----------
Report of Ernst & Young LLP, Independent Auditors........................................................... 15
Consolidated Statements of Operations -- Years Ended December 31, 2001, 2000, and 1999...................... 16
Consolidated Statements of Comprehensive Income /(Loss) -- Years Ended December 31,
2001, 2000, and 1999.................................................................................... 16
Consolidated Statements of Financial Position -- December 31, 2001 and December 31, 2000.................... 17-18
Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 2001, 2000, and 1999............ 19
Consolidated Statements of Cash Flows -- Years Ended December 31, 2001, 2000, and 1999...................... 20
Notes to the Consolidated Financial Statements.............................................................. 21-35
The following financial statement schedules of National TechTeam, Inc. and
Subsidiaries are included pursuant to the requirements of Item 14(d): None.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission and for which the
information is not already included in the financial statements are not required
under the related instructions or are not applicable and, therefore, have been
omitted.
14
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
NATIONAL TECHTEAM, INC.
We have audited the accompanying consolidated statements of financial position
of National TechTeam, Inc. and subsidiaries as of December 31, 2001 and 2000 and
the related consolidated statements of operations, comprehensive income/(loss),
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of GE
TechTeam LP (an entity in which the Company had a 49% interest) for the year
ended December 31, 1999, have been audited by other auditors whose report has
been furnished to us; insofar as our opinion on the consolidated financial
statements relates to data included for GE TechTeam LP, it is based solely on
their report.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of National TechTeam, Inc. and subsidiaries
at December 31, 2001 and 2000, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States.
Detroit, Michigan /s/ Ernst & Young LLP
February 22, 2002
15
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------
(In thousands, except per share data)
REVENUES
Corporate Services
Corporate help desk services ........... $ 50,877 $ 48,619 $ 39,314
Technical staffing ..................... 14,522 18,874 23,002
Systems integration .................... 6,918 9,679 17,818
Training programs ...................... 2,005 3,485 4,888
--------- --------- ---------
Total Corporate Services .................. 74,322 80,657 85,022
Product Support Services .................. 439 16,150 27,306
Leasing Operations ........................ 19,849 27,349 20,477
--------- --------- ---------
TOTAL REVENUES ................................ 94,610 124,156 132,805
COST OF SERVICES DELIVERED .................... 75,777 95,860 109,417
--------- --------- ---------
GROSS PROFIT .................................. 18,833 28,296 23,388
--------- --------- ---------
OTHER EXPENSES
Selling, general, and administrative ...... 22,290 21,969 19,349
Class action litigation and related matters -- -- 92
Michigan Single Business Tax .............. 700 1,710 450
--------- --------- ---------
TOTAL OTHER EXPENSES .......................... 22,990 23,679 19,891
--------- --------- ---------
OPERATING INCOME (LOSS) ....................... (4,157) 4,617 3,497
Gain on sale of GE Joint Venture .............. -- 322 --
Interest income ............................... 1,186 887 644
Interest expense .............................. (779) (1,435) (914)
--------- --------- ---------
NET INTEREST INCOME (EXPENSE) ................. 407 (548) (270)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ............. (3,750) 4,391 3,227
Income tax expense (credit) ................... (172) 2,245 1,717
--------- --------- ---------
NET INCOME (LOSS) ............................. $ (3,578) $ 2,146 $ 1,510
========= ========= =========
Basic and diluted earnings (loss) per share ... $ (0.33) $ 0.17 $ 0.11
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Basic ..................................... 10,771 12,554 13,280
Net effect of dilutive stock options ...... -- -- 23
--------- --------- ---------
Diluted ................................... 10,771 12,554 13,303
========= ========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
- --------------------------------------------------------------------------------
NET INCOME (LOSS), AS SET FORTH ABOVE ...... $(3,578) $ 2,146 $ 1,510
OTHER COMPREHENSIVE LOSS, NET OF TAX
Foreign currency translation adjustments (109) (69) (105)
------- ------- -------
COMPREHENSIVE INCOME (LOSS) ................ $(3,687) $ 2,077 $ 1,405
======= ======= =======
See accompanying notes.
16
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- --------------------------------------------------------------------------------------------------------
DECEMBER 31,
------------------------------------
ASSETS 2001 2000
- -------------------------------------------------------------- --------------- ---------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents .............................. $ 30,251 $ 15,995
Securities available for sale .......................... 5,321 2,725
Accounts receivable (less allowances of $433 and $313 at
December 31, 2001 and 2000, respectively) ........... 17,721 18,937
Refundable taxes ....................................... 2,693 859
Inventories ............................................ 304 238
Prepaid expenses and other ............................. 1,281 1,883
Deferred income tax .................................... 1,230 348
-------- --------
Total current assets ................................... 58,801 40,985
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Computer equipment and office furniture ................ 16,125 16,528
Purchased software ..................................... 8,610 8,035
Leasehold improvements ................................. 3,096 2,668
Transportation equipment ............................... 213 240
-------- --------
28,044 27,471
Less -- Accumulated depreciation and amortization ...... 19,371 18,151
-------- --------
8,673 9,320
OTHER ASSETS
Assets of leasing operations, net of depreciation ...... 15,705 41,209
Intangibles, net of amortization ....................... 3,432 5,297
Deferred income tax .................................... 276 1,689
Loans receivable ....................................... 77 1,008
Other .................................................. 157 1,266
-------- --------
19,647 50,469
-------- --------
TOTAL ASSETS ............................................... $ 87,121 $100,774
======== ========
See accompanying notes.
17
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- ---------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
- ---------------------------------------------------------------------------- --------------- ---------------
(In thousands)
CURRENT LIABILITIES
Accounts payable ................................................. $ 1,981 $ 3,417
Accrued payroll, related taxes, and withholdings ................. 2,762 3,217
Deferred revenues ................................................ 1,184 264
Accrued expenses and taxes ....................................... 1,097 681
Current portion of notes payable ................................. 4,605 9,790
Other ............................................................ 117 471
--------- ---------
Total current liabilities ........................................ 11,746 17,840
LONG-TERM LIABILITIES ................................................ 805 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 December 31, 2001 and 2000 ........ 167 167
Additional paid-in capital ....................................... 108,212 110,011
Retained earnings ................................................ 839 4,417
Accumulated other comprehensive loss -- foreign currency
translation adjustment ........................................ (227) (118)
--------- ---------
Total ............................................................ 108,991 114,477
Less -- treasury stock (5,828,374 and 5,856,455 shares at
December 31, 2001 and 2000, respectively) ..................... 34,421 36,360
--------- ---------
Total shareholders' equity ....................................... 74,570 78,117
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................... $ 87,121 $ 100,774
========= =========
See accompanying notes.
