Service Leadership
Team, Inc. 2007 Annual Report
Dear Fellow Shareholders,
I am pleased to report that Team had
a terrific year, again achieving record
revenues and earnings! For the fiscal year
ending May 31, 2007, revenues were $318
million, up $59 million or 23 percent from
the prior year. Net income was $15.5 million
($1.64 per share on a fully diluted basis), an
increase of 46 percent versus the prior year.
Reflecting these strong and growing operating
results, the value of our company both in
total and on a per share basis also reached
new highs. And, I believe we are well
positioned to continue this attractive
performance growth in fiscal year 2008
and beyond.
The primary driver of our business
continues to be our ability to provide Team’s
industrial services to both established and new
customers in an outstanding manner - safely,
responsively, effectively, and efficiently.
Consistently meeting these customer
expectations represents Service Leadership
— the theme of this year’s Annual Report
cover. Every Team colleague is critical to
our success. Our technicians are on-site
directly “solving customer problems” or
meeting other customer needs. Equally
important, our field and corporate support
groups assist our technicians with supervision
as well as with logistical, technical, opera-
tional, training, and administrative support
requirements. We are proud of our service
capabilities and are committed to bringing
“our best” with each service opportunity.
Our continued significant growth over the
past several years reflects our expanding
service capabilities and our collective
commitment to service leadership. I take this
opportunity to salute and thank my more
than 3400 Team colleagues for their critical
contributions to our continued growth and
progress!
As also noted on this year’s cover, we
moved our stock listing to the NASDAQ
Global Select Market with our new trading
symbol “TISI.” We believe the NASDAQ is
a good fit for Team over the long term as we
continue to grow and expand our business.
We have been pleased with our NASDAQ
experience to date and look forward to an
outstanding partnership going forward.
Business Highlights
Let me share a few highlights of the
past year. We continue to be very pleased
with the breadth and depth of our overall
growth. Both TMS and TCM Divisions
achieved revenue increases of 19 percent or
more. Nearly all service lines posted sales
increases greater than 10 percent. We
continue to expand our business with both
the large multi-plant customers as well as
the smaller local customers. With regard to
the former, our total revenues from our
major alliance agreements increased $29
million – approximately half of Team’s total
growth during the year. Yet despite this
attractive growth, we estimate that our total
market share is still significantly less than
20 percent overall. We have plenty of
untapped potential ahead of us.
We were pleased with our improved
profit margins and continuing ability to
capture the inherent operating leverage of
our business, even as we addressed significant
wage pressures due to the strong market
conditions. As a result, Team’s operating
profit margin increased significantly to 10
percent for the year.
We were also very pleased with our
continuing ability to recruit additional high
quality employees to Team. During fiscal
year 2007, Team added approximately 350
(net) new, full-time employees (a 12 percent
increase) as well as several hundred more
part-time contract workers to support major
turnaround projects. Our success depends on
our continuing growth in qualified personnel
and we remain committed to being the
employer of choice in our industry. We also
have a number of ongoing initiatives to
bring less experienced but highly trainable
individuals into our industry from a cross
section of backgrounds. As an example, we
are very encouraged with the initial results
from our military recruiting initiatives.
One of our core values is “Safety First”
in everything that we do. While we have ex-
perienced significant growth and an influx
of new employees, we continue to improve
our overall safety performance. Of course,
we will never be satisfied as long as we
experience any injuries or incidents. Strong
operational capabilities, including safe
practices, are the foundation for any
successful service company.
And at year-end, we were delighted to
announce the acquisition of the Aitec
companies. With the addition of Aitec, Team
is now the second largest provider of NDE
inspection services in Canada. Prior to the
acquisition, Team was not providing any
inspection services in Canada; a significant
gap in our North American market presence.
We see exciting growth opportunities as we
bring together the larger range of service
capabilities for both existing legacy Team
customers and our new “Aitec” customers
throughout Canada. The Aitec acquisition
will add about $50 million of additional
business which we expect to be accretive to
earnings in the current year. We continue to
seek other “accelerating” acquisitions to
complement our organic growth performance
and opportunities.
All in all, we are proud of our progress
on many fronts and we are well positioned
for continued attractive growth in the current
year and beyond. Nevertheless, we fully
understand the difference between potential
and performance. To continue our
performance improvement, we need
to remain focused on our business
fundamentals and continue to deliver
outstanding service to our customers.
We intend to do just that!
Organizational Changes
At the end of the fiscal year, Ken Tholan,
our former President and Chief Operating
Officer, retired from the company. We thank
him for his outstanding contributions to
Team and wish him all the best in the next
phase of his life adventure. With Ken’s re-
tirement, we have flattened and realigned
our senior management responsibilities
among five Senior Vice Presidents, all
experienced Team managers. I am delighted
to be working with this team.
* * *
Thank you for your continuing interest
in and support of our company. We are proud
of what we have accomplished over the past
several years, but are equally excited about
our prospects and opportunities ahead. We
are looking forward to another productive
year in FY2008!
Philip J. Hawk
Chairman and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2007
OR
‘ 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 001-08604
TEAM, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State of incorporation)
74-1765729
(I.R.S. Employer Identification No.)
200 Hermann Drive Alvin, Texas
(Address of principal executive offices)
77511
(Zip Code)
Registrant’s telephone number, including area code: (281) 331-6154
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Name of Each Exchange on which Registered
Common Stock, $.30 par value
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes ‘ No È
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 È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Large accelerated filer ‘
Accelerated filer È
Non-accelerated filer ‘
Act). Yes ‘ No È
As of August 1, 2007, 8,941,643 shares of the registrant’s common stock were outstanding, of which 7,730,499
were held by non-affiliates. The aggregate market value of common stock held by non-affiliates of the registrant (based
upon the closing sales price of $46.86 per share on The NASDAQ Global Select Market on such date) was
$362,251,183. For purposes of the foregoing calculation only, all directors, executive officers and known 5% beneficial
owners have been deemed affiliates.
Documents Incorporated by Reference
Portions of our definitive proxy statement for the 2007 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report. These will be filed no later than September 28, 2007.
FORM 10-K INDEX
PART I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Narrative Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.A RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.B UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . .
ITEM 4.
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1
2
2
2
4
6
6
8
8
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PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . .
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . .
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
ITEM 9.
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . .
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Certain items required in Part III of this Form 10-K can be found in our 2007 Proxy Statement and are
incorporated herein by reference. A copy of the 2007 Proxy Statement will be provided, without charge, to any
person who receives a copy of this Form 10-K and submits a written request to Ted Owen, Senior Vice President
and Chief Financial Officer, TEAM, Inc., 200 Hermann Drive, Alvin, Texas, 77511.
PART I
Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “the Company,” “we,” “our” and “us” are used
in this report to refer to Team, Inc., to one or more of our consolidated subsidiaries or to all of them taken as a
whole. In this document, we make certain forward-looking statements, including statements regarding our plans,
strategies, objectives, expectations, intentions and resources that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. We do not undertake to update, revise or correct any of
the forward-looking information. Our forward-looking statements should be read in conjunction with our
disclosures beginning on page 12 of this report under the heading: “CAUTIONARY STATEMENT FOR THE
PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995.” The following discussion should also be read in conjunction with the audited consolidated
financial statements and the notes thereto.
