EX-99.1 5 k49674exv99w1.htm EX-99.1 exv99w1
 
Exhibit 99.1
 
Unaudited Pro Forma Consolidated Financial Statements
of TechTeam Global, Inc. and Subsidiaries
 
 
On June 3, 2010, TechTeam Global, Inc. (the “Company”) agreed to sell its Government Solutions business unit (“Government Solutions”) to Jacobs Engineering Group Inc. pursuant to a Stock Purchase Agreement. The Stock Purchase Agreement was amended by the parties thereto on September 14, 2010. In accordance with the terms and conditions of the Stock Purchase Agreement, as amended, the Company will receive a cash payment of $43 million adjusted for the retention of certain liabilities and a closing net tangible book value adjustment. Of the $43 million cash payment to be made at closing, $8.60 million will be funded into an escrow account to secure any indemnification claims and $2.77 million will be funded into escrow to secure the payment of any closing net tangible book value adjustment.
 
The following unaudited pro forma consolidated financial statements illustrate the effects of the sale of Government Solutions. The unaudited pro forma consolidated balance sheet as of June 30, 2010 gives effect to the sale as if it occurred as of that date. The unaudited pro forma consolidated statements of operations give effect to the sale as if it occurred on January 1 for each period presented.
 
The unaudited pro forma consolidated financial statements have been derived from, and should be read in conjunction with, the Company’s historical consolidated financial statements, including the notes thereto, in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2009 and the Company’s Quarterly Report filed on Form 10-Q for the quarter ended June 30, 2010 and the unaudited financial statements of Government Solutions included as Exhibit G to this proxy statement supplement. The unaudited pro forma consolidated financial statements are not necessarily indicative of the financial position or results of operations that would have been achieved had Government Solutions been sold on the dates indicated, or that may be expected to occur in the future as a result of the sale.
 
The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of filing this proxy statement supplement.
 
The unaudited pro forma consolidated financial statements are prepared in accordance with Article 11 of Regulation S-X.


F-1

 

 
TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2010
 
 
                                 
          Sale of Business        
    Company
 		    Business
 		    Pro Forma
 		    Pro Forma As
 		 
(In thousands)
 		  Historical (a)     Historical (b)     Adjustments     Adjusted  
 
ASSETS
                               
Current assets
                               
Cash and cash equivalents
  $ 14,846     $ —     $ 30,085  (c)   $ 44,931  
Accounts receivable (net of allowance)
    38,383       (15,931 )     —       22,452  
Prepaid expenses and other current assets
    4,159       (995 )     —       3,164  
                                 
Total current assets
    57,388       (16,926 )     30,085       70,547  
                                 
Property, equipment and software, net
    5,280       (517 )     —       4,763  
Goodwill and other intangible assets, net
    46,278       (37,755 )     —       8,523  
Deferred income taxes
    4,216       (2,833 )     —       1,383  
Other assets
    989       (296 )     10,038  (d)     10,731  
                                 
Total assets
  $ 114,151     $ (58,327 )   $ 40,123     $ 95,947  
                                 
                                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                                
Current liabilities
                               
Current portion of long-term debt
  $ 4,065     $ (23 )   $ —     $ 4,042  
Accounts payable
    5,026       (1,798 )     —       3,228  
Accrued payroll and related taxes
    9,500       (2,441 )     —       7,059  
Accrued expenses
    1,996       (1,440 )     —       556  
Other current liabilities
    2,015       (817 )     —       1,198  
                                 
Total current liabilities
    22,602       (6,519 )     —       16,083  
                                 
                                 
Long-term liabilities
                               
Long-term debt, less current portion
    10,790       (5 )     —       10,785  
Other long-term liabilities
    1,174       (106 )     —       1,068  
                                 
Total long-term liabilities
    11,964       (111 )     —       11,853  
                                 
Shareholders’ equity
                               
Preferred stock, 5,000,000 shares authorized, no shares issued
    —       —       —       —  
Common stock, $0.01 par value, 45,000,000 shares authorized, 11,200,053 shares issued and outstanding at June 30, 2010
    112       —       —       112  
Additional paid-in capital
    80,765       —       440  (e)     81,205  
Retained earnings
    212       —       (12,014 )(f)     (11,802 )
Accumulated other comprehensive loss
    (1,504 )     —       —       (1,504 )
                                 
Total shareholders’ equity
    79,585       —       (11,574 )     68,011  
                                 
Total liabilities and shareholders’ equity
  $ 114,151     $ (6,630 )   $ (11,574 )   $ 95,947  
                                 


F-2

 

The unaudited pro forma consolidated balance sheet as of June 30, 2010 reflects the following adjustments:
 
(a)  As reported in the Company’s unaudited Quarterly Report on Form 10-Q for the six months ended June 30, 2010.
 