18
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME /(LOSS) STOCK
-------------- --------------- -------------- ---------------- --------------
(In thousands)
Balance at January 1, 1999 ............... $ 167 $ 111,414 $ 761 $ 56 $ (28,064)
Proceeds from issuance of 13,600
shares under stock option plans ... -- 61 -- -- --
Tax benefit from exercise of employee
stock options and other ........... -- 44 -- -- --
Contribution to 401(k) plan and
other ............................. -- (427) -- -- 1,288
Purchase of common stock ............. -- -- -- -- (2,497)
Net income for 1999 .................. -- -- 1,510 -- --
Other comprehensive loss for 1999 .... -- -- -- (105) --
--------- --------- --------- --------- ---------
Balance at December 31, 1999 ............. 167 111,092 2,271 (49) (29,273)
Proceeds from issuance of 5,600
shares under stock option plans ... -- 26 -- -- --
Tax benefit from exercise of employee
stock options and other ........... -- 33 -- -- --
Contribution to 401(k) plan and
other.............................. -- (1,140) -- -- 1,982
Purchase of common stock ............. -- -- -- -- (9,069)
Net income for 2000 .................. -- -- 2,146 -- --
Other comprehensive loss for 2000 .... -- -- -- (69) --
--------- --------- --------- --------- ---------
Balance at December 31, 2000 ............. 167 110,011 4,417 (118) (36,360)
Tax benefit from exercise of employee
stock options and other ........... -- 32 -- -- --
Contribution to 401(k) plan and
other ............................. -- (1,831) -- -- 2,548
Purchase of common stock ............. -- -- -- -- (609)
Net loss for 2001 .................... -- -- (3,578) -- --
Other comprehensive loss for 2001 .... -- -- -- (109) --
--------- --------- --------- --------- ---------
Balance at December 31, 2001 ............. $ 167 $ 108,212 $ 839 $ (227) $ (34,421)
========= ========= ========= ========= =========
See accompanying notes.
19
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
------------- ------------- --------------
(In thousands)
OPERATING ACTIVITIES
Net income (loss) ............................... $(3,578) $ 2,146 $ 1,510
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation .............................................. 20,229 22,091 17,633
Amortization .............................................. 2,946 4,063 3,761
Treasury stock contributed to 401(k) plan and other ....... 717 842 861
Sale and equity earnings of GE Joint Venture .............. -- (653) --
(Gain) Loss on sales of equipment and other ............... 388 500 (1,213)
Provision for deferred income tax ......................... 531 (447) 172
Provision for uncollectible accounts receivable ........... 549 280 748
Net undistributed (earnings) loss of affiliates ........... -- 100 390
Changes in current assets and liabilities:
Accounts receivable ................................... 1,586 2,484 (612)
Inventories ........................................... (66) 1,150 (577)
Prepaid expenses and other current assets ............. 602 (67) (93)
Accounts payable ...................................... (1,436) 975 (1,660)
Accrued payroll, related taxes, and withholdings ...... (455) (68) (985)
Federal income tax .................................... (1,834) 180 2,114
Deferred revenues and unapplied receipts .............. 72 (574) (1,191)
Accrued expenses and taxes ............................ 416 (103) (361)
Other current liabilities ............................. (354) 319 (246)
Other long-term liabilities ............................... 236 -- --
-------- -------- --------
Net cash provided by operating activities ................. 20,549 33,218 20,251
INVESTING ACTIVITIES
Purchases of securities available for sale ...................... (13,689) (2,725) (2,071)
Proceeds from sales of securities available for sale ............ 11,093 -- 2,071
Proceeds from sales of property and equipment ................... 4,338 480 23,375
Net change in investment in direct financing leases and
residuals...................................................... 3,049 2,328 (121)
Purchases of property, equipment, and software .................. (2,725) (6,682) (1,328)
Write off loan receivable ....................................... 932 -- --
Proceeds from sale of marketing rights .......................... 915 -- --
Acquisition ..................................................... (800) -- --
Purchases of leased equipment ................................... -- (12,469) (53,366)
Proceeds from sale of GE Joint Venture and related assets ....... -- 1,750 --
Other -- net .................................................... 713 975 (81)
-------- -------- --------
Net cash provided by (used in) investing activities .......... 3,826 (16,343) (31,521)
Financing activities
Payments on long-term borrowings ................................ (9,433) (12,167) (11,063)
Purchase of Company common stock ................................ (609) (9,069) (2,497)
Proceeds from long-term borrowings .............................. -- 6,174 16,326
Other -- net .................................................... (77) (10) --
-------- -------- --------
Net cash provided by (used in) financing activities .......... (10,119) (15,072) 2,766
-------- -------- --------
Increase (decrease) in cash and cash equivalents ............. 14,256 1,803 (8,504)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................... 15,995 14,192 22,696
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................ $ 30,251 $ 15,995 $ 14,192
======== ======== ========
See accompanying notes.
20
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of National TechTeam,
Inc. and its wholly-owned subsidiaries. Collectively, these companies are
referred to as the "Company" or "TechTeam." Intercompany accounts and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS:
Cash includes both interest bearing and non-interest bearing deposits, which are
available on demand. Cash equivalents include all liquid investments with a
maturity of three months or less when purchased, including money market funds
held at banks.
SECURITIES AVAILABLE FOR SALE:
The Company's management determines the appropriate classification of securities
at the time of purchase and re-evaluates such designation as of each balance
sheet date. Securities available for sale are stated at fair value with any
unrealized gains and losses, net of tax, reported as a component of accumulated
other comprehensive income (loss). Securities available-for-sale were invested
primarily in corporate and United States government agency debt securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of certain financial instruments such as cash and cash
equivalents, securities available for sale, accounts receivable, accounts
payable and notes payable approximate their fair values due to their short
period to maturity or market interest rates.
INVENTORIES:
Purchased inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market and consist principally of computer
equipment and software. Certain inventories consist of equipment retained by the
Company subsequent to the end of the lease term to be resold. Such off-lease
equipment is valued at the lower of estimated market value at lease termination
or current market value. Valuation reserves against depreciated cost of
off-lease equipment inventory amounted to $1.0 million at December 31, 2001 and
$270,000 at December 31, 2000. Substantially all of the net increases in such
reserves result from charges to operations.
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE:
Property, equipment, and purchased software for internal use are stated at cost.