ITEM 1.
BUSINESS
General Description of Business
Our corporate headquarters is located at 200 Hermann Drive, Alvin, Texas, 77511 and our telephone
number is (281) 331-6154. On December 28, 2006 we transferred the listing of our common stock from the
American Stock Exchange (“AMEX”) to the NASDAQ Global Select Market (“NASDAQ”), at which time we
began trading on the NASDAQ under the symbol “TISI”. Our fiscal year ends on May 31 of each calendar year.
We are a leading provider of specialty maintenance and construction services required in maintaining high
temperature and high pressure piping systems and vessels that are primarily utilized in heavy industries. We offer
an array of complimentary service lines including:
•
•
•
•
•
•
•
•
leak repair,
hot tapping,
fugitive emissions control,
field machining,
technical bolting,
field valve repair,
non-destructive testing,
field heat treating.
We offer these service lines in over 70 branch locations throughout the United States, Aruba, Canada,
Singapore, Trinidad and Venezuela. As a result of a recent acquisition, subsequent to our fiscal year end, we have
over 80 branch locations at the time of this report (Please see Note 16 to our Audited Consolidated Financial
Statements).
1
Acquisitions and Dispositions
On June 1, 2007, subsequent to our year end, we acquired all of the stock of Aitec Inc. and related
companies (“Aitec”) for $33.8 million, subject to a working capital adjustment. Aitec, is a non-destructive testing
inspection services company headquartered near Toronto with 13 service locations across Canada. Financing for
the acquisition was obtained through senior credit facility provided through our U.S. bank syndicate. The
acquisition will be accounted for using the purchase method of accounting. We are in the early stages of
determining the fair values of the assets and liabilities assumed. We believe the Aitec acquisition makes Team
the second-largest inspection service provider in Canada (Please see Note 16 to our Audited Consolidated
Financial Statements).
In November 2005, we sold all of the outstanding stock of our wholly-owned subsidiary, Climax Portable
Machine Tools, Inc. (“Climax”) for approximately $14.5 million and recognized subsequent sale price
adjustments of approximately $0.2 million. Climax was engaged in equipment sales and rental and was a
designer and manufacturer of portable metal cutting machinery used for industrial maintenance at customer
locations.
In August 2004, we acquired substantially all assets of Cooperheat-MQS, Inc., (“Cooperheat-MQS”) which
was based in Houston, Texas and had two primary service offerings—field heat treating and non-destructive
testing and inspection services. At the time of the acquisition, Cooperheat-MQS was operating under Chapter
11 of the U.S. Bankruptcy Code and was generally believed to have been ranked as the number one or number
two leading service provider in each of its service lines.
Description of Segments
Prior to the sale of Climax in November 2005, we operated as two business segments, industrial services
and equipment sales and rentals. As a result of the sale of Climax, we now operate in only one segment—
industrial services.
The significance of the Cooperheat-MQS acquisition within the industrial services segment has led to the
creation of two divisions. Our TMS division (previously referred to as the Team Mechanical Services division)
provides services of leak repair, hot tapping, emissions control monitoring, on-site field machining, technical
bolting, field valve repair and fugitive emissions monitoring. Our TCM division (previously referred to as the
Team Cooperheat-MQS division) comprises our field heat treatment, non-destructive testing and inspection
services. The industrial services segment is the aggregation of these two divisions because of their similar
economic characteristics (Please see Note 13 of our Audited Consolidated Financial Statements).
Narrative Description of Business
Our industrial services are available 24 hours a day, 7 days a week, 365 days a year. We market our services
to companies in a diverse array of industries which include the petrochemical, refining, power, pipeline, pulp and
paper, and steel industries as well as some of the world’s largest engineering and construction firms, original
equipment manufacturers (“OEMs”), distributors and end users. Our products and services are used in several
distinct industries across a broad geographic reach. In fiscal 2007, our revenues by geographic region originated
in the United States 87%, Canada 8% and other locations outside of North America 5% (Please see Note 13 of
our Audited Consolidated Financial Statements).
Employees. At May 31, 2007, we had approximately 3,400 employees and contractors in our worldwide
operations. Our Canadian employees predominantly are unionized. Our employees in the United States and
outside North America predominantly are not unionized. There have been no employee work stoppages to date
and we believe our relations with our employees are good.
2
Casualty Insurance. We carry insurance that we believe to be appropriate for the businesses in which we
are engaged. Under our insurance policies, we have per occurrence self-insured retention limits of $150,000 per
individual claimant, determined on an annual basis, for medical liability and $250,000 per case for automobile
and workers’ compensation. We have obtained fully insured layers of coverage above such self-retention limits.
Regulation. A significant portion of our business activities are subject to federal, state and local laws and
regulations. These regulations are administered by various federal, state and local health and safety and
environmental agencies and authorities, including the Occupational Safety and Health Administration of the U.S.
Department of Labor and the U.S. Environmental Protection Agency (“EPA”). From time to time, we are also
subject to a wide range of reporting requirements, certifications and compliance as prescribed by various federal
and state governmental agencies that include, but are not limited to, the Nuclear Regulatory Commission,
Chemical Safety Board, Department of Transportation and Federal Aviation Administration. Expenditures
relating to such regulations are made in the normal course of our business and are neither material nor place us at
any competitive disadvantage. We do not currently expect compliance with such laws will require us to make
material expenditures.
From time-to-time, in the operation of our environmental consulting and engineering services, the assets of
which were sold in 1996, we handled small quantities of certain hazardous wastes or other substances generated
by our customers. Under the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (the “Superfund Act”), the EPA is authorized to take administrative and judicial action to either cause
parties who are responsible under the Superfund Act for cleaning up any unauthorized release of hazardous
substances to do so, or to clean up such hazardous substances and to seek reimbursement of the costs thereof
from the responsible parties, who are jointly and severally liable for such costs under the Superfund Act. The
EPA may also bring suit for treble damages from responsible parties who unreasonably refuse to voluntarily
participate in such a clean up or funding thereof. Responsible parties include anyone who owns or operates the
facility where the release occurred (either currently and/or at the time such hazardous substances were disposed
of), or who by contract arranges for disposal, treatment, or transportation for disposal or treatment of a hazardous
substance, or who accepts hazardous substances for transport to disposal or treatment facilities selected by such
person from which there is a release. We believe that our risk of liability is minimized since our handling
consisted solely of maintaining and storing small samples of materials for laboratory analysis that are classified
as hazardous. Due to its prohibitive costs, we accordingly do not currently carry insurance to cover liabilities
which we may incur under the Superfund Act or similar environmental statutes.
Intellectual Property. While we are the holder of various patents, trademarks, trade secrets and licenses,
we do not consider any single intellectual property to be material to our consolidated business operations.
