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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-16284
TECHTEAM GLOBAL, INC.
---------------------
(Name of issuer in its charter)
DELAWARE 38-2774613
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
27335 W. 11 Mile Road, Southfield, MI 48034
--------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 357-2866
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
|X| Yes |_| No
The number of shares of the registrant's only class of common stock
outstanding at July 31, 2002 was 10,981,564.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD
DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS DESCRIBED IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001 PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
1
TECHTEAM GLOBAL, INC.
FORM 10-Q
INDEX
PAGE
NUMBER
- -------------------------------------------------------------------------------------------------------- ------
PART I -- FINANCIAL INFORMATION
ITEM 1
Condensed Consolidated Statements of Operations (Unaudited) 3
Three and Six Months Ended
June 30, 2002 and 2001
Condensed Consolidated Statements of Financial Position (Unaudited) 4 - 5
June 30, 2002 and December 31, 2001
Condensed Consolidated Statements of Cash Flows (Unaudited) 6
Six Months Ended
June 30, 2002 and 2001
Notes to the Condensed Consolidated Financial Statements -- June 30, 2002 (Unaudited) 7 - 10
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 15
PART II -- OTHER INFORMATION
ITEM 1
Legal Proceedings 16
ITEM 4
Submission of Matters to a Vote of Security Holders 16
ITEM 5
Other Information 16 - 17
ITEM 6
Exhibits and Reports on Form 8-K 17
Signatures 18
2
PART 1 -- FINANCIAL INFORMATION
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
ITEM 1 -- FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(In thousands, except per share data)
REVENUES
Corporate Services
Corporate help desk services....................... $ 14,309 $ 12,477 $ 28,728 $ 25,490
Technical staffing................................. 2,594 3,645 5,402 8,013
Systems integration................................ 2,211 1,441 4,446 3,110
Training programs.................................. 307 603 583 1,320
------------ ----------- ------------ ------------
Total Corporate Services.............................. 19,421 18,166 39,159 37,933
Leasing Operations.................................... 2,481 5,355 5,690 11,102
------------ ----------- ------------ ------------
TOTAL REVENUES............................................ 21,902 23,521 44,849 49,035
COST OF SERVICES DELIVERED................................ 16,732 18,024 34,525 37,591
------------ ----------- ------------ ------------
GROSS PROFIT.............................................. 5,170 5,497 10,324 11,444
------------ ----------- ------------ ------------
OTHER EXPENSES
Selling, general, and administrative.................. 4,434 5,810 8,324 11,060
Michigan Single Business Tax.......................... 225 210 450 510
------------ ----------- ------------ ------------
TOTAL OTHER EXPENSE....................................... 4,659 6,020 8,774 11,570
------------ ----------- ------------ ------------
Operating income (loss)................................... 511 (523) 1,550 (126)
------------ ----------- ------------ ------------
Interest income........................................... 269 298 474 646
Interest expense.......................................... (14) (184) (84) (428)
Loss on disposal of assets................................ -- (254) -- (254)
------------ ----------- ------------ ------------
NET OTHER INCOME (EXPENSE)................................ 255 (140) 390 (36)
------------ ----------- ------------ ------------
Income (loss) before income taxes......................... 766 (663) 1,940 (162)
Income tax expense........................................ 348 250 880 526
------------ ----------- ------------ ------------
Income before cumulative effect of accounting change...... 418 (913) 1,060 (688)
Cumulative effect of accounting change -- Note E.......... -- -- 1,123 --
------------ ----------- ------------ ------------
NET INCOME (LOSS)......................................... $ 418 $ (913) $ (63) $ (688)
============ =========== ============ ============
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) before cumulative effect of accounting
change.................................................... $ 0.04 $ (0.09) $ 0.10 $ (0.07)
Cumulative effect of accounting change ................... -- -- (0.11) --
------------ ----------- ------------ ------------
Total basic earnings (loss) per share .................... $ 0.04 $ (0.09) $ (0.01) $ (0.07)
============ =========== ============ ============
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) before cumulative effect of accounting
change.................................................... $ 0.04 $ (0.09) $ 0.10 $ (0.07)
Cumulative effect of accounting change ................... -- -- (0.11) --
------------ ----------- ------------ ------------
Total diluted earnings (loss) per share .................. $ 0.04 $ (0.09) $ (0.01) $ (0.07)
============ =========== ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING
Basic................................................. 10,941 10,543 10,922 10,530
Net effect of dilutive stock options.................. 306 -- 182 --
------------ ----------- ------------ ------------
Diluted............................................... 11,247 10,543 11,104 10,530
============ =========== ============ ============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME (LOSS), AS SET FORTH ABOVE..................... $ 418 $ (913) $ (63) $ (688)
Foreign currency translation adjustments.................. 392 (49) 295 (201)
------------ ----------- ------------ ------------
COMPREHENSIVE INCOME (LOSS)............................... $ 810 $ (962) $ 232 $ (889)
============ =========== ============ ============
See accompanying notes.