Property and equipment are depreciated on the straight-line method over their
estimated useful lives, ranging from 3 to 10 years. Leasehold improvements are
amortized on a straight-line basis over the lesser of the lease term or the
estimated useful lives of the improvements. Purchased software is amortized over
3 to 7 years.
21
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INTANGIBLES:
Intangibles include the following:
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
-----------------------------
AMORTIZATION PERIOD
2001 2000 (STRAIGHT-LINE-BASIS)
-------------- ----------- -----------------------
(In thousands)
Intangible lease asset................................... $ 7,311 $ 7,311 3 years
Global Call Center....................................... 5,408 5,408 7 years
Goodwill................................................. 4,950 6,306 5 to 10 years
Cyntergy Customer Contract Asset......................... 701 -- 5 years
Other software tools..................................... -- 1,166 5 years
------- ----------
18,370 20,191
Less: Accumulated amortization........................... 14,938 14,894
------- ----------
$ 3,432 $ 5,297
======= ==========
In the allocation of the purchase price of TechTeam Capital Group, the Company
evaluated the lease contracts of TechTeam Capital Group and the related
equipment, including estimated residual values at the end of the contractual
lease terms. The excess of the discounted cash flows from the lease contracts,
including the estimated cash flows from estimated residual values, over the
appraised fair value of the underlying equipment, was recorded by the Company as
intangible lease asset in the purchase allocation and was amortized over the
related lease terms.
In the allocation of the purchase price of TechTeam Cyntergy, L.L.C. (TTCY), the
Company evaluated the customer contracts of TTCY, related equipment, accounts
receivables and notes receivables. The excess of the purchase price over the
estimated fair value of the related equipment, accounts receivable and notes
receivable was recorded by the Company as an intangible customer contract asset
and is being amortized over the related contract terms.
Goodwill represents the excess cost over the fair value of net assets acquired.
The Company re-evaluates goodwill and other intangibles based on undiscounted
operating cash flows whenever significant events or changes occur that might
indicate impairment of recorded costs. If undiscounted cash flows are
insufficient to recover recorded costs, the Company writes down recorded costs
of the assets to fair value (based on discounted cash flows or market values).
22
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
REVENUE RECOGNITION:
Revenues from Corporate Services and Product Support Services are recognized as
services are performed. Revenues from TechTeam Capital Group are recognized as
described in "Lease Accounting Policies" below. Revenues from product sales are
recognized when title is transferred. The Company has also licensed customers to
use its Support Portal, which includes the Company's Global Call Center, a call
tracking software product. Revenues from these licenses are recognized in one of
two ways: on a usage basis, when the licenses are granted in connection with
on-going services; or as lump sum fees when the client acquires the rights to
use and is allowed access to the Global Call Center without any on-going service
obligation by the Company.
DEFERRED INCOME TAXES:
Deferred tax assets and liabilities are determined based on temporary
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
LEASE ACCOUNTING POLICIES:
As a lessor of equipment, the Company, through TechTeam Capital Group, accounts
for leases under Statement of Financial Accounting Standards No. 13, "Accounting
for Leases," principally as either direct financing or operating leases. Each of
these types of leases, and its impact on the financial statements of TechTeam,
is as follows:
Operating Leases
Equipment leased to others under operating leases is recorded at cost, less
accumulated depreciation. In estimating depreciation, a residual amount is
assumed. Residual is the estimated fair market value of the leased assets at the
termination of the lease. In estimating residual, the Company relies largely on
historical experience by equipment type and manufacturer, adjusted for known
trends. The Company's estimates of residual values are reviewed periodically;
however, the amount the Company will ultimately realize could differ from these
estimates. Valuation reserves against originally estimated residual values
amounted to $1.9 million and $535,000 at December 31, 2001 and 2000
respectively. Substantially all of the net increases in such reserves result
from charges to operations.
Revenues from operating leases are recognized on a straight-line basis over the
lease term.
Depreciation is recognized on a straight-line basis over the lease term.
Direct Financing Leases
Net investment in direct financing leases consists of the present value of the
future minimum lease payments, the present value of the estimated residual, and
initial direct costs.
Revenues consist of interest earned on the net investment. Revenues are
recognized over the lease term as a constant percentage return on the net
investment.
Initial direct costs are capitalized and amortized over the lease term.
23
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other
Additionally, the Company acts as a broker in arranging certain lease
transactions and recognizes fees for such services as earned. In connection with
certain transactions, the Company receives a share in the proceeds from the sale
or re-lease of the equipment at lease termination. In certain of such cases,
estimated residual values, referred to as "net investment in lease residuals,"
are recorded as revenue at discounted present values at the closing of the
transaction. The excess of the actual residual value received by the Company
over the discounted present value (unearned income) is recognized as revenue
upon the sale or re-lease of the equipment at the termination of the lease.
STOCK OPTIONS:
TechTeam accounts for employee stock options under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations.
USE OF ESTIMATES:
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States, requires the Company's management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from the
estimates and assumptions made.
RECLASSIFICATIONS:
Certain reclassifications have been made to 2000 and 1999 financial statements
to conform to the 2001 financial statement presentations.
EFFECTS OF ACCOUNTING PRONOUNCEMENTS:
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," was issued by the Financial Accounting Standards Board (FASB) in
June 2001. SFAS 141 eliminates the pooling-of-interest method of accounting for
business combinations except for qualifying business combinations initiated
prior to July 1, 2001. In addition, SFAS 141 changes the criteria to recognize
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 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. 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 is impaired under SFAS 142 as of the adoption date.
Accordingly, the Company believes it will take this charge in the first quarter
of 2002. At December 31, 2001 the leasing operations goodwill is $1,123,000.
Goodwill amortization related to leasing operations was $895,000 in 2001.
24
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE B -- DESCRIPTION OF THE BUSINESS
The Company provides corporate services, call center services, and lease
financing for high technology and capital equipment for major companies on an
international scale. Revenues from clients that exceeded 10% of total revenues
for any of the periods presented are summarized as follows:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
--------- --------- ---------
(In thousands)
Ford Motor Company........................ $ 41,238 $ 40,062 $ 25,500
DaimlerChrysler .......................... 16,584 22,573 25,598
GE TechTeam LP............................ -- 16,150 27,306
NOTE C -- ACQUISITIONS AND DIVESTITURES
On September 28, 2001, TechTeam's newly formed subsidiary, TechTeam Cyntergy,
LLC, ("TTCY") acquired certain assets of Cyntergy Corporation, a privately held
company, in a two-step transaction.
First, TTCY purchased and took an assignment of certain credit facilities and
promissory notes from Cyntergy's principal lender. As a result, TTCY acquired
all of the lender's rights as a secured creditor under the Financing and
Security Agreement and other documentation of the credit facility. Cyntergy
Corporation's borrowings and the credit facilities was in excess of $6 million.