(b)  Assets to be sold and liabilities to be assumed by the buyer under the Stock Purchase Agreement, as amended. Amounts were derived from Government Solutions’ unaudited balance sheet as of June 30, 2010.
 
(c)  Amount reflects the estimated proceeds to be received as a result of the closing of the sale of Government Solutions as follows (in thousands):
 
         
Purchase price
  $ 45,000  
Less: Retention bonus obligation (1)
    (2,000 )
Less: Success fees
    (850 )
Less: Insurance obligation (2)
    (235 )
Less: Estimated legal and other
    (460 )
         
Net purchase price
    41,455  
Estimated escrow
    (10,038 )
Estimated net tangible book value adjustment
    (1,332 )
Tax effect of the loss on sale (3)
    -  
         
Net proceeds
  $ 30,085  
         
 
(1) Pursuant to the Stock Purchase Agreement, as amended, this amount reflects the payment of certain executive management retention bonuses.
(2) Pursuant to the Stock Purchase Agreement, as amended, the Company will be partially responsible for payment of certain insurance coverage including professional liability, employment practices liability, directors and officers liability and fiduciary liability.
(3) The proposed transaction will create a capital loss which cannot be utilized for tax purposes.
 
(d)  Amount reflects proceeds that will be deposited into an escrow account at the closing. $8.60 million of the escrow amount is required by the Stock Purchase Agreement to secure any indemnification claims and $2.77 million of the escrow amount is required to secure payment of any closing net tangible book value adjustment less an estimated net tangible book value adjustment of $1.33 million.
 
(e)  Amount reflects estimated expense for unvested stock options and restricted stock for certain Government Solutions employee, which stock options and restricted stock will vest upon the sale of Government Solutions.


F-3

 

 
(f)  Amount reflects the estimated loss on the sale of Government Solutions calculated as follows (in thousands):
 
         
Purchase price
  $ 45,000  
Less: Retention bonus obligation (1)
    (2,000 )
Less: Success fees
    (850 )
Less: Insurance obligation (2)
    (235 )
Less: Estimated legal and other
    (460 )
Less: Stock based compensation (3)
    (440 )
         
Net purchase price
    41,015  
Carrying value of Government Solutions
    (51,697 )
         
Loss on sale of Government Solutions
    (10,682 )
Estimated net tangible book value adjustment
    (1,332 )
Tax effect of the loss on sale (4)
    -  
         
Net loss on sale of Government Solutions
  $ (12,014 )
         
 
(1) Pursuant to the Stock Purchase Agreement, as amended, this amount reflects the payment of certain executive management retention bonuses.
(2) Pursuant to the Stock Purchase Agreement, as amended, the Company will be partially responsible for payment of certain insurance coverage including professional liability, employment practices liability, directors and officers liability and fiduciary liability.
(3) Estimated expense for unvested stock options and restricted stock for certain Government Solutions employees, which options and restricted stock will vest upon the sale of Government Solutions.
(4) The proposed transaction will create a capital loss which cannot be utilized for tax purposes.


F-4

 

TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2010
 
                                 
          Sale of Business        
    Company
 		    Business
 		    Pro Forma
 		    Pro Forma
 		 
(In thousands, except per share data)   Historical (a)     Historical (b)     Adjustments     As Adjusted  
 
Revenue
                               
Commercial
                               
IT Outsourcing Services
  $ 51,706     $ —     $ —     $ 51,706  
IT Consulting and Systems Integration
    5,855       —       —       5,855  
Other Services
    6,986       —       —       6,986  
                                 
Total Commercial
    64,547       —       —       64,547  
Government Technology Services
    30,244       (30,244 )     —       —  
                                 
Total revenue
    94,791       (30,244 )     —       64,547  
                                 
Cost of revenue
                               
Commercial
                               
IT Outsourcing Services
    39,791       —       —       39,791  
IT Consulting and Systems Integration
    4,702       —       —       4,702  
Other Services
    5,282       —       —       5,282  
                                 