Marketing and Customers. Our industrial services are marketed principally by personnel based at our
locations. We believe that these operating and office locations are situated to facilitate timely responses to
customer needs, which is an important feature of selling and providing our services. We have developed a cross-
marketing program to utilize our sales personnel in offering many of our services. No customer accounted for
10% or more of consolidated revenues during any of the last three years.
Generally, customers are billed on a time and materials basis although some work may be performed
pursuant to a fixed-price bid. Services are usually performed pursuant to purchase orders issued under written
customer agreements. While some purchase orders provide for the performance of a single job, others provide for
services to be performed for a term of one year or less. In addition, we are a party to certain long-term contracts,
which are enabling agreements only. Substantially all long-term agreements may be terminated by either party on
short notice. The agreements generally specify the range of services to be performed and the hourly rates for
labor. While contracts have traditionally covered specific plants or locations, we have recently entered into
multiple-site regional or national contracts, which cover multiple plants or locations.
3
We frequently provide various limited warranties for certain of our repair services. To date, there have been
no significant warranty claims filed against us.
Seasonality. We experience some seasonal fluctuations. Historically, the refining industry has scheduled
plant shutdowns (commonly referred to as “turnarounds”) for the fall and spring seasons. Turnaround activities in
that sector can have a significant impact on our workload.
Competition.
In general, competition stems from other outside service contractors and customers’
in-house maintenance departments. We believe we have a competitive advantage over most service contractors
due to the quality, training and experience of our technicians, our nationwide and increasingly international
service capability, and our broad range of services, as well as our technical support and manufacturing
capabilities supporting the service network. However, there are other competitors that may offer a similar range
of coverage or services and include, but are not limited to, Furmanite Corporation, T.D. Williamson, Inc., Acuren
Group, Inc. and JV Industrial Companies.
Service Lines
We attribute our success to the quality and timely performance of the services provided by our skilled
technicians, our proprietary techniques and materials and our ability to meet the demanding needs of our
customers’ operations. We have continued to develop different types of services and products which complement
our existing industrial service markets. Our rigorous in-house safety programs, technician training and quality
control programs are all designed to ensure safety and compliance with customers’ requirements. The following
discussion describes those services:
Leak Repair Services. Our leak repair services consist of on-stream repairs of leaks in pipes, valves,
flanges and other parts of piping systems and related equipment. Our on-stream repairs include the marketing of
both standard and custom-designed clamps and enclosures for plant systems and pipelines. We use specially
developed techniques, sealants and equipment for repairs. Many of our repairs are furnished as interim measures
which allow plant systems to continue operating until more permanent repairs can be made during turnarounds.
Our leak repair services involve inspection of the leak by our field crew who record pertinent information about
the faulty part of the system and transmit the information to our engineering department for determination of
appropriate repair techniques. Repair materials such as clamps and enclosures are custom designed and
manufactured at our ISO-9001 certified manufacturing center in Alvin, Texas and delivered to the job site. We
maintain an inventory of raw materials and semi-finished clamps and enclosures to reduce the time required to
manufacture the finished product. Installations of the clamps and enclosures for on-stream repair work are then
performed by the field crew using, in large part, materials and sealants that are developed and produced at our
manufacturing center.
Hot Tapping Services. Our hot tapping services consist of providing a full range of hot tapping, Line-
stop® and Freeze-stop® services with capabilities for up to 48” diameter pipelines. Hot tapping services involve
utilizing special equipment to cut a hole in a pressurized pipeline so that a new branch pipe can be connected
onto the existing pipeline without interrupting operations. Line-stop® services permit the line to be depressurized
downstream so that maintenance work can be performed on the piping system. We typically perform these
services by mechanically cutting into the pipeline similar to a hot tap and installing a special plugging device to
stop the process flow. The Hi-stop® is a proprietary and patented procedure that allows stopping of the process
flow in extreme pressures and temperatures. In some cases, we may use a line freezing procedure by injecting
liquid nitrogen into installed special external chambers around the pipe to stop the process flow.
Emissions Control Services. We provide fugitive volatile organic chemical (“VOC”) emission leak
detection services that include identification, monitoring, data management and reporting primarily for the
chemical, refining and natural gas processing industries. These services are designed to monitor and record VOC
emissions from specific process equipment and piping components as required by environmental regulations and
4
customer requests, typically assisting the customer in enhancing an ongoing maintenance program and/or
complying with present and/or future environmental regulations. We provide specialty trained technicians in the
use of portable organic chemical analyzers and data loggers to measure potential leaks at designated plant
components maintained in customer or our proprietary databases. The measured data is used to prepare standard
reports in compliance with EPA and local regulatory requirements. We also provide enhanced custom-design
reports to customer specifications.
Field Machining and Technical Bolting Services. This service involves the use of portable machining
equipment to repair or modify machinery, equipment, vessels and piping systems not easily removed from a
permanent location. As opposed to conventional machining processes where the work piece rotates and the
cutting tool is fixed, in field machining, the work piece remains fixed in position and the cutting tool rotates.
Other common descriptions for this service are on-site or in-place machining. Field machining services include
flange facing, pipe cutting, line boring, journal turning, drilling, and milling. Technical bolting services are often
provided to customers as a complimentary service to field machining during turnaround or maintenance
activities. These services involve the use of hydraulic or pneumatic equipment with industry standard bolt
tightening techniques to achieve reliable and leak-free connections during plant maintenance turnarounds and
capital projects. Additional services include bolt disassembly using hot bolting which is a process to remove and
replace a bolt as the process is operating.
Field Valve Repair Services. We perform on-site repairs to process manual and control valves, pressure
and safety relief valves as well as specialty valve actuator diagnostics and repair. We are certified and authorized
to perform testing and repairs to pressure and safety relief valves by The National Board of Boiler and Pressure
Vessel Inspectors. This certification requires specific procedures, testing and documentation to maintain the safe
operation of these essential plant valves. We provide special transportable trailers to the plant site which contain
specialty machines to manufacture valve components without removing the valve from the piping system. In
addition, we provide preventive maintenance programs for VOC specific valves and valve data management
programs.
Non-destructive Testing and Inspection Services.
Inspection services consist of the examination and
evaluation of piping, piping components and equipment to determine the present condition and predict remaining
operability. Our inspection services use all the common methods of non-destructive testing, including
radiography, ultrasound, magnetic particle and dye penetrate, as well as, higher end robotic and newly developed
advanced technology systems. Many of the visual inspection programs we provide require specialized training to
industry and regulatory standards. We provide these services as part of planned construction, maintenance
programs and on demand. We provide reports based on industry and national standards. Inspection services are
marketed to the same industrial customer base as our other services as well as outside our traditional customer
base such as the aerospace and automotive industries. The inspection services are the only services we provide
which require industry recognized training and certification processes. We maintain training and certification
programs which meet or exceed industry standards.