The purchase price of the credit facility was $1,050,000.
Second, TTCY entered into an Agreement for Conveyance In Lieu of Foreclosure
with Cyntergy Corporation. Under this agreement, TTCY acquired certain assets of
Cyntergy Corporation by forgiving $4.5 million of the total debt. These assets
included accounts receivable, notes receivable, various fixed assets, and
certain customer contracts. TTCY is currently providing services to many of
Cyntergy Corporation's former customers. Annual revenue derived from these
customers is estimated at $4.2 million.
The Company recorded a net cash payment of $800,000 and assumed liabilities of
$848,000. Purchased assets include accounts receivable of $670,000, a long-term
note of $250,000, property and equipment of $27,000 and contracts valued at
$701,000.
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 no longer provide staffing
services to GEWM. The Company has entered into an arrangement with GEWM to
provide call center 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 revenue sharing amounted to earnings of $331,000 for the year ended
December 31, 2000, and losses of $315,000 for the year ended December 31, 1999.
In 1999, 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.
25
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D -- TAX PROVISIONS
The provision (credit) for income taxes consists of the following:
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------
(In thousands)
Current:
U.S. Federal (credit)..................................... $ (1,337) $ 2,087 $ 1,319
State..................................................... 154 226 121
Foreign................................................... 480 379 105
--------------- -------------- ---------------
(703) 2,692 1,545
Deferred (credit) -- U.S. Federal............................. 531 (447) 172
--------------- -------------- ---------------
Total provision (credit)...................................... $ (172) $ 2,245 $ 1,717
=============== ============== ===============
Tax payments.................................................. $ 800 $ 2,586 $ 1,050
=============== ============== ===============
A reconciliation of the Federal income tax provision and the amount computed by
applying the Federal statutory income tax rate to income before Federal income
tax follows:
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
(In thousands)
Income tax provision (credit) at Federal statutory rate of
34%........................................................ $ (1,275) $ 1,492 $ 1,097
Goodwill, intangibles, and other permanent differences....... 925 616 498
Foreign tax credit........................................... (117) (161) --
State taxes, net of federal benefit.......................... 102 149 80
Other........................................................ 193 149 42
--------------- -------------- --------------
$ (172) $ 2,245 $ 1,717
=============== ============== ==============
The provision for income taxes was calculated based on the following components
of earnings before income taxes:
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
(In thousands)
Domestic..................................................... $ (4,981) $ 3,020 $ 2,944
Foreign...................................................... 1,231 1,371 283
--------------- -------------- --------------
$ (3,750) $ 4,391 $ 3,227
=============== ============== ==============
26
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D -- TAX PROVISIONS (continued)
The principal components of deferred income tax balances are as follows:
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
Alternative minimum tax credit carryforward ..... $ 1,980 $ -- $ 2,341 $ --
Allowance for uncollectible accounts receivable.. 138 -- 80 --
Global Call Center software...................... -- -- 731 --
Leasing accounting............................... -- 165 -- 673
Prepaid expenses................................. 63 -- 43 --
Accelerated tax depreciation..................... -- 359 -- 239
Other............................................ -- 151 -- 246
------------- ------------- ------------- -------------
$ 2,181 $ 675 $ 3,195 $ 1,158
============= ============= ============= =============
At December 31, 2001, for United States federal income tax purposes, the Company
had a $2.0 million alternative minimum tax credit carry forward that does not
expire.
No provision was made with respect to approximately $800,000 of undistributed
earnings of foreign subsidiaries at December 31, 2001, since these earnings are
considered by the Company to be permanently reinvested. Upon distribution of
these earnings, the Company would be subject to United States income taxes and
foreign withholding taxes. Determining the unrecognized deferred tax liability
on the distribution of these earnings is not practicable as such liability, if
any, is dependent on circumstances existing when remittance occurs.
NOTE E -- ASSETS OF LEASING OPERATIONS
The assets of the Company's leasing operations consist of the following:
- --------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------------
2001 2000
--------------- --------------
(In thousands)
Equipment leased to others under operating leases:
Cost...................................................... $ 45,058 $ 61,089
Less -- Accumulated depreciation.......................... 31,023 25,514
--------------- --------------
14,035 35,575
Net investment in direct financing leases, consisting of:
Total minimum lease payments receivable................... 1,653 3,952
Estimated residual values of leased property
(unguaranteed)......................................... 151 690
Unearned income........................................... (158) (434)
Initial direct costs...................................... 6 18
--------------- --------------
1,652 4,226
--------------- --------------
Net investment in lease residuals............................. 18 1,408
--------------- --------------
Total......................................................... $ 15,705 $ 41,209
=============== ==============
27
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E -- ASSETS OF LEASING OPERATIONS (continued)
Future lease revenues anticipated under noncancelable operating leases at
December 31, 2001 are:
- ----------------------------------------------------------
YEAR AMOUNT
- ----------------------------------------- --------------
(In thousands)
2002 $ 8,390
2003 339
2004 63
--------------
Total $ 8,792
==============
Minimum lease payments receivable under direct financing leases at December 31,
2001 are:
- ---------------------------------------------------------
YEAR AMOUNT
- ---------------------------------------- --------------
(In thousands)
2002 $ 1,018
2003 415
2004 209
2005 11
--------------
Total $ 1,653
==============
NOTE F -- NOTES PAYABLE
Notes payable at December 31, consists of:
- -----------------------------------------------------------------------------------------------------------
2001 2000
----------- ----------
(In thousands)
Nonrecourse notes payable to financial institutions-- 6.0% - 12%........... $ 3,981 $ 12,416
Nonrecourse notes payable to others-- 7.0% - 9.2%.......................... 1,193 2,191
----------- ----------
Total...................................................................... $ 5,174 $ 14,607
=========== ==========
The Company finances a portion of its lease transactions by assigning the
noncancelable rentals to various financial institutions and others on a
nonrecourse basis. In the event of a default by the lessee under a lease which
has been assigned on a nonrecourse basis, the holder has a first lien against
the underlying equipment but has no further recourse against the Company.
At December 31, 2001 and 2000, the carrying value of the pledged assets was
approximately $10,000,000 and $19,000,000, respectively.