3
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 2002 2001
- -------------------------------------------------------------------------- -------------- ---------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents.............................................. $ 36,248 $ 30,251
Securities available for sale.......................................... 3,681 5,321
Accounts receivable (less allowances of $323 at
June 30, 2002 and $433 at December 31, 2001)........................ 19,282 17,721
Refundable taxes....................................................... 1,151 2,693
Inventories............................................................ 1,198 304
Prepaid expenses and other............................................. 761 1,281
Deferred income tax.................................................... 1,368 1,230
-------------- ---------------
63,689 58,801
-------------- ---------------
PROPERTY, EQUIPMENT, AND PURCHASED SOFTWARE
Computer equipment and office furniture................................ 17,582 16,125
Purchased software..................................................... 9,167 8,610
Leasehold improvements................................................. 3,481 3,096
Transportation equipment............................................... 194 213
-------------- ---------------
30,424 28,044
Less -- Accumulated depreciation and amortization...................... (21,108) (19,371)
-------------- ---------------
9,316 8,673
-------------- ---------------
OTHER ASSETS
Assets of leasing operations, net of amortization...................... 8,270 15,705
Intangibles (less accumulated amortization of $16,499 at
June 30, 2002 and $14,938 at December 31, 2001)..................... 1,871 3,432
Deferred income tax.................................................... 276 276
Loans receivable....................................................... 51 77
Other.................................................................. 151 157
-------------- ---------------
10,619 19,647
-------------- ---------------
TOTAL ASSETS............................................................... $ 83,624 $ 87,121
============== ===============
See accompanying notes.
4
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)
(UNAUDITED)
JUNE 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001
- --------------------------------------------------------------------------- -------------- ---------------
(In thousands)
CURRENT LIABILITIES
Accounts payable....................................................... $ 992 $ 1,981
Accrued payroll, related taxes and withholdings........................ 2,783 2,762
Deferred revenues...................................................... 761 1,184
Accrued expenses and taxes............................................. 932 1,097
Current portion of notes payable....................................... 1,973 4,605
Other.................................................................. 2 117
-------------- ---------------
7,443 11,746
-------------- ---------------
LONG-TERM LIABILITIES...................................................... 511 805
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01, 5,000,000 shares authorized,
none issued
Common stock, par value $ .01, 45,000,000 shares authorized, issued --
16,778,700 and 16,723,000 shares at
June 30, 2002 and December 31, 2001, respectively................... 168 167
Additional paid-in capital............................................. 108,869 108,212
Retained earnings...................................................... 776 839
Accumulated other comprehensive gain (loss) -- foreign currency
translation adjustment.............................................. 68 (227)
-------------- ---------------
109,881 108,991
Less -- Treasury stock (5,807,136 and 5,828,374 shares
at June 30, 2002 and December 31, 2001, respectively)............... 34,211 34,421
-------------- ---------------
Total shareholders' equity............................................. 75,670 74,570
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 83,624 $ 87,121
============== ===============
See accompanying notes.