Total Commercial
    49,775       —       —       49,775  
Government Technology Services
    23,485       (23,485 )     —       —  
                                 
Total cost of revenue
    73,260       (23,485 )     —       49,775  
                                 
Gross profit
                               
Commercial
    14,772       —       —       14,772  
Government Technology Services
    6,759       (6,759 )     —       —  
                                 
Total gross profit
    21,531       (6,759 )     —       14,772  
Selling, general and administrative expense
    21,442       (8,543 )     1,880 (d)     14,779  
Restructuring charges, net
    3,140       (139 )     —       3,001  
                                 
Operating (loss) income
    (3,051 )     1,923       (1,880 )     (3,008 )
Net interest expense
    (389 )     303 (c)     —       (86 )
Foreign currency transaction gain
    351       —       —       351  
                                 
(Loss) income before income taxes
    (3,089 )     2,226       (1,880 )     (2,743 )
Income tax (benefit) provision
    (574 )     863       (658 )(e)     (369 )
                                 
Net (loss) income
  $ (2,515 )   $ 1,363     $ (1,222 )   $ (2,374 )
                                 
                                 
Basic loss per common share
  $ (0.24 )                   $ (0.22 )
                                 
Diluted loss per common share
  $ (0.24 )                   $ (0.22 )
                                 
Weighted average number of common shares and common share equivalents outstanding
                               
Basic—common
    10,687                       10,687  
Diluted—common
    10,687                       10,687  


F-5

 

TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2009
 
                                 
          Sale of Business        
    Company
 		    Business
 		    Pro Forma
 		    Pro Forma
 		 
(In thousands, except per share data)   Historical (a)     Historical (b)     Adjustments     As Adjusted  
 
Revenue
                               
Commercial
                               
IT Outsourcing Services
  $ 54,278     $ —     $ —     $ 54,278  
IT Consulting and Systems Integration
    7,069       —       —       7,069  
Other Services
    8,240       —       —       8,240  
                                 
Total Commercial
    69,587       —       —       69,587  
Government Technology Services
    40,845       (40,845 )     —       —  
                                 
Total revenue
    110,432       (40,845 )     —       69,587  
                                 
Cost of revenue
                               
Commercial
                               
IT Outsourcing Services
    42,065       —       —       42,065  
IT Consulting and Systems Integration
    5,629       —       —       5,629  
Other Services
    6,148       —       —       6,148  
                                 
Total Commercial
    53,842       —       —       53,842  
Government Technology Services
    29,316       (29,316 )     —       —  
                                 
Total cost of revenue
    83,158       (29,316 )     —       53,842  
                                 
Gross profit
                               
Commercial
    15,745       —       —       15,745  
Government Technology Services
    11,529       (11,529 )     —       —  
                                 
Total gross profit
    27,274       (11,529 )     —       15,745  
Selling, general and administrative expense
    22,042       (8,033 )     1,450 (d)     15,459  
Restructuring charges, net
    (699 )     —       —       (699 )
                                 
Operating (loss) income
    5,931       (3,496 )     (1,450 )     985  
Net interest expense
    (604 )     550 (c)     —       (54 )
Foreign currency transaction loss
    (648 )     —       —       (648 )
                                 
(Loss) income before income taxes
    4,679       (2,946 )     (1,450 )     283  
Income tax (benefit) provision
    1,739       (1,139 )     (508 )(e)     92  
                                 
Net (loss) income
  $ 2,940     $ (1,807 )   $ (942 )   $ 191  
                                 
                                 
Basic earnings per common share
  $ 0.28                     $ 0.02  
                                 
Diluted earnings per common share
  $ 0.28                     $ 0.02  
                                 
Weighted average number of common shares and common share equivalents outstanding
                               
Basic—common
    10,599                       10,599  
Diluted—common
    10,624                       10,624  


F-6

 

The unaudited pro forma consolidated statements of operations for the six months ended June 30, 2010 and June 30, 2009 reflect the following adjustments:
 
(a)  As reported in the Company’s unaudited Quarterly Report on Form 10-Q for the six months ended June 30, 2010.
 
(b)  Elimination of operating results of Government Solutions and subsidiaries. These amounts represent the unaudited statements of operations for Government Solutions for the six months ended June 30, 2010 and June 30, 2009.
 