28
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F -- NOTES PAYABLE (continued)
Future minimum payments of notes payable are as follows:
- --------------------------------------------------------------------------------
YEAR AMOUNT
- --------------------------------------------------------------- --------------
(In thousands)
2002......................................................... $ 4,605
2003......................................................... 363
2004......................................................... 195
2005......................................................... 11
--------------
Total........................................................ $ 5,174
==============
Interest paid on notes payable was $703,000, $1,429,000, and $880,000 in 2001,
2000, and 1999 respectively.
NOTE G -- EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) Retirement Savings Plan, which covers substantially all
employees. Under the provisions of the Plan, the Company will match employee
contributions in amounts up to 3% of gross compensation subject to statutory
limitations; contributions were $673,000 in 2001, $723,000 in 2000, and $718,000
in 1999. The Company's matching contributions are made only with the Company's
common stock and are credited only to the National TechTeam Stock Fund for the
benefit of each participant.
NOTE H -- LEASES
The Company leases its call center facilities, corporate and other offices and
certain office equipment under noncancelable operating leases. These leases are
renewable with various options and terms. Total rental expense was $3,993,000 in
2001, $2,911,000 in 2000 and $2,829,000 in 1999.
Minimum future payments and receipts under noncancelable operating leases and
subleases with initial terms of one year or more at December 31, 2001 were:
- --------------------------------------------------------------------------------
LEASE SUBLEASE
YEAR PAYMENTS RECEIPTS
- ----------------------------------------------- -------- --------
(In thousands)
2002........................................... $ 2,973 $ 449
2003........................................... 2,697 456
2004........................................... 2,190 292
2005........................................... 2,055 238
2006 and thereafter............................ 389 60
-------- --------
Total.............................................. $ 10,304 1,495
======== ========
29
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I -- 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.
NOTE J -- RELATED PARTY TRANSACTIONS
TechTeam was involved in the following related party transactions:
a) Paid $93,000 and $9,000 in 2000 and 2001, respectively, for broker fees
to a securities brokerage firm that employs a director of the Company.
b) Paid $103,000 and $160,000 in 2000 and 2001, respectively, for
consulting fees to a director of the Company.
c) Paid legal fees of $45,000 and $13,000 in 2000 and 2001, respectively,
to a law firm whose members include a director of the Company.
NOTE K -- PREFERRED SHARE PURCHASE RIGHTS
On April 29, 1997, the Company's Board of Directors authorized the distribution
of one Preferred Share Purchase Right ("Right") for each outstanding share of
Common Stock of the Company. The terms of the Rights plan are described in the
Rights Agreement between the Company and U.S. Stock Transfer Corporation, dated
May 6, 1997, as amended August 24, 2000. Each Right entitles shareholders to buy
one one-hundredth of a share of a new series of preferred stock at a price of
$80.
As distributed, the Rights trade together with the Common Stock of the Company
and do not have any separate voting powers. They may be exercised or traded
separately only after the earlier to occur of the following: (1) 10 days after
any person or group of persons acquires 15% or more of the Company's Common
Stock, (2) 10 business days after a person or group of persons announces an
offer that, if completed, would result in its owning 15% or more of the
Company's Common Stock, or (3) promptly after a declaration by the Board that a
person who acquires 15% or more of the Company's Common Stock is an "Adverse
Person" as defined by the Rights Agreement. Additionally, if the Company is
acquired in a merger or other business combination, each Right will entitle its
holder to purchase, at the Right's exercise price, shares of the acquiring
Company's Common Stock (or stock of the Company if it is the surviving
corporation) having a market value of twice the Right's exercise price.
The Rights may be redeemed at the option of the Board of Directors for $.01 per
Right at any time before a person or group of persons accumulates 15% or more of
the Company's Common Stock. At any time after a person or group of persons
acquires 15% but before the person or group of persons has acquired 50% of
outstanding shares of the Company's Common Stock, the Board may exchange each
Right for one share of Common Stock. The Board may amend the Rights at any time
without shareholder approval. The Rights will expire by their terms on May 6,
2007.
NOTE L -- STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, when the exercise price of the Company's employee stock options equals
or exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
30
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L -- STOCK OPTIONS (continued)
The Company's 1990 Nonqualified Stock Option Plan has authorized the grant of
options to management personnel and others for up to 3,800,000 shares of the
Company's common stock. Generally, options granted have six year terms and vest
and become exercisable ratably over the first five years of their term.
Pro forma information regarding net income/(loss) and earnings/(loss) per share
is required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method. The fair value for
these options was estimated as of the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1999 through
2001: a range of risk-free interest rates of 5% to 7% based on the expected life
of the options; a volatility factor of the expected market price of the
Company's common stock of .504, .464, and .774 in 2001, 2000, and 1999,
respectively; and a weighted average expected life of three years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
- -------------------------------------------------------------------------------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands)
Pro forma net income/(loss)................................... $ (4,622) $ 1,031 $ 20
Pro forma earnings/(loss) per share
Basic..................................................... $ (0.43) $ 0.08 $ 0.00
Diluted................................................... $ (0.43) $ 0.08 $ 0.00
The pro forma effect on net income in 1999 is not representative of the pro
forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to stock option grants made
prior to 1995. Assuming similar grants in future years, the pro forma effect is
fully reflected as of 2000.
31
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L-- STOCK OPTIONS (continued)
A summary of the Company's stock option activity and related information is as
follows:
- ------------------------------------------------------------------------------------------------------------------------
EMPLOYEES DIRECTORS OTHERS
------------------------- -------------------------- -------------------------
TOTAL AVERAGE AVERAGE AVERAGE
SHARES SHARES PRICE SHARES PRICE SHARES PRICE
------------ ------------ ----------- ------------ ------------ ----------- ------------
Outstanding at
January 1, 1999...... 1,008,601 846,473 $ 10.39 159,275 $ 9.21 2,853 $ 35.05
Granted.................. 519,800 414,800 5.51 30,000 6.44 75,000 5.65
Exercised................ (13,600) (13,600) 4.50 -- -- -- --
Canceled................. (357,587) (303,312) 14.39 (54,275) 14.61 -- --
------------ ------------ ------------ -----------
Outstanding at
December 31, 1999.... 1,157,214 944,361 11.09 135,000 15.11 77,853 6.72
Granted.................. 337,000 187,000 5.50 60,000 5.75 90,000 7.43
Exercised................ (5,600) (5,600) 4.63 -- -- -- --
Canceled................. (135,427) (135,427) 8.82 -- -- -- --
------------ ------------ ------------ -----------
Outstanding at
December 31, 2000.... 1,353,187 990,334 10.43 195,000 12.23 167,853 7.10
Granted.................. 535,000 475,000 2.73 60,000 3.06 -- --
Exercised................ -- -- -- -- -- -- --
Canceled................. (251,061) (233,208) 8.80 (15,000) 5.00 (2,853) 35.05
------------ ------------ ------------ -----------
Outstanding at
December 31, 2001.... 1,637,126(1) 1,232,126 7.77 240,000 10.39 165,000 6.62
============ ============ ============ ===========
(1) The following table summarizes certain information about stock options
outstanding at December 31, 2001:
- -----------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------- -----------------------------------
WEIGHTED - WEIGHTED - WEIGHTED -
RANGE OF NUMBER OF AVERAGE AVERAGE PER NUMBER OF AVERAGE PER
PER SHARE OPTIONS REMAINING SHARE EXERCISE OPTIONS SHARE EXERCISE
EXERCISE PRICES OUTSTANDING EXERCISE PERIOD PRICE EXERCISABLE PRICE
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 2.60 - $ 7.71 1,141,400 3.2 $ 4.99 246,950 $ 4.39
8.25 - 13.75 282,400 1.8 9.87 218,200 9.72
22.63 - 25.75 213,326 .6 25.31 166,869 25.31
The Company granted options to purchase 90,000 shares of common stock to
consultants in 2000 and no options were granted to consultants in 2001. The
estimated fair value of such options was expensed over the contract benefit
period.