Field Heat Treating Services. Our field heat treating services include electric resistance and gas-fired
combustion, primarily utilized by industrial users to enhance the metallurgical properties of their process piping
and equipment. Electric resistance heating is the transfer of high energy power sources through attached heaters
to the plant component to preheat weld joints to remove contaminates and moisture prior to welding and post-
weld heat treatments to relieve metal thermal stresses induced by the welding process. Specialty heat treating
processes are performed using gas fired combustion on large pressure vessels for stress relieving, to bake
specialty paint coatings, and controlled drying of abrasion and temperature resistant refractories. Special high
frequency heating commonly called induction heating is used to expand metal parts for assembly or disassembly,
expansion of large bolting for industrial turbines and stress relieving projects which is cost prohibitive for electric
resistance or gas-fired combustion.
5
Available Information
As a public company, we are required to file periodic reports with the Securities and Exchange Commission
(“SEC”) within established deadlines. Any document we file with the SEC may be viewed or copied at the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Additional information regarding the
Public Reference Room can be obtained by calling the SEC at (800) SEC-0330. Our SEC filings are also
available to the public through the SEC’s website located at http://www.sec.gov.
Our internet website address is http://www.teamindustrialservices.com. Information contained on our
website is not part of this report on Form 10-K. Our annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K filed with (or furnished to) the SEC are available on our website, free of
charge, as soon as reasonably practicable after we file or furnish such material. We also post our code of business
conduct and ethics and the charters of our board’s committees on our website. Our governance documents are
available in print to any stockholder that makes a written request to Ted W. Owen, Senior Vice President and
Chief Financial Officer, TEAM, Inc., 200 Hermann Drive, Alvin, Texas, 77511.
ITEM 1A. RISK FACTORS
We caution the reader that our list of risk factors may not be exhaustive. We operate in a continually
changing business environment, and new risk factors emerge from time to time. We cannot predict such risk
factors, nor can we assess the impact, if any, of such risk factors on our business or the extent to which any
factors may cause actual results to differ materially from those projected. The following risks and uncertainties,
among others, should be considered in evaluating our outlook of future Company performance.
We sell our services in highly competitive markets, which puts pressure on our profit margins and limits
our ability to maintain or increase the market share of our services. The markets for our services can be
fragmented and highly competitive. No assurances can be made that we will continue to maintain our pricing
model and our profit margins or increase our market share.
No assurances can be made that we will be successful in hiring or retaining members of a skilled
technical workforce. We have a skilled technical workforce and an industry recognized technician training
program for each of our service lines that prepares new employees as well as further trains our existing
employees. The competition for these individuals is intense. The loss of the services of a number of these
individuals or failure to attract new employees could adversely affect our ability to perform our obligations on
our customers’ projects or maintenance and consequently could negatively impact the demand for our products
and services and consequently our financial condition and operating results.
Our operations and properties are subject to extensive governmental regulation under environmental
laws. These laws and regulations can impose substantial sanctions for violations or operational changes that
may limit our services. We must conform our operations to applicable regulatory requirements and adapt to
changes in such requirements in all locations in which we operate. These actions may increase the overall costs
of providing our services.
We may incur material costs as a result of general liability and warranty claims, which could adversely
affect our financial condition, results of operations and cash flows. These claims may result from
catastrophic events to which we may be at fault or have indemnified certain parties deemed to be at fault. While
we maintain insurance coverage with respect to certain liability claims, we may not be able to obtain such
insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage
against product liability claims. In addition, liability claims can be expensive to defend and can divert the
attention of management and other personnel for significant periods of time, regardless of the ultimate outcome.
An unsuccessful defense of a liability claim could have an adverse affect on our business, results of operations
6
and financial condition and cash flows. Even if we are successful in defending against a claim relating to our
services, claims of this nature could cause our customers to lose confidence in our services and our Company.
Economic, political and other risks associated with international operations could adversely affect our
business. A portion of our operations are conducted and located outside the United States and, accordingly, our
business is subject to risks associated with doing business internationally, including changes in foreign currency
exchange rates, instability in political or economic conditions, differing employee relations, trade protection
measures, and difficulty in administering and enforcing corporate policies which may be different than the
normal business practices of local cultures.
Our business depends on the levels of capital investment and maintenance expenditures by our
customers, which in turn are affected by the cyclical nature of their markets and their liquidity. The ability
of our customers to finance capital investment and maintenance expenditures, and therefore, hire us for projects,
may be affected by factors independent of those conditions such as liquidity constraints or postponing projects
until favorable financial capital markets are present.
We may not be able to continue to expand our market presence through attractive acquisitions, and any
future acquisitions may present unforeseen integration difficulties or costs. From time to time, we make
acquisitions of other business that enhance our services or the geographic scope of our Company. No assurances
can be made that we will realize the cost savings, synergies or revenue enhancements that we may anticipate
from any acquisition, or that we will realize such benefits within the time frame that we expect. If we are not able
to address the challenges associated with acquisitions and successfully integrate acquired businesses, or if our
integrated product and service offerings fail to achieve market acceptance, our business could be adversely
affected.
Our level of indebtedness could have important consequences to us. Our level of indebtedness may make
it more difficult for us to satisfy our obligations with respect to our indebtedness, increase our vulnerability to
general adverse economic conditions, industry conditions and rising interest rates, limit our ability to take
advantage of business opportunities as a result of various restrictive covenants in our debt agreements, place us at
a competitive disadvantage compared to our competitors that have less debt or limit our ability to borrow money
or sell stock to fund our working capital, capital expenditures, acquisitions or other corporate requirements.
The price of our outstanding securities may suffer if we cannot control fluctuations in our sales and
operating results. Historically, our quarterly and annual sales and operating results have fluctuated. We expect
fluctuations to continue in the future. In addition to general economic and political conditions, the following
factors affect our sales: the timing of significant customer orders, changes in competitive pricing, wide variations
in profitability by product line, variations in operating expenses, the timing of announcements or introductions of
new products or services by us, our competitors or our respective customers, the acceptance of those services, our
ability to adequately meet staffing requirements with qualified personnel, relative variations in manufacturing
efficiencies and costs, and the relative strength or weakness of international markets. Since our quarterly and
annual sales and operating results vary, we believe that period-to-period comparisons are not necessarily
meaningful, and you should not rely on those comparisons as indicators of our future performance. Due to the
foregoing factors, it is possible that in some future quarter or quarters our revenues or operating results will not
meet the expectations of public stock market analysts or investors, which could cause the price of our outstanding
securities to decline or be volatile.
Our business may be adversely impacted by work stoppages, staffing shortages, and other labor
matters. At May 31, 2007, we had approximately 3,400 employees and contractors, approximately 200 of
whom were located in Canada where employees predominantly are represented by unions. Our acquisition of
Aitec, subsequent to year end, added approximately another 300 employees in Canada. Although we believe that
our relations with our employees are good and we have had no strikes or work stoppages, no
7
assurances can be made that we will not in the future experience these and other types of conflicts with labor
unions, works councils, other groups representing employees, or our employees generally, or that any future
negotiations with our labor unions will not result in significant increases in the cost of labor.