5
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
------------- --------------
(In thousands)
OPERATING ACTIVITIES
Income (loss) before cumulative effect of accounting change........... $ 1,060 $ (688)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................... 6,763 11,865
Non-cash stock option compensation expense...................... 439 --
Treasury stock contributed to 401(k) plan and other............. 104 365
Changes in operating assets and liabilities..................... (2,204) (1,462)
------------- --------------
Net cash provided by operating activities.......................... 6,162 10,080
------------- --------------
INVESTING ACTIVITIES
Sale (purchase) of marketable securities.............................. 1,640 (4,385)
Disposal of leased equipment.......................................... 2,713 2,181
Decrease in investment in direct financing leases and residuals....... 71 2,143
Purchase of property, equipment and software, net..................... (2,315) (1,284)
Other................................................................. (10) 828
------------- --------------
Net cash provided by or (used) in investing activities............. 2,099 (517)
------------- --------------
FINANCING ACTIVITIES
Payments on notes payable, net........................................ (2,885) (5,188)
Purchase of Company common stock...................................... -- (609)
Proceeds from issuance of Company common stock........................ 326 --
Other................................................................. 295 (184)
------------- --------------
Net cash used in financing activities.............................. (2,264) (5,981)
------------- --------------
Increase in cash and cash equivalents.............................. 5,997 3,582
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 30,251 15,995
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 36,248 $ 19,577
============= ==============
See accompanying notes.
6
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited consolidated financial statements have been prepared
by TechTeam Global, Inc. ("TechTeam" or "Company") in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 2001.
Certain reclassifications have been made to the 2001 financial statements in
order to conform to the 2002 financial statement presentation.
NOTE A -- EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consist of stock options and are calculated using the treasury stock method.
NOTE B -- REVENUES FROM MAJOR CLIENTS
Revenues from clients that represented ten percent or more of total revenue are
as follows:
2002 2001
------------------------------- ------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
------------- --------------- ------------- --------------
(In thousands except percent of total data)
THREE MONTHS ENDED JUNE 30
Ford Motor Company...................... $ 11,004 50.2% $ 9,880 42.0%
DaimlerChrysler......................... 3,154 14.4% 4,273 18.2%
SIX MONTHS ENDED JUNE 30
Ford Motor Company...................... $ 22,121 49.3% $ 20,385 41.6%
DaimlerChrysler......................... 6,580 14.7% 9,025 18.4%
NOTE C -- LEGAL PROCEEDINGS
Refer to Part II, Item 1 for a description of legal proceedings.
7
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D -- SEGMENT REPORTING
CORPORATE SERVICES
----------------------------------------------------------------
CORPORATE
HELP DESK TECHNICAL SYSTEMS TRAINING LEASING
SERVICES STAFFING INTEGRATION PROGRAMS TOTAL OPERATIONS TOTAL
----------- ---------- ----------- ----------- ----------- ----------- -----------
(In thousands)
THREE MONTHS ENDED
JUNE 30, 2002
Revenues................... $ 14,309 $ 2,594 $ 2,211 $ 307 $ 19,421 $ 2,481 $ 21,902
Gross profit............... 3,875 454 553 43 4,925 245 5,170
Depreciation and
amortization........... 716 6 2 3 727 1,928 2,655
Expenditures for property.. 948 4 1 2 955 -- 955
THREE MONTHS ENDED
JUNE 30, 2001
Revenues................... $ 12,477 $ 3,645 $ 1,441 $ 603 $ 18,166 $ 5,355 $ 23,521
Gross profit............... 3,976 558 541 89 5,164 333 5,497
Depreciation and 517 105 3 20 645 4,291 4,936
amortization...........
Expenditures for property.. 397 81 3 -- 481 -- 481
SIX MONTHS ENDED
JUNE 30, 2002
Revenues................... $ 28,728 $ 5,402 $ 4,446 $ 583 $ 39,159 $ 5,690 $ 44,849
Gross profit............... 7,782 811 1,144 110 9,847 477 10,324
Depreciation and
amortization........... 1,402 13 5 5 1,425 4,661 6,086
Expenditures for property.. 1,671 12 4 4 1,691 -- 1,691
SIX MONTHS ENDED
JUNE 30, 2001
Revenues................... $ 25,490 $ 8,013 $ 3,110 $ 1,320 $ 37,933 $ 11,102 $ 49,035
Gross profit............... 7,809 1,409 1,128 174 10,520 924 11,444
Depreciation and 1,026 211 7 44 1,288 8,939 10,227
amortization...........