32
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE M -- STOCK REPURCHASE PROGRAMS
The company has acquired shares of its common stock in connection with stock
repurchase programs. In 1999, the Company repurchased 402,100 shares for
$2,497,000.
In May of 2000, the Company announced a stock repurchase program to repurchase
up to 2,000,000 shares of common stock. In October of 2000, the Company extended
this program to repurchase an additional 2,000,000 shares. During 2000 the
Company repurchased 2,605,150 shares for $9,069,000, and in 2001 the Company
repurchased 229,000 shares for $609,000 under this program.
NOTE N -- SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. TechTeam's chief operating
decision making group is the Senior Management Committee, which is comprised of
the President and the lead executives of each of TechTeam's functional areas.
The operating segments are managed separately because each operating segment
represents a strategic business unit that offers different products.
The Company's reportable operating segments include Corporate Service
(consisting of corporate help desk services, technical staffing, systems
integration, and training programs), Product Support Services and Leasing
Operations, (See "Item 1 Business Overview" for a description of each business
segment).
The Company's reportable geographic segments are the United States and Europe.
The European segment provides services in the Corporate Help Desk Services and
the Technical Staffing segments. The United States geographic segment provides
services in all operating segments. Revenues are attributed to geographic
segments based upon the location of service delivery.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. TechTeam evaluates
performance based on stand alone operating segment gross profit.
33
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE N-- SEGMENT REPORTING (continued)
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE SERVICES
-----------------------------------------------------------
CORPORATE PRODUCT
HELP DESK TECHNICAL SYSTEMS TRAINING SUPPORT LEASING
SERVICES STAFFING INTEGRATION PROGRAMS TOTAL SERVICES OPERATIONS TOTAL
--------- -------- ----------- -------- ----- -------- ---------- -----
(In thousands)
2001
Revenues ................ $ 50,877 $ 14,522 $ 6,918 $ 2,005 $ 74,322 $ 439 $ 19,849 $ 94,610
Gross profit (loss) ..... 14,669 2,242 2,168 260 19,339 151 (657) 18,833
Depreciation and
amortization ........ 2,064 419 14 57 2,554 -- 17,217 19,771
Segment assets .......... 14,575 2,307 2,803 518 20,203 -- 19,647 39,850
Expenditures for
property ............ 1,767 251 9 -- 2,027 -- -- 2,027
2000
Revenues ................ $ 48,619 $ 18,874 $ 9,679 $ 3,485 $ 80,657 $ 16,150 $ 27,349 $124,156
Gross profit ............ 15,202 3,154 2,694 400 21,450 1,729 5,117 28,296
Depreciation and
amortization ........ 1,405 272 70 138 1,885 179 20,294 22,358
Segment assets .......... 12,488 3,134 3,832 976 20,430 1,048 45,732 67,210
Expenditures for
property ............ 1,853 985 119 234 3,191 -- -- 3,191
1999
Revenues ................ $ 39,314 $ 23,002 $ 17,818 $ 4,888 $ 85,022 $ 27,306 $ 20,477 $132,805
Gross profit ............ 8,423 4,875 2,929 201 16,428 2,091 4,869 23,388
Depreciation and
amortization ........ 3,339 181 143 541 4,204 89 14,779 19,072
Segment assets .......... 9,023 4,735 6,142 948 20,848 4,841 58,943 84,632
Expenditures for
property ............ 251 137 13 60 461 -- 74 535
- --------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION
-----------------------------------------------------------------------------------------------
2001 2000 1999
----------------------------- ----------------------------- ------------------------------
SEGMENT SEGMENT SEGMENT
REVENUE ASSETS REVENUE ASSETS REVENUE ASSETS
------------- ------------- ------------- ------------- ------------- -------------
(In thousands)
United States.... $ 82,922 $ 81,676 $ 113,940 $ 96,069 $ 126,401 $ 109,393
European......... 11,688 5,445 10,216 4,705 6,404 2,914
------------- ------------- ------------- ------------- ------------- -------------
Total............ $ 94,610 $ 87,121 $ 124,156 $ 100,774 $ 132,805 $ 112,307
============= ============= ============= ============= ============= =============
34
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE N-- 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:
- --------------------------------------------------------------------------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------
(In thousands)
Depreciation and amortization
Total for reportable segments............................. $ 19,771 $ 22,358 $ 19,072
Total of Corporate assets................................. 3,404 3,796 2,322
--------------- -------------- ---------------
Total depreciation and amortization.................... $ 23,175 $ 26,154 $ 21,394
=============== ============== ===============
Assets
Total assets for reportable segments...................... $ 39,850 $ 67,210 $ 84,632
Corporate assets.......................................... 47,271 33,564 27,675
--------------- -------------- ---------------
Total assets........................................... $ 87,121 $ 100,774 $ 112,307
=============== ============== ===============
NOTE O -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly consolidated results of operations are summarized as follows:
- --------------------------------------------------------------------------------------------------------------------
QUARTER ENDED
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------- --------------- -------------- ---------------
(In thousands, except per share data)
2001
Revenues................................ $ 25,514 $ 23,521 $ 22,167 $ 23,408
Gross profit............................ 5,946 5,498 3,976 3,413
Income (loss) before tax provision...... 501 (663) (2,066) (1,522)
Net income (loss)....................... 225 (913) (1,895) (995)
Earnings (loss) per share............... .02 (.09) (.18) (.09)
2000
Revenues................................ $ 31,977 $ 32,959 $ 30,003 $ 29,217
Gross profit............................ 6,233 7,955 6,896 7,212
Income before tax provision............. 638 2,072 1,121 560
Net income.............................. 341 1,111 605 89
Earnings per share...................... 0.03 0.08 0.05 0.01
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
There were no changes in accountants, disagreements, or other events requiring
reporting under this Item.