Other risk factors include, but are not limited to:
•
•
•
•
•
the effects of extreme weather conditions such as hurricanes;
acts of terrorism aimed at either our facilities or our customer facilities that could impair our ability to
conduct business;
rulings, judgments or settlements in litigation or other legal or regulatory matters including unexpected
environmental remediation costs in excess of any reserves or insurance coverage;
legislation or regulatory action, including the introduction or enactment of federal, state or foreign
legislation or rulemakings, which may adversely affect our business or operations including changes in
tax laws in the United States or in foreign countries; and
overall economic conditions.
Any one of these factors, or a combination of these factors, could materially affect our future results of
operations and whether any forward-looking statements in this Form 10-K ultimately prove to be accurate.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We own real estate and office facilities in the Alvin, Texas area totaling approximately 88,000 square feet.
These facilities are comprised of a corporate office and training building and a manufacturing facility for clamps,
enclosures and sealants. Additionally, we own facilities in, or near, Houston, Texas, Milwaukee, Wisconsin, and
Edmonton, Alberta, which are utilized in the industrial services operations. All of those facilities are pledged as
security for our banking facility (Please see Note 8 of our Audited Consolidated Financial Statements). We also
lease approximately 80 office and/or plant and shop facilities at separate locations in thirty-one states, Puerto
Rico and in Aruba, Canada, Singapore, Trinidad and Venezuela.
We believe that our property and equipment are adequate for our current needs, although additional
investments are expected to be made in property and equipment for expansion, replacement of assets at the end
of their useful lives and in connection with corporate development activities.
ITEM 3.
LEGAL PROCEEDINGS
In August 2005, we were served in a lawsuit styled Paulette Barker, as named Executor for the Estate of
Robert Barker, et. al. v. Emmett J. Lescroart, Michael Urban, Team, Inc. et. al., Case Number 355868-402 in the
Probate Court #1, Harris County, Texas. The dispute arises out of the sale by Mr. Barker to Mr. Lescroart of
stock in Thermal Solutions, Inc. (“TSI”). Subsequently, we acquired all of the outstanding stock of TSI in April
2004, allegedly for a much higher price than Mr. Lescroart paid Mr. Barker in July 2003. Mr. Lescroart, a
member of our Board of Directors. The plaintiff claims damages in excess of $1,000,000. We intend to
vigorously defend this action and do not believe that we have any legal liability under the suit and, further,
believe we are entitled to be indemnified from any loss we may incur under the terms of the Stock Purchase
Agreement related to the TSI acquisition. We have filed a motion for summary judgment seeking dismissal from
the case. The motion is currently pending before the judge.
8
We are involved in various other lawsuits and are subject to various claims and proceedings encountered in
the normal conduct of business. In the opinion of our management, any losses that might arise from these
lawsuits and proceedings will not have a materially adverse effect on our Audited Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
On December 28, 2006 we transferred the listing of our common stock from the AMEX to the NASDAQ, at
which time we began trading on the NASDAQ under the symbol “TISI”. The table below reflects the high and
low closing sales prices of our common stock on the AMEX and NASDAQ by quarter for the fiscal years ended
May 31, 2007 and 2006, respectively.
Sales Price
High
Low
2007
Quarter Ended:
August 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 28, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32.00
32.00
36.76
39.65
$23.82
23.99
29.85
32.38
2006
Quarter Ended:
August 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 28, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23.75
25.90
30.70
34.57
$17.90
20.40
20.93
26.60
Holders
There were 230 holders of record of our common stock as of July 3, 2007, excluding beneficial owners of
stock held in street name. Although exact information is unavailable, we estimate there are approximately 8,760
additional beneficial owners.
Dividends
No dividends were declared or paid in 2007, 2006 or 2005, and we are not permitted to pay cash dividends
without the consent of our primary lender. Accordingly, we have no present intention to pay cash dividends in
the foreseeable future. Additionally, any future dividend payments will continue to depend on our financial
condition, market conditions and other matters deemed relevant by the Board of Directors.
Stock Split
On July 25, 2007, subsequent to year end, our Board of Directors approved a two-for-one stock split in the
form of a 100% stock dividend payable on August 29, 2007 to all shareholders of record on August 15, 2007.
This action will double the total number of common shares outstanding to nearly 18 million shares (Please see
Note 16 to our Audited Consolidated Financial Statements).
Equity Compensation Plans
This information has been omitted from this report on Form 10-K as we intend to file such information in
our definitive proxy statement no later than 120 days following the close of our fiscal year ended May 31, 2007.
The information required regarding equity compensation plans is hereby incorporated by reference.
10
ITEM 6.
SELECTED FINANCIAL DATA
The following is a summary of selected financial information for the five years ended May 31,
2007 (amounts in thousands, except per share data):
2007
Twelve Months Ended May 31,
2006
2005
2004
2003
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from continuing operations . . . . . . . . . . . . . .
Net income from discontinued operations (1) . . . . . . . . .
$318,348
15,515
—
$259,838
10,630
6
$193,035
4,284
504
$94,546
5,263
513
$81,022
4,184
218
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,515
$ 10,636
Net income per share: Basic
From continuing operations . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
From discontinued operations (1)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Diluted
From continuing operations . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
From discontinued operations (1)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted averages shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividend declared, per common share . . . . . . . . . . .
$
$
$
$
$
1.77
0.00
1.77
1.64
0.00
1.64
8,770
9,433
0.00
$
$
$
$
$
1.26
0.00
1.26
1.16
0.00
1.16
8,413
9,199
0.00
$
$
$
$
$
$
4,788
$ 5,776
$ 4,402
0.53
0.06
0.59
0.48
0.05
0.53
8,140
8,982
0.00
$
$
$
$
$
0.68
0.07
0.75
0.62
0.07
0.69
7,709
8,429
0.00
$
$
$
$
$
0.54
0.03
0.57
0.50
0.03
0.53
7,707
8,369
0.00
2007
2006
May 31,
2005
2004
2003
Balance Sheet data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and other long-term liabilities . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital
$171,054
$ 49,260
$ 84,203
$ 70,229
$139,971
$ 40,208
$ 63,885
$ 49,219
$143,326
$ 62,089
$ 48,942
$ 49,089
$74,396
$18,308
$42,299
$27,712
$52,224
$10,567
$31,735
$19,713
(1) Discontinued operations consist of the operating results of Climax and interest on debt allocated to such
operations.
11
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following review of our results of operations and financial condition should be read in conjunction with
Item 1 “Business,” Item 1A “Risk Factors,” Item 2 “Properties,” and Item 8, “Consolidated Financial Statements
and Supplementary Data,” included in this Form 10-K. Our consolidated balance sheets, consolidated statements
of operations, and consolidated statements of cash flows have been recast to present the operating results of
Climax as discontinued operations for all periods presented.
CAUTIONARY STATEMENT FOR THE PURPOSE OF
SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. In addition, other written or oral statements that
constitute forward-looking statements may be made by us or on behalf of the Company. You can identify our
forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,”
“project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “will,” “could,” “should,”
“may” and similar expressions.
We based our forward-looking statements on our reasonable beliefs and assumptions, and our current
expectations, estimates and projections about ourselves and our industry. We caution that these statements are
not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In
addition, we based many of these forward-looking statements on assumptions about future events that may prove
to be inaccurate. We wish to ensure that such statements are accompanied by meaningful cautionary statements,
so as to obtain the protections of the safe harbor established in the Private Securities Litigation Reform Act of
1995. Accordingly, you should carefully consider the statements under “Risk Factors,” which address factors that
could cause our actual results to differ materially from those set forth in forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise.
Overview
We are a leading provider of specialty maintenance and construction services required in maintaining high
temperature and high pressure piping systems and vessels that are primarily utilized in heavy industries. We offer
an array of complimentary service lines including:
•
•
•
•
•
•
•
•
leak repair,
hot tapping,
fugitive emissions control,
field machining,
technical bolting,
field valve repair,
non-destructive testing,
field heat treating.
We offer these service lines in over 70 branch locations throughout the United States, Aruba, Canada,
Singapore, Trinidad and Venezuela. As a result of our acquisition of Aitec on June 1, 2007, subsequent to our
fiscal year end, we have over 80 branch locations.
Our industrial services are available 24 hours a day, 7 days a week, 365 days a year. We market our services
to companies in a diverse array of industries which include the petrochemical, refining, power, pipeline, pulp and
paper, and steel industries as well as some of the world’s largest engineering and construction firms, original
equipment manufacturers, distributors and end users. Our products and services are used in several distinct
industries across a broad geographic reach. In 2007, our revenues by geographic region originated in the United
States 87%, Canada 8% and other locations outside of North America 5% (Please see Note 13 of our Audited
Consolidated Financial Statements).
12
Fiscal 2007 Compared to Fiscal 2006
The following table sets forth the components of revenue and operating income from our continuing
operations for fiscal 2007 and 2006 (in thousands):
2007
2006
$
%
Increase
Revenues:
TCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$171,030
147,318
$143,233
116,605
$27,797
30,713
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
318,348
259,838
58,510
Gross margin:
TCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,478
55,684
42,918
46,211
11,560
9,473
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110,162
89,129
21,033
S, G & A expenses:
Industrial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,377
14,448
56,662
11,090
8,715
3,358
Total S, G&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,825
$ 30,337
67,752
$ 21,377
12,073
$ 8,960
19%
26%
23%
27%
20%
24%
15%
30%
18%
42%
Revenues. Our revenues from continuing operations in 2007 were $318.3 million compared to $259.8
million in 2006, an increase of $58.5 million or 23%. Revenue growth continues to be broad based across all
service lines and geographic regions. Revenues for our TCM division in 2007 were $171.0 million compared to
$143.2 million in 2006, an increase of $27.8 million or 19%. Revenues for our TMS division in 2007 were
$147.3 million compared to $116.6 million in 2006, an increase of $30.7 million, or 26%. Both divisions
benefited from increases in demand and increases in pricing on newly quoted jobs, with approximately half of the
overall increase attributable to large national accounts.
Gross Margin. Our gross margin from continuing operations in 2007 was $110.2 million compared to
$89.1 million in 2006, an increase of $21.1 million or 24%. Gross margin as a percentage of sales was relatively
consistent with the prior year as improvements in TCM divisional gross margin percentages during the current
year offset decreases in TMS divisional gross margin percentages. Gross margin for our TCM division in 2007
was $54.5 million compared to $42.9 million in 2006, an increase of $11.6 million or 27%. TCM gross margins
as a percentage of revenue was 32% in 2007 and 30% in 2006 and improved as a result of our increased focus on
underperforming branches acquired in the Cooperheat MQS acquisition. Gross margin for our TMS division was
$55.7 million in 2007 compared to $46.2 million in 2006, an increase of $9.5 million or 21%. TMS gross margin
as a percentage of revenue was 38% in 2007 and 40% in 2006 down slightly from the Katrina/Rita hurricane
influenced prior year period in which there was an abundance of high margin projects.
Selling, General, and Administrative Expenses. Our SG&A from continuing operations in 2007 was
$79.8 million compared to $67.8 million in 2006, an increase of $12.0 million or 18%. This reflects investments
in our network of over 70 physical branch locations, primarily across North America. Approximately $8.6
million of the increase in SG&A was due to field operations and $3.4 million of the increase was due to
centralized corporate support costs. The $3.4 million increase in corporate support costs in the current period
included $1.4 million of stock based employee compensation expense and approximately $1.0 million of costs
incurred for an internal investigation (Please see Note 15 to our Audited Consolidated Financial Statements).
SG&A as a percentage of revenue was 25% in 2007 compared to 26% in 2006.
Interest.
Interest expense was $4.2 million in 2007 as compared to $4.0 million in 2006. This increase is
the result of higher interest rates on our LIBOR based debt and higher levels of outstanding borrowings during
the year (Please see the discussion of liquidity and capital resources below).
13
Taxes. The provision for income taxes was $10.6 million on pretax income of $26.1 million for 2007. The
provision for income taxes was $6.8 million on pretax income of $17.4 million for 2006. The effective tax rate
for fiscal 2007 was 41% compared to 39% for fiscal 2006. The rate differential is due to the mixture of
non-deductible expenses in relation to taxable income and the mixture of state and foreign taxes to which the
income is subject.
Fiscal 2006 Compared to Fiscal 2005
As a context for the discussion below, the results of our operations and financial condition were significantly
and materially impacted by the Cooperheat-MQS acquisition in fiscal year 2005. This acquisition more than
doubled the size of our industrial services segment. We organized the operations of the industrial services segment
into the TMS and TCM divisions. TMS comprises our previously existing mechanical services offerings (leak
repair, hot tapping, field machining and technical bolting, field valve repair and fugitive emissions control). TCM
comprises our field heat treatment and non-destructive testing services. The following table sets forth the
components of revenue and operating income from our continuing operations for fiscal 2006 and 2005 (in
thousands):
2006
2005
$
%
Increase
Revenues:
TCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$143,233
116,605
$ 99,268
93,767
$43,965
22,838
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259,838
193,035
66,803
Gross margin:
TCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S, G & A expenses:
Industrial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,918
46,211
89,129
56,662
11,090
Total S,G&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,752
$ 21,377
$
30,183
34,615
12,735
11,596
64,798
24,331
45,513
9,737
55,250
9,548
11,149
1,353
12,502
$11,829
25%
14%
23%
124%
44%
24%
35%
42%
34%
38%
Revenues. Our revenues from continuing operations in 2006 were $259.8 million compared to $193.0
million in 2005, an increase of $66.8 million or 35%. The increase was partially due to broad based growth
across virtually all regions and service lines and due to our Cooperheat-MQS acquisition in August 2004.
Cooperheat-MQS comprises the majority of the TCM division. The increase was also broad based with
approximately $9 million of the increase coming from Canada. Revenues for our TCM division in 2006 were
$143.2 million compared to $99.3 million in 2005, an increase of $43.9 million or 44%. Fiscal year 2006
included a full year of Cooperheat-MQS operations while fiscal year 2005 included 9 months of
Cooperheat-MQS operations. Revenues for our TMS division in 2006 were $116.6 million compared to $93.8
million in 2005, an increase of $22.8 million, or 24%. For both divisions, the current fiscal year was
characterized by increased capital and maintenance budgets for many of our customers, penetration of our
services into new industries and increases in turnaround work as customers realize the current trends contributing
to their increased margins are likely to remain for the foreseeable future.
Gross Margin. Our gross margin from continuing operations in 2006 was $89.1 million compared to
$64.8 million in 2005, an increase of $24.3 million or 38%. Gross margin as a percentage of sales improved by
approximately one percentage point. Gross margin for our TCM division in 2006 was $42.9 million compared to
$30.2 million in 2005, an increase of $12.7 million or 42%. The improvement in TCM gross margins is due to
increased revenues described above. TCM gross margins as a percentage of revenue remained unchanged at 30%.
Gross margin for our TMS division was $46.2 million in 2006 compared to $34.6 million in 2005, an increase of
$11.6 million or 34%. The improvement in TMS gross margins is due to increased revenues described above and
14
improved gross margin as a percentage of those revenues. TMS gross margin as a percentage of revenue
increased to 40% in 2006 from 37% in 2005. The increase in gross margin as a percentage of sales was due to
broad based efficiencies and operating leverage from increased revenues as well as the completion of several low
margin jobs in the prior year.
Selling, General, and Administrative Expenses. Our SG&A in 2006 was $67.8 million compared to $55.3
million in 2005, an increase of $12.5 million or 23%. The increase was primarily attributable to investments in
people, processes and systems to support the growth of the business, particularly in the field operations.
Approximately $11.1 million of the increase in SG&A was due to field operations and $1.4 million of the
increase was due to corporate costs. Expense related to Sarbanes-Oxley Section 404 compliance (“SOX”)
increased $0.5 million due to the timing of services. Approximately $0.9 million of first year implementation
costs are included in fiscal 2006 expense. We anticipate approximately $0.7 million of second year
implementation costs will occur in fiscal 2007. Overall, our total SOX cost pertaining to the second year of SOX
implementation are expected to be $1.4 million compared to $2.0 million in the first year of implementation and
SG&A as a percentage of revenue decreased to 26% in 2006 from 29% in 2005 as we were able to leverage the
investments we made in these areas.
Interest.
Interest expense was $4.0 million in 2006 as compared to $2.3 million in 2005. This increase is
the result of higher interest rates on our LIBOR based debt and higher levels of outstanding borrowings during
the fiscal year. Please see the discussion of liquidity and capital resources below.
Taxes. The provision for income taxes was $6.8 million on pretax income of $17.4 million for 2006. The
effective tax rate for fiscal 2006 was 39% compared to 41% for fiscal 2005. The rate differential is due to the
mixture of non-deductible expenses in relation to taxable income and the mixture of state and foreign taxes to
which the income is subject.
Liquidity and Capital Resources
Financing for our operations, consists primarily of vendor financing and leasing arrangements, a bank
facility and cash flows attributable to our operations. We believe that the liquidity we derive from our vendor
financing and leasing arrangements, bank facility and cash flows attributable to our operations is more than
sufficient to fund our capital expenditures, debt maturities and other business needs.
Vendor Financing.
In January 2006, we entered into a three year enterprise agreement with Microsoft for
server and desktop volume licensing with software assurance. Financing for the agreement was provided under a
three year non-interest bearing note (the “Software Licensing Note”) with monthly payments of $28,998. The
Software Licensing Note has been discounted at 7.3%, which approximated our effective borrowing rate at the
time we entered into the agreement. At May 31, 2007, the outstanding principal balance of the Software
Licensing Note was $0.6 million.
Leasing Arrangements. We also enter into operating leases to obtain equipment for our field operations
and administrative functions. Our obligations under non-cancellable operating leases, primarily consisting of
facility and auto leases, were approximately $18.8 million at May 31, 2007 and are as follows (in thousands):
Twelve Months Ended May 31,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating
Leases
$ 5,433
3,151
2,283
2,503
1,751
3,672
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,793
15
Bank Facility. On May 31, 2007, in anticipation of our acquisition of Aitec (Please see Note 16 of our
Audited Consolidated Financial Statements), we amended and restated our existing banking facility comprised of
a term loan and a revolving credit facility (the “Credit Facility”). The Credit Facility provides us with a $120
million revolving line of credit and a $15 million term loan. The Credit Facility bears interest at a LIBOR based
interest rate (currently LIBOR plus 1.5%) and matures in May 2012. The Credit Facility is secured by virtually
all of our assets and contains financial covenants and restrictions on the creation of liens on assets, the
acquisition or sale of subsidiaries and the incurrence of certain liabilities. At May 31, 2007 we were in
compliance with all financial covenants contained in the Credit Facility. At May 31, 2007, there are $1.3 million
of capitalized loan costs which are being amortized over the life of the Credit Facility.
In May 2007, we entered into an interest rate swap with our bank to hedge at a fixed pay rate of 4.97%, a
portion of the variable cash flows associated with the floating rate interest expense on our Credit Facility. The
portion of the Credit Facility hedged begins with a notional value of $30 million effective June 1, 2007 and
decreasing to $16.3 million by March 1, 2010. Changes in the cash flows of the interest rate swap are expected to
be highly effective in offsetting the changes in cash flows attributable to fluctuations in the variable LIBOR rate
on the notional amounts of the Credit Facility. The interest rate swap agreement is designated as a cash flow
hedge, therefore, the changes in fair value, to the extent the swap agreement is effective, are recognized in other
comprehensive income until the hedged interest expense is recognized in earnings.
In order to secure our insurance programs we are required to post letters of credit generally issued by a bank
as collateral. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder
demonstrates that we failed to meet our obligations under the letter of credit. If this were to occur, we would be
obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of
credit. At May 31, 2007, we were contingently liable for outstanding stand-by letters of credit totaling $4.8
million.
Cashflows Attributable to Our Operations. For fiscal year 2007, cash provided by operating activities was
$6.7 million. Net income from continuing operations of $15.5 million, when adjusted for non-cash items such as
depreciation and amortization, deferred financing costs, allowance for doubtful accounts and deferred tax
charges, was $28.0 million, of which, $21.3 million was used to fund our working capital requirements.
Cashflows Attributable to Our Investing Activities. For fiscal year 2007, cash used in investing activities
was $15.5 million, consisting primarily of $16.5 million of capital expenditures. We incurred approximately
$16.5 million, $7.1 million and $4.2 million for capital expenditures during fiscal years 2007, 2006 and 2005,
respectively. Capital expenditures can vary depending upon specific customer needs that may arise unexpectedly.
We anticipate capital expenditures for the next twelve months to increase, as a result of increased business
activity, to be in a range of approximately $15 million to $20 million.
Cashflows Attributable to Our Financing Activities. For fiscal year 2007, cash provided by financing
activities was $10.5 million. Borrowings under the Credit Facility provided $12.3 million of cash and $3.1
million was provided by the issuance of our common stock in connection with our stock option compensation
plans and was offset by $4.3 million in principal payments under our Credit Facility and other financings.
Critical Accounting Policies
The process of preparing financial statements in accordance with Generally Accepted Accounting Principles
(“GAAP”) requires our management to make estimates and judgments. It is possible that materially different
amounts could be recorded if these estimates and judgments change or if actual results differ from these
estimates and judgments. We have identified the following six critical accounting policies that require a
significant amount of estimation and judgment and are considered to be important to the portrayal of our
financial position and results of operations:
•
•
Revenue Recognition
Valuation of Intangible Assets
16
•
Income Taxes
• Workers Compensation, Auto, Medical and General Liability Accruals
•
•
Allowance for Doubtful Accounts Receivable
Estimated Useful Lives
Revenue Recognition. We determine our revenue recognition guidelines for our operations based on
guidance provided in applicable accounting standards and positions adopted by the Financial Accounting
Standards Board (“FASB”) or the SEC. Most of our projects are short-term in nature and we predominantly
derive revenues by providing a variety of industrial services on a time and material basis. For all of these services
our revenues are recognized when services are rendered or when product is shipped and risk of ownership passes
to the customer. However, due to various contractual terms with our customers, at the end of any reporting period
there may be earned but unbilled revenue that is accrued to properly match revenues with related costs. At
May 31, 2007 and 2006, the amount of earned but unbilled revenue was $6.6 million and $3.8 million,
respectively. For services performed pursuant to a fixed price bid, revenues are recognized upon completion of
the job. Costs associated with such jobs are deferred until completion, resulting in deferred costs of $0.4 million
and $0.1 million at May 31, 2007 and 2006, respectively.
Valuation of Intangible Assets.
Intangible assets primarily consists of goodwill. Goodwill represents the
excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a
purchase business combination and determined to have an indefinite useful life are not amortized, but are instead
tested for impairment at least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and
Other Intangible Assets (“FASB No. 142”). Intangible assets with estimated useful lives are amortized over their
respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with
FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (“FASB No. 144”).
Our annual goodwill impairment test is conducted by first comparing the estimated fair value of the
reporting unit to which the intangible asset is attributable and then comparing the ‘implied fair value’ of goodwill
with its carrying amount. The estimated fair value of the reporting unit is determined by using discounted future
cash flow estimates. The reporting units used for purposes of computing the annual impairment test of goodwill,
pursuant to FASB No. 142, are the TCM and TMS divisions, both of which comprise our industrial services
segment. All goodwill assigned to those reporting units is attributable to business acquisitions that are part of
those units. There was $26.5 million of goodwill at May 31, 2007 and 2006, all of which is attributable to the
TCM division. Based upon results of the annual impairment testing, last conducted in May 2007, there have been
no impairments of goodwill.
Income Taxes. We follow the guidance in FASB Statement No. 109, Accounting for Income Taxes
(“FASB No. 109”) which requires that we use the asset and liability method of accounting for deferred income
taxes and provide deferred income taxes for all significant temporary differences. As part of the process of
preparing our consolidated financial statements, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our actual current tax payable and related tax
expense together with assessing temporary differences resulting from differing treatment of certain items, such as
depreciation, for tax and accounting purposes. These differences can result in deferred tax assets and liabilities,
which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred
tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than
not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we
must establish a valuation allowance. We consider all available evidence, both positive and negative, to
determine whether, based on the weight of the evidence, a valuation allowance is needed. Evidence used includes
information about our current financial position and our results of operations for the current and preceding years,
as well as all currently available information about future years, including our anticipated future performance, the
reversal of deferred tax liabilities and tax planning strategies.
17
Management believes future sources of taxable income, reversing temporary differences and other tax planning
strategies will be sufficient to realize assets for which no reserve has been established. While we have considered
these factors in assessing the need for a valuation allowance, there is no assurance that a valuation allowance would
not need to be established in the future if information about future years change. Any change in the valuation
allowance would impact our income tax provision and net income in the period in which such a determination is
made. As of May 31, 2007 we believe that it is more likely than not that we will have sufficient future taxable
income to allow us to realize the benefits of the net deferred tax assets. Our belief is based upon our track record of
consistent earnings growth over the past five years and projections of future taxable income over the periods in
which the deferred tax assets are deductible. Accordingly, no valuation allowance has been recorded.
Workers Compensation, Auto, Medical and General Liability Accruals.
In accordance with FASB
Statement No. 5, Accounting for Contingencies (“FASB No. 5”), we record a loss contingency when it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review our
loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet.
These reserves are based on historical experience with claims incurred but not received, estimates and judgments
made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances
warrant. For workers’ compensation and automobile liability claims, our self-insured retention is $250,000 per
case. For medical claims, our self-insured retention is $150,000 per individual claimant determined on an annual
basis. We have obtained fully insured layers of coverage above such self-retention limits. Our estimates and
judgment could change based on new information, changes in laws or regulations, changes in management’s
plans or intentions, or the outcome of legal proceedings, settlements or other factors. If different estimates and
judgments were applied with respect to these matters, it is likely that reserves would be recorded for different
amounts.
Allowance for Doubtful Accounts.
In the ordinary course of business, a percentage of our accounts
receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we
performed and other various reasons. To account for those accounts receivable that will eventually be deemed
uncollectible we establish an allowance. The allowance for doubtful accounts is based on a combination of our
historical experience and management’s review of long outstanding accounts receivable. The allowance for
doubtful accounts was $2.3 million and $1.3 million at May 31, 2007 and 2006, respectively.
Estimated Useful Lives. The estimated useful lives of our long-lived assets are used to compute
depreciation expense, future asset retirement obligations and are also used in impairment testing. Estimated
useful lives are based, among other things, on the assumption that we provide an appropriate level of associated
capital expenditures and maintenance while the assets are still in operation. Without these continued associated
capital expenditures and maintenance, the useful lives of these assets could decrease significantly. Estimated
useful lives could be impacted by such factors as future energy prices, environmental regulations, various legal
factors and competition. If the useful lives of these assets were found to be shorter than originally estimated,
depreciation expense may increase, liabilities for future asset retirement obligations may be insufficient and
impairments in carrying values of tangible and intangible assets may result.
Accounting Principles Not Yet Adopted
In June 2006, the FASB’s Emerging Issues Task Force (the “EITF” or “Task Force”) issued consensus 06-3 ,
How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). In EITF 06-3, the Task Force reached a
consensus that the presentation of tax assessed by a governmental authority that is both imposed on and concurrent
with a specific revenue-producing transaction between a seller and a customer and disclosed on either a gross
basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that
should be disclosed. In addition, for any such taxes that are reported on a gross basis, an entity should disclose the
amounts of those taxes in interim and annual financial statements for each period for which an income statement is
presented if those