(c)  Interest on a loan related to the acquisition of New Vectors during 2007. The loan balance is maintained by the retained business.
 
(d)  Amounts reflect corporate overhead allocations originally charged to Government Solutions operating results identified under Note (a) that would continue to be recorded as an expense of the retained business.
 
(e)  Reflects the tax effect of the corporate overhead that would be absorbed by the retained business at statutory rates for Federal and State tax purposes for the six months ended June 30, 2010 and June 30, 2009.


F-7

 

TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2009
 
                                 
          Sale of Business        
    Company
 		    Business
 		    Pro Forma
 		    Pro Forma
 		 
(In thousands, except per share data)   Historical (a)     Historical (b)     Adjustments     As Adjusted  
 
Revenue
                               
Commercial
                               
IT Outsourcing Services
  $ 106,229     $ —     $ —     $ 106,229  
IT Consulting and Systems Integration
    12,755       —       —       12,755  
Other Services
    15,817       —       —       15,817  
                                 
Total Commercial
    134,801       —       —       134,801  
Government Technology Services
    76,440       (76,440 )     —       —  
                                 
Total revenue
    211,241       (76,440 )     —       134,801  
                                 
Cost of revenue
                               
Commercial
                               
IT Outsourcing Services
    82,899       —       —       82,899  
IT Consulting and Systems Integration
    9,890       —       —       9,890  
Other Services
    11,963       —       —       11,963  
                                 
Total Commercial
    104,752       —       —       104,752  
Government Technology Services
    56,003       (56,003 )     —       —  
                                 
Total cost of revenue
    160,755       (56,003 )     —       104,752  
                                 
Gross profit
                               
Commercial
    30,049       —       —       30,049  
Government Technology Services
    20,437       (20,437 )     —       —  
                                 
Total gross profit
    50,486       (20,437 )     —       30,049  
Selling, general and administrative expense
    42,823       (15,984 )     2,841 (d)     29,680  
Impairment charges
    27,453       (21,284 )     —       6,169  
Restructuring charges, net
    411       —       —       411  
                                 
Operating (loss) income
    (20,201 )     16,831       (2,841 )     (6,211 )
Net interest expense
    (1,018 )     992 (c)     —       (26 )
Foreign currency transaction loss
    (675 )     —       —       (675 )
                                 
(Loss) income before income taxes
    (21,894 )     17,823       (2,841 )     (6,912 )
Income tax (benefit) provision
    (3,261 )     3,785       (1,025 )(e)     (501 )
                                 
Net (loss) income
  $ (18,633 )   $ 14,038     $ (1,816 )   $ (6,411 )
                                 
                                 
Basic loss per common share
  $ (1.75 )                   $ (.60 )
                                 
Diluted loss per common share
  $ (1.75 )                   $ (.60 )
                                 
Weighted average number of common shares and common share equivalents outstanding
                               
Basic—common
    10,618                       10,618  
Diluted—common
    10,618                       10,618  


F-8

 

TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2008
 
                                 
          Sale of Business        
    Company
 		    Business
 		    Pro Forma
 		    Pro Forma
 		 
(In thousands, except per share data)   Historical (a)     Historical (b)     Adjustments     As Adjusted  
 
Revenue
                               
Commercial
                               
IT Outsourcing Services
  $ 120,166     $ —     $ —     $ 120,166  
IT Consulting and Systems Integration
    27,064       —       —       27,064  
Other Services
    24,110       —       —       24,110  
                                 
Total Commercial
    171,340       —       —       171,340  
Government Technology Services
    88,615       (88,615 )     —       —  
                                 
Total revenue
    259,955       (88,615 )     —       171,340  
                                 
Cost of revenue
                               
Commercial
                               
IT Outsourcing Services
    95,816       —       —       95,816  
IT Consulting and Systems Integration
    20,637       —       —       20,637  
Other Services
    18,683       —       —       18,683  
                                 
Total Commercial
    135,136       —       —       135,136  
Government Technology Services
    64,383       (64,383 )     —       —  
                                 
Total cost of revenue
    199,519       (64,383 )     —       135,136  
                                 
Gross profit
                               
Commercial
    36,204       —       —       36,204  
Government Technology Services
    24,232       (24,232 )     —       —  
                                 