35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be set forth under the caption "Election of Directors and
Management Information" in the Proxy Statement dated on or about April 8, 2002,
relating to the Annual Meeting of Shareholders to be held on May 8, 2002, (the
"Proxy Statement"), is incorporated herein by reference.
The information to be set forth under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information to be set forth under the caption "Compensation of Executive
Officers" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information to be set forth under the caption "Election of Directors and
Management Information -- Security Ownership of Certain Beneficial Holders and
Management" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be set forth under the caption "Compensation of Executive
Officers -- Certain Relationships and Related Transactions" in the Proxy
Statement is incorporated herein by reference.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) Certain documents are filed as part of this Report on Form 10-K.
(1) Financial Statements "Item 8 Financial Statements and
Supplementary Data" and Item 14 (d) below.
- --------------------------------------------------------------------------------------------------------------------------
PAGE
----------
Report of Ernst & Young LLP, Independent Auditors........................................................... 15
Consolidated Statements of Operations-- Years Ended December 31, 2001, 2000, and 1999....................... 16
Consolidated Statements of Comprehensive Income / (Loss)-- Years Ended December 31,
2001, 2000, and 1999.................................................................................... 16
Consolidated Statements of Financial Position -- December 31, 2001 and December 31, 2000.................... 17-18
Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 2001, 2000, and 1999............ 19
Consolidated Statements of Cash Flows -- Years Ended December 31, 2001, 2000, and 1999...................... 20
Notes to the Consolidated Financial Statements.............................................................. 21-35
- --------------------------------------------------------------------------------------------------------------------------
(2) Financial Statement Schedules
None
(3) Exhibits.
- ----------------------------------------------------------------------------------------------------------------------
REFERENCE *
EXHIBIT OR PAGE
NUMBER EXHIBIT NUMBER
- --------------- ---------------------------------------------------------------------------------------- -----------
2.1 Agreement and Plan of Merger dated January 19, 1998 by and between David M. Sachs, *9
Capricorn Capital Group, Inc., BM Woodbridge Place 104, Inc. and National TechTeam,
Inc.
2.1 (a) Sale of Certain Assets of TechTeam Capital Group, LLC to Newco Consultants, LLC, *13
effective March 31, 2000.
2.2 Limited Partnership Agreement of GE TechTeam LP (formerly Support Central, L.P.) dated *10
as of October 1, 1997.
2.2 (a) Amendment No. 1 to Limited Partnership Agreement of Support Central, L.P. *11
2.2 (b) Global Agreement By and Among National TechTeam Inc., GE TechTeam LP, Support Central,
L.L.C., and GE Warranty Management, Inc. dated August 22, 2000.
3.1 Certification of Incorporation of National TechTeam, Inc. filed with the Delaware *1
Secretary of State on September 14, 1987.
3.2 Certificate of Amendment dated November 27, 1987 to the Company's Certificate of *2
Incorporation.
3.3 Bylaws of National TechTeam, Inc. as Amended and Restated May 26, 1998. *12
4.1 Rights Agreement dated as of May 6, 1997, between National TechTeam, Inc. and U.S. *8
Stock Transfer Corporation, as Rights Agent, which includes as
Exhibit A thereto the Form of Certificate of Designations, as
Exhibit B thereto the Form of Right Certificate, and as Exhibit
C thereto the Summary of Rights to Purchase Preferred Stock.
10.1 Lease Agreement for office space in Southfield, Michigan known as the Cumberland Tech *4
Center between the Company and Eleven Inkster Associates dated September 29, 1993.
- ----------------------------------------------------------------------------------------------------------------------
37
REFERENCE *
EXHIBIT OR PAGE
NUMBER EXHIBIT NUMBER
- --------------- ---------------------------------------------------------------------------------------- -----------
10.2 Lease Amendment for office space in Southfield, Michigan known as the Cumberland Tech *4
Center between the Company and Eleven Inkster Associates dated December 7, 1993.
10.3 Lease Amendment for office space in Southfield, Michigan known as the Cumberland Tech *5
Center between the Company and Eleven Inkster Associates dated January 23, 1995.
10.4 Third Amendment Lease Agreement dated March 29, 1996 for office space in Southfield, *6
Michigan between Eleven Inkster Associates and the Company.
10.5 Fourth Amendment Lease Agreement dated March 13, 2000 for office space in Southfield *15
Michigan between Eleven Inkster Associates and the Company.
10.6 Sublease for office space in Southfield, Michigan known as the
Cumberland Tech Center between Dura Operating Corporation *15
and the Company dated August 13, 2000.
10.7 Lease for office space in Dearborn, Michigan between the Company and Dearborn Atrium *7
Associates Limited Partnership dated November 18, 1996.
10.8 Lease Agreement for office space in Davenport, Iowa known as
the 1010 Shopping Center between the Company and *14
Partnership 1010, LLP dated August 28, 1999.
10.9 1990 Nonqualified Stock Option Plan. *3
10.10 1996 Nonemployee Directors Stock Plan. *6
10.11 Supplemental Retirement Plan dated October 1, 2000. *14
10.12 Senior Management Bonus Plan dated June 14, 2000. *14
10.13 Employment Agreement Relating to Change of Control. *15
10.14 Assignment of Credit Facilities and Financing Documents between TechTeam Cyntergy, LLC *16
and Bank of America dated September 28, 2001.
10.15 Financing and Security Agreement between Cyntergy Corporation and Bank of America *16
dated January 29, 1999.
10.16 Agreement for Conveyance in Lieu of Foreclosure and Other Matters between TechTeam *16
Cyntergy, LLC and Robert N. Grimes and Beth Grimes dated September 28, 2001.
10.17 Employment Agreement between National TechTeam, Inc. and William F. Coyro, Jr. dated *16
August 9, 2001.
10.18 Agreement with Ford Motor Company dated August 1, 2001. *16
21 List of subsidiaries of National TechTeam, Inc. 38
23.1 Consent of Ernst & Young LLP 39
- -----------------------------------------------------------------------------------------------------------------------
38
EXHIBIT
- -------------- ----------------------------------------------------------------------------------------------------
*1 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1987.
*2 Incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No.