Expenditures for property.. 765 148 5 -- 918 -- 918
SEGMENT ASSETS
June 30, 2002.............. $ 18,614 $ 2,309 $ 1,938 $ 287 $ 23,148 $ 11,879 $ 35,027
December 31, 2001.......... 14,575 2,307 2,803 518 20,203 19,647 39,850
8
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D-- SEGMENT REPORTING (continued)
GEOGRAPHIC INFORMATION
REVENUE
-------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
(In thousands)
United States................................... $ 18,114 $ 20,596 $ 37,289 $ 43,100
European........................................ 3,788 2,925 7,560 5,935
-------------- -------------- -------------- --------------
Total........................................... $ 21,902 $ 23,521 $ 44,849 $ 49,035
============== ============== ============== ==============
ASSETS
--------------------------------
JUNE 30, DECEMBER 31,
--------------------------------
2002 2001
-------------- --------------
(In thousands)
United States.................................. $ 76,301 $ 81,676
European....................................... 7,323 5,445
-------------- --------------
Total.......................................... $ 83,624 $ 87,121
============== ==============
A reconciliation of the totals reported for the operating segments to the
applicable line item in the consolidated financial statements is as follows:
SIX MONTHS ENDED JUNE 30,
--------------------------------
2002 2001
-------------- --------------
(In thousands)
Depreciation and amortization
Total for reportable segments...................................... $ 6,086 $ 10,227
Corporate assets................................................... 677 1,638
-------------- --------------
Total depreciation and amortization............................. $ 6,763 $ 11,865
============== ==============
JUNE 30, DECEMBER 31,
2002 2001
-------------- --------------
(In thousands)
Assets
Total assets for reportable segments............................... $ 35,027 $ 39,850
Corporate assets................................................... 48,597 47,271
-------------- --------------
Total assets.................................................... $ 83,624 $ 87,121
============== ==============
9
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E -- EFFECTS OF ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142). Under SFAS 142, goodwill and indefinite lived intangible assets are
no longer amortized but are reviewed annually for impairment, or more frequently
if impairment indicators arise. Separable intangible assets that have finite
lives will continue to be amortized over their useful lives. In the fourth
quarter of 2001, TechTeam announced that $1.1 million of goodwill related to
leasing operations would become impaired after adoption of SFAS 142. As of
January 1, 2002 the Company adopted SFAS 142. Accordingly, the Company has taken
a charge of $1.1 million in the first quarter of 2002. Under SFAS 142, the
charge recognized upon adoption of the statement is reported as the cumulative
effect of an accounting change. Reported income and earnings per share adjusted
to exclude goodwill amortization is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ -----------
(In thousands) (In thousands)
Reported income (loss) before cumulative effect of
accounting change.................................... $ 418 $ (913) $ 1,060 $ (688)
Add back goodwill amortization........................... -- 286 -- 570
------------ ------------ ------------ -----------
Adjusted income (loss) before cumulative effect of
accounting change.................................... $ 418 $ (627) $ 1,060 $ (118)
============ ============ ============ ===========
Basic and diluted earnings per share:
Income (loss) before cumulative effect of
accounting change as reported..................... $ 0.04 $ (0.09) $ 0.10 $ (0.07)
Goodwill amortization ............................... -- 0.03 -- 0.06
------------ ------------ ------------ -----------
Income (loss) before cumulative effect of
accounting change as adjusted..................... $ 0.04 $ (0.06) $ 0.10 $ (0.01)
============ ============ ============ ===========
NOTE F -- EXECUTIVE STOCK OPTIONS
As previously disclosed in the Company's 2002 Proxy Statement and other filings
with the U.S. Securities and Exchange Commission, TechTeam Global and its
President and Chief Executive Officer, Dr. William F. Coyro, Jr., entered into
an employment agreement on August 9, 2001. The terms of the agreement provide
for TechTeam Global stock options granted to Dr. Coyro to become exercisable on
September 30, 2002, with the number of stock options to become exercisable
determined by the average closing price of the Company's common stock during the
month of September 2002. As the Company's share price increases, the number of
stock options that will become exercisable by Dr. Coyro also increases, up to a
maximum of 325,000 stock options.
Accounting Principles Board Opinion No. 25 requires that the Company accrue
expense when it becomes probable that the options will be awarded and the number
of options can be reasonably estimated. The expense is based on the appreciation
in the intrinsic value of the stock options during the period. As a result of
the increase in the trading price of TechTeam Global common stock since the date
of grant, the Company recorded as expense a non-cash, pretax charge of $408,000
during the quarter ended June 30, 2002. This charge was recorded under selling,
general, and administrative expenses. Consistent with the application of this
accounting principle, the Company also expects to record a second and final
non-cash, pretax charge or credit to earnings of indeterminate size during the
quarterly period ending September 30, 2002, representing appreciation or
depreciation, if any, in the intrinsic value of Dr. Coyro's variable stock
option grant.
10
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain of the statements contained in this report that are not historical facts
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Our actual results may differ materially from those
included in the forward-looking statements. We caution readers not to place
undue reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. We do not undertake an obligation to revise
or publicly release the results of any revisions to these forward-looking
statements. You should carefully review the risk factors described in other
documents the Company files from time to time with the SEC, including the Annual
Report on Form 10-K for the fiscal year ended December 31, 2001.
OVERVIEW
TECHTEAM GLOBAL, INC. ("TechTeam" or "Company") is a global provider of
information technology and business process outsourcing support services to
entities, including Fortune 1000 companies, multinational companies, product
providers, and governments. These services are provided with a single point of
contact philosophy centralized on TechTeam's help desk support services.
TechTeam also offers other services, including technology deployment and
migration services, consulting, systems integration, training, and technical
staffing. TechTeam provides support services in Europe through its subsidiaries:
TechTeam Europe, NV/SA; TechTeam Europe, Ltd.; TechTeam Europe, GmbH, and
TechTeam Europe AB.
TechTeam Global is incorporated under the laws of the State of Delaware. The
Company's common stock is traded on the Nasdaq Stock Market under the symbol
"TEAM". TechTeam's client base includes Ford Motor Company, DaimlerChrysler,
Deere & Company, Cendant Corporation, Liberty Mutual Insurance Company,
Schering-Plough Research Institute, and other companies in the manufacturing,
office equipment, insurance, logistics, hospitality, food service and retail
industries, among others.
CORPORATE SERVICES
TechTeam's Corporate Services primarily consist of technical help desk services,
technical staffing, systems integration, and training programs, integrated to
provide total and flexible solutions for its customers.
HELP DESK SERVICES
TechTeam's help desk solutions provide corporate end users with around-the-clock
technical support from the customer'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 diagnoses 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 customer 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
11
help desk incident. TechTeam's incident management tool, the Global Call Center,
has been integrated with knowledge management and solution products licensed
from a number of leading software vendors. TechTeam's customer management
section of the portal provides the customer with access to detailed performance
reports and other management tools. The Support Portal's knowledge management,
data analytics, computer diagnostics and tracking technology are designed to
help increase the Company's efficiency in providing support, improve the end
user's experience with the help desk, and enable TechTeam's customers to benefit
from lower cost and improved efficiency.
TechTeam has deployed the Support Portal technology internally and with many of
its existing customers. The technology has improved the efficiency of the
TechTeam's service delivery. The Support Portal is an important part of the
Company's help desk solutions.
The Company operates major help desks in the United States from its Southfield
and Dearborn, Michigan and Davenport, Iowa locations. From its facility in
Brussels, Belgium, TechTeam has the capability to provide multilingual help desk
support for its customers in as many as 20 languages. TechTeam also provides
help desk services from many of its customers' sites.
TECHNICAL STAFFING
The Company maintains a staff of trained technical personnel to provide IT and
business process support to its clients at their facilities. The Company
recruits a technically proficient employee base. TechTeam enhances its
employees' proficiency by providing access to its technical training programs.
Training in new technology, in advanced operating systems like Windows 2000, XP
and Unix, and in sophisticated applications such as SAP and PeopleSoft, allows
TechTeam to provide its customers with highly skilled professionals trained and
certified in the latest technology.
Further, the technical staffing business helps TechTeam to provide its employees
with a diverse career path. As help desk technicians learn technology and use
the Company's internal training programs, they can be migrated to technical
staffing positions where they can increase their compensation and knowledge,
while the Company retains its most valuable resources. TechTeam considers its
career pathing program to be a competitive advantage relative to other staffing
and help desk service providers and an excellent tool to prevent employee
turnover.
SYSTEMS INTEGRATION
TechTeam provides systems integration, technology deployment and implementation
services from project planning and management, to full-scale network server and
workstation installations. TechTeam offers a wide range of information
technology services for the customer, ranging from desk-side support to network
monitoring. Through its TechTeam Cyntergy, L.L.C. subsidiary, the Company offers
deployment, training and implementation services to entities in hospitality,
retail and food service industries throughout the United States.
TRAINING
TechTeam provides custom training and documentation solutions that include a
wide spectrum of options including computer-based training (CBT), distance
learning, course catalogs, registration, instructional design consultants,
customized course materials, certified trainers, evaluation options, desk-side
tutorials, and custom reports. The Company provides customized training programs
for many of its customers' proprietary applications.
EQUIPMENT LEASING
TechTeam Capital Group, L.L.C. (Capital Group) previously wrote leases for
computer, telecommunications, and other types of capital equipment, with initial
lease terms ranging from 2 to 5 years. Effective March 31, 2000, TechTeam
restructured Capital Group. At that time, the majority of the Capital Group
staff was terminated, and Capital Group ceased actively looking for new leasing
opportunities. Capital Group is currently running out its lease portfolio. With
the exception of renewals of existing leases, the portfolio will run off in
approximately one year. The Company cannot predict how many lease renewals it
will receive or for how long they will be in effect.
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30, 2001
Revenues decreased 7% to $21.9 million from $23.5 million. This decline was
principally due to a decrease in revenues from leasing operations, from $5.4
million in 2001 to $2.5 million in 2002, a reduction of 54%. This decrease is
due to the Company's decision to discontinue actively seeking new leasing
business and to manage the winding down of its leasing portfolio. The Company
anticipates the trend of lower leasing revenues will continue over the next year
depending on the size and duration of renewals. Revenues from corporate help
desk services increased 15% to $14.3 million from $12.5 million, primarily due
to growth in business with our existing customers, especially Ford Motor
Company. Revenues from systems integration services grew 53%, from $1.4 million
in 2001 to $2.2 million in 2002, largely due to new business resulting from the
acquisition of certain assets of Cyntergy Corporation in September 2001.
Revenues from technical staffing declined 29% to $2.6 million from $3.6 million,
principally as the result of aggressive cost reductions imposed on the Company
by our customers. Revenues from the provision of training programs decreased
49%, from $0.6 million to $0.3 million.
Gross profit as a percentage of sales decreased to 23.6% from 23.4%. This
decline was primarily due to a decrease in gross profit margins from the
Company's leasing operations, systems integration, and corporate help desk
services. This decline was partially offset by an improvement in the gross
margin performance of the technical staffing services business.
Selling, general, and administrative expense declined 24% to $4.4 million from
$5.8 million. The $4.4 million of expense in 2002 included a non-cash charge of
$408,000 resulting from the appreciation in the intrinsic value of a variable
stock option grant made to the Company's President and Chief Executive Officer,
pursuant to an employment agreement entered into on August 9, 2001. The $5.8
million of expense in 2001 included a net settlement of $370,000 related to
earnout and release agreements with former officers of TechTeam Capital Group
and severance payments of $120,000 that were paid to certain administrative
employees terminated during the period. Additionally in 2001, a write-down of
$165,000 was taken as a result of the Company's decision to cease making
payments on insurance contracts for a former officer of the Company. Also, the
Company adopted SFAS 142 as of January 1, 2002. Consequently, the Company did
not realize any goodwill amortization expense during the second quarter of 2002.
The Company recognized $286,000 of such expense during the second quarter of
2001. Excluding the impact of these foregoing items, selling, general, and
administrative expense declined 18% year-over-year as a result of aggressive
cost containment and expense reduction initiatives.
Interest income declined from $298,000 in the second quarter 2001 to $269,000 in
the current period as a result of reduced returns from the Company's cash
investments. The decline in our investment yield is consistent with the overall
decline in market interest rates and returns. Interest expense decreased
significantly, from $184,000 to $14,000, due to the continuing reduction in
outstanding debt related to the Company's leasing operations and a $30,000
reduction in the assessment of Michigan Single Business Tax interest.
The consolidated income tax expense includes a tax provision for European
operations based on effective tax rates, which are not significantly different
than the statutory rates, and includes a provision for U.S. operations based on
an effective tax rate that differs from the statutory rate due to certain
nondeductible items.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30, 2001
Revenues decreased 9% to $44.8 million from $49.0 million. This decline was
primarily due to a substantial decrease in revenue from leasing operations, from
$11.1 million in 2001 to $5.7 million in 2002, a reduction of 49%. Revenues from
corporate help desk services increased 13% to $28.7 million from $25.5 million
due to growth in business with our existing customers, primarily Ford Motor
Company and new business resulting from the Cyntergy asset acquisition in
September 2001. Revenues from systems integration services grew 43%, from $3.1
million in 2001 to $4.4 million in 2002 primarily due to growth of the Company's
customer base associated with the Cyntergy asset acquisition. Revenues from
technical staffing decreased 33% to $5.4 million from $8.0 million as a result
of price concessions granted to existing customers and reductions in placements.
Revenues from the provision of training programs declined 56%, from $1.3 million
to $0.6 million primarily due to discontinuance of training contracts with Sun
Microsystems, Inc. and one of the Company's major automotive customers.
13
Gross profit as a percentage of sales decreased to 23.0% from 23.3%. This
decline was primarily due to decreases in the gross profit margins from the
Company's leasing operations and corporate help desk services business. Leasing
operation margins were affected by a decrease in revenue as the Company winds
down its leasing portfolio. Corporate help desk services margins were impacted
by customer pricing concessions and transitional costs from the acquisition of
assets from Cyntergy.
Selling, general, and administrative expense declined 25% to $8.3 million from
$11.1 million. The $11.1 million of expense in 2001 included the earnout
settlement with former officers of TechTeam Capital Group and severance payments
made to terminate administrative and other employees. Additionally, the Company
recognized $570,000 of goodwill amortization during the first six-months of
2001, which was not incurred as selling, general, and administrative expense in
the first six-months of 2002.
Interest expense decreased significantly due to less debt related to leasing
operations. Interest income declined due to lower returns on the Company's
investments.
The consolidated income tax expense includes a tax provision for European
operations based on effective tax rates, which are not significantly different
than the statutory rates, and includes a provision for U.S. operations based on
an effective tax rate that differs from the statutory rate due to certain
nondeductible items.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
At June 30, 2002, the Company had deferred tax assets of $1.4 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 market for used computer equipment, the disposition of
customers towards lease renewals, and the ability of the Company to offer
alternatives to its customers. There can be no assurance that the Company's
estimates of residual values will accurately reflect future results.
The Company periodically reviews its accounts receivable balances for
collectibility. The Company's customers are generally large, well-established
entities. As the Company's leasing portfolio winds down, additional collection
challenges may be encountered. There can be no assurance that the Company's
estimates of collectibility will accurately reflect future results.
LIQUIDITY AND CAPITAL RESOURCES
BALANCE SHEET
As of June 30, 2002 the Company's balance sheet reflects a high degree of
liquidity and little financial leverage.
Cash, cash equivalents and marketable securities increased by $4.4 million, from
$35.6 million on December 31, 2001 to $39.9 million on June 30, 2002. The
Company's working capital position increased by $9.1 million during the first
six months of 2002, from $47.1 million as of December 31, 2001 to $56.2 million
as of June 30, 2002.
The Company's total debt decreased by $2.9 million during the first six months
of 2002, from a balance of $5.2 million on December 31, 2001 to $2.3 million on
June 30, 2002. The Company's total debt as a percentage of its cash, cash
equivalents, and securities decreased from 14.5% on December 31, 2001 to 5.7% on
June 30, 2002.
CASH FLOW PROVIDED FROM OPERATIONS
Cash flow provided from operating activities was $6.2 million for the six months
ended June 30, 2002. The largest source of operating cash flow was from the
leasing business, where cash rental income and non-cash depreciation and
amortization expense comprise substantially all of the operating activities.
Depreciation and amortization
14
expense for the six-months ended June 30, 2002 was $6.8 million, of which $4.7
million came from the Company's leasing operations.
The Company believes that cash flows provided from operations will continue to
be sufficient to meet its ongoing working capital requirements.
CASH FLOW PROVIDED FROM INVESTING ACTIVITIES
Cash flow provided from investing activities was $2.1 million for the six months
ended June 30, 2002. The Company used $2.3 million to purchase assets to be used
in the provision of customer services and received $2.7 million from the sale of
assets used in leasing operations. The Company also received $1.6 million from
the sale of marketable securities.
CASH FLOW USED IN FINANCING ACTIVITIES
Cash flow used in financing activities was $2.3 million. The Company used $2.9
million to pay down debt related to leasing operations and received $0.3 million
from the issuance of common stock related to the exercise of stock options.
15
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
The Company is a party to legal proceedings, which are routine and incidental to
its business. Although the consequences of these proceedings are not presently
determinable, in the opinion of management, they will not have a material
adverse affect on the Company's liquidity, financial position or results of
operations.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 8, 2002. The holders
of 8,685,932 shares were present in person or by proxy, representing attendance
by at least 85% of the outstanding shares. The following is a summary of the
matters voted on at that meeting.
(a) The following persons were elected to the Company's Board of
Directors. The number of shares cast favor and withheld were
as follows:
Name For Withheld
--------------------------- ------------- ------------
Kim A. Cooper 8,619,786 66,146
William F. Coyro, Jr. 8,605,826 80,106
Peter T. Kross 8,659,786 26,146
Kenneth G. Meade 8,652,186 33,746
Wallace D. Riley 8,658,986 26,946
Gregory C. Smith 8,651,386 34,546
Richard G. Somerlott 8,653,916 32,016
Ronald T. Wong 8,667,871 18,061
(b) Ratification of Ernst & Young as independent auditors:
For Withheld
------------- ------------
8,682,887 3,045
(c) Approval of Company name change:
For Withheld
------------- ------------
8,670,871 15,061
ITEM 5 -- OTHER INFORMATION
SHAREHOLDER PROPOSALS OR NOMINATIONS
In accordance with the Company's Bylaws, any shareholder proposal or nomination
of a person for election to the Board of Directors must be submitted in writing
to the Secretary of the Company not less than 90 nor more than 120 days in
advance of the date specified in the Company's proxy statement in connection
with the previous year's Annual Meeting of shareholders. The submission must
include certain specified information concerning the proposal or nominee, as the
case may be, and information about the proponent's ownership of the Company's
common stock.
Proposals or nominations not meeting these requirements will not be entertained
at the Annual Meeting. A proponent should contact the Secretary regarding the
proper form and content of submissions.
16
ITEM 5 -- OTHER INFORMATION (continued)
FORD MOTOR AGREEMENT
On July 31, 2002, the Company entered into an agreement with Ford Motor Company
to provide SPOC (Single Point of Contact) support services for those who utilize
Ford Motor Company's IT products and services. The agreement has a term of
three-years, and it succeeds the one-year contract executed by the Company on
August 1, 2001. It encompasses a support center (help desk), desk-side support,
and program management services for Ford Motor Company, Ford Financial, Ford
Motor Company's Premier Auto Group, and Ford's supplier base. In 2001, the
purchase orders covering these services comprised approximately 65% of the
Company's $41.2 million in revenue from Ford Motor Company. The program staff is
distributed throughout North America and Europe and the Support Centers handle
support related requests on a global basis.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.18 Ford Motor Company Agreement Dated July 31, 2002
99.1 Written Statement of the Chief Executive Officer
99.2 Written Statement of the Chief Financial Officer
(b) One report on Form 8-K was filed during the Quarter ended June 30,2002
Notice of Appointment of David W. Morgan as Vice President, Chief Financial
Officer and Treasurer, Maj Homayounfal as Vice President Technology and Heidi K.
Hagle as Vice President Human Resources, filed on May 11, 2002.
ITEMS 2 AND 3 ARE NOT APPLICABLE AND HAVE BEEN OMITTED
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TechTeam Global, Inc.
----------------------
(Registrant)
Date: 8/08/02 By: /s/William F. Coyro, Jr.
------------------------------------
William F. Coyro, Jr.
President and Chief Executive
Officer
Date: 8/08/02 By: /s/David W. Morgan
------------------------------------
David W. Morgan
Vice President, Chief Financial
Officer and Treasurer
18
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
10.18 Ford Motor Company Agreement Dated July 31, 2002
99.1 Written Statement of the Chief Executive Officer
99.2 Written Statement of the Chief Financial Officer
19