Total gross profit
    60,436       (24,232 )     —       36,204  
Selling, general and administrative expense
    46,920       (15,970 )     2,541 (d)     33,491  
Restructuring charges, net
    5,719       (789 )     —       4,930  
                                 
Operating (loss) income
    7,797       (7,473 )     (2,541 )     (2,217 )
Net interest expense
    (1,712 )     1,536 (c)     —       (176 )
Foreign currency transaction gain
    910               —       910  
Other income, net
    155               —       155  
                                 
(Loss) income before income taxes
    7,150       (5,937 )     (2,541 )     (1,328 )
Income tax (benefit) provision
    4,182       (2,284 )     (933 )(e)     965  
                                 
Net (loss) income
  $ 2,968     $ (3,653 )   $ (1,608 )   $ (2,293 )
                                 
                                 
Basic (loss) earnings per common share
  $ 0.28                     $ (0.22 )
                                 
Diluted (loss) earnings per common share
  $ 0.28                     $ (0.22 )
                                 
Weighted average number of common shares and common share equivalents outstanding
                               
Basic—common
    10,529                       10,529  
Diluted—common
    10,555                       10,555  


F-9

 

TECHTEAM GLOBAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2007
 
                                 
          Sale of Business        
    Company
 		    Business
 		    Pro Forma
 		    Pro Forma
 		 
(In thousands, except per share data)   Historical (a)     Historical (b)     Adjustments     As Adjusted  
 
Revenue
                               
Commercial
                               
IT Outsourcing Services
  $ 104,659     $ —     $ —     $ 104,659  
IT Consulting and Systems Integration
    28,064       —       —       28,064  
Other Services
    20,219       —       —       20,219  
                                 
Total Commercial
    152,942       —       —       152,942  
Government Technology Services
    69,254       (69,254 )     —       —  
                                 
Total revenue
    222,196       (69,254 )     —       152,942  
                                 
Cost of revenue
                               
Commercial
                               
IT Outsourcing Services
    84,732       —       —       84,732  
IT Consulting and Systems Integration
    21,877       —       —       21,877  
Other Services
    15,430       —       —       15,430  
                                 
Total Commercial
    122,039       —       —       122,039  
Government Technology Services
    50,387       (50,387 )     —       —  
                                 
Total cost of revenue
    172,426       (50,387 )     —       122,039  
                                 
Gross profit
                               
Commercial
    30,903       —       —       30,903  
Government Technology Services
    18,867       (18,867 )     —       —  
                                 
Total gross profit
    49,770       (18,867 )     —       30,903  
Selling, general and administrative expense
    39,475       (12,185 )     702  (d)     27,992  
                                 
Operating (loss) income
    10,295       (6,682 )     (702 )     2,911  
Net interest expense
    (572 )     934 (c)     —       362  
Foreign currency transaction loss
    (84 )     —       —       (84 )
                                 
(Loss) income before income taxes
    9,639       (5,748 )     (702 )     3,189  
Income tax (benefit) provision
    3,343       (2,235 )     (259 ) (e)     849  
                                 
Net (loss) income
  $ 6,296     $ (3,513 )   $ (443 )   $ 2,340  
                                 
                                 
Basic earnings per common share
  $ 0.61                     $ 0.23  
                                 
Diluted earnings per common share
  $ 0.60                     $ 0.22  
                                 
Weighted average number of common shares and common share equivalents outstanding
                               
Basic—common
    10,355                       10,355  
Diluted—common
    10,506                       10,506  


F-10

 

The unaudited pro forma consolidated statements of operations for the twelve months ended December 31, 2009, 2008 and 2007 reflect the following adjustments:
 
(a)  As reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
(b)  Elimination of operating results of Government Solutions and subsidiaries. These amounts represent the unaudited statements of operations for Government Solutions for the twelve months ended December 31, 2009, 2008 and 2007.
 
(c)  Interest on a loan related to the acquisition of New Vectors during 2007. The loan balance is maintained by the retained business.
 
(d)  Amounts reflect corporate overhead allocations originally charged to Government Solutions operating results identified under Note (a) that would continue to be recorded as an expense of the retained business.
 
(e)  Reflects the tax effect of the corporate overhead that would be absorbed by the retained business at statutory rates for Federal and State tax purposes for the twelve months ended December 31, 2009, 2008 and 2007.


F-11