33-26689), filed as Exhibit 3.2 thereto.
*3 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31,
1990, filed as Exhibit 4.14 thereto.
*4 Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December
31, 1993.
*5 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1994.
*6 Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
*6 Incorporated by reference to the Company's Registration Statement on Form S-3 (Registration No.
333-10687.)
*7 Incorporated by reference to the Company's Annual Report on Form 10-K dated December 31, 1996.
*8 Incorporated by reference to the Company's Registration Statement on Form 8-A dated May 9, 1997.
*9 Incorporated by reference to the Company's Report on Form 8-K dated February 13, 1998.
*10 Incorporated by reference to the Company's Annual Report on Form 10-K dated December 31, 1997.
*11 Incorporated by reference to the Company's Report on Form 10-K dated March 31, 1998.
*12 Incorporated by reference to the Company's Report on Form 10-K dated March 31, 1999.
*13 Incorporated by reference to the Company's Report on Form 10-Q dated May 15, 2000.
*14 Incorporated by reference to the Company's Annual Report on Form 10-K dated March 31, 2001.
*15 Incorporated by reference to the Company's Report on Form 10-Q dated August 14, 2001.
*16 Incorporated by reference to the Company's Report on Form 10-Q dated November 14, 2001.
- --------------------------------------------------------------------------------------------------------------------
Exhibits 10.11, 10.12, 10.13, and 10.17 represent management, contracts and
compensatory plans.
b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth quarter of
the year ended December 31, 2001.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 26, 2002 By: /s/Jean Francios Delpy Jean Francios Delpy
-------------- ---------------------- Chief Financial Officer and
Treasurer (Principal
Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on March
26, 2002.
/s/William F. Coyro, Jr. President, Chief Executive Office
--------------------------------------------- and Director (Principal Executive Officer)
William F. Coyro, Jr.
/s/Kim A. Cooper Director
---------------------------------------------
Kim A. Cooper
/s/Peter T. Kross Director
---------------------------------------------
Peter T. Kross
/s/Kenneth G. Meade Director
---------------------------------------------
Kenneth G. Meade
/s/Wallace D. Riley Director
---------------------------------------------
Wallace D. Riley
/s/Gregory C. Smith Director
---------------------------------------------
Gregory C. Smith
/s/Richard G. Somerlott Director
---------------------------------------------
Richard G. Somerlott
/s/M. Anthony Tam Director
---------------------------------------------
M. Anthony Tam
/s/Ronald T. Wong Director
---------------------------------------------
Ronald T. Wong
40
INDEX OF EXHIBITS
EXHIBIT
NUMBER EXHIBIT
-------- ----------------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated January 19, 1998 by and between David M. Sachs, Capricorn
Capital Group, Inc., BM Woodbridge Place 104, Inc. and National TechTeam, Inc.
2.1 (a) Sale of Certain Assets of TechTeam Capital Group, L.L.C. to Newco Consultants, L.L.C., effective
March 31, 2000.
2.2 Limited Partnership Agreement of GE TechTeam LP (formerly Support Central, L.P.) dated as of
October 1, 1997.
2.2 (a) Amendment No. 1 to Limited Partnership Agreement of Support Central, L.P.
2.2 (b) Global Agreement By and Among National TechTeam, Inc., GE TechTeam LP, Support Central, L.L.C.,
and GE Warranty Management, Inc. dated August 22, 2000.
3.1 Certification of Incorporation of National TechTeam, Inc. filed with the Delaware Secretary of
State on September 14, 1987.
3.2 Certificate of Amendment dated November 27, 1987 to the Company's Certificate of Incorporation.
3.3 Bylaws of National TechTeam, Inc. as Amended and Restated May 26, 1998.
4.1 Rights Agreement dated as of May 6, 1997, between National TechTeam, Inc. and U.S. Stock Transfer
Corporation, as Rights Agent, which includes as Exhibit A thereto the Form of Certificate of
Designations, as Exhibit B thereto the Form of Right Certificate, and as Exhibit C thereto the
Summary of Rights to Purchase Preferred Stock.
10.1 Lease Agreement for office space in Southfield, Michigan known as the Cumberland Tech Center between
the Company and Eleven Inkster Associates dated September 29, 1993.
10.2 Lease Amendment for office space in Southfield, Michigan known as the Cumberland Tech Center between
the Company and Eleven Inkster Associates dated December 7, 1993.
10.3 Lease Amendment for office space in Southfield, Michigan known as the Cumberland Tech Center between
the Company and Eleven Inkster Associates dated January 23, 1995.
10.4 Third Amendment Lease Agreement dated March 29, 1996 for office space in Southfield, Michigan between
Eleven Inkster Associates and the Company.
10.5 Fourth Amendment Lease Agreement dated March 13, 2000 for office space in Southfield, Michigan between
Eleven Inkster Associates and the Company.
10.6 Sublease for office space in Southfield, Michigan known as the Cumberland Tech Center between Dura
Operating Corporation and the Company dated August 13, 2000.
-----------------------------------------------------------------------------------------------------------------
41
INDEX OF EXHIBITS (continued)
EXHIBIT
NUMBER EXHIBIT
---------- ----------------------------------------------------------------
10.7 Lease for office space in Dearborn, Michigan between the Company
and Dearborn Atrium Associates Limited Partnership dated
November 18, 1996.
10.8 Lease Agreement for office space in Davenport, Iowa known as the
1010 Shopping Center between the Company and Partnership 1010,
L.L.P. dated August 28, 1999.
10.9 1990 Nonqualified Stock Option Plan.
10.10 1996 Nonemployee Directors Stock Plan.
10.11 Supplemental Retirement Plan dated October 1, 2000.
10.12 Senior Management Bonus Plan dated June 14, 2000.
10.13 Employment Agreement Relating to Change of Control.
10.14 Assignment of Credit Facilities and Financing Documents between
TechTeam Cyntergy, L.L.C. and Bank of America dated September
28, 2001.
10.15 Financing and Security Agreement between Cyntergy Corporation
and Bank of America dated January 29, 1999.
10.16 Agreement for Conveyance in Lieu of Foreclosure and Other
Matters between TechTeam Cyntergy, L.L.C. and Robert N. Grimes
and Beth Grimes dated September 28, 2001.
10.17 Employment Agreement between National TechTeam, Inc. and William
F. Coyro, Jr. dated August 9, 2001.
10.18 Agreement with Ford Motor Company dated August 1, 2001.
21 List of subsidiaries of National TechTeam, Inc.
23.1 Consent of Ernst & Young L.L.P.
- --------------------------------------------------------------------------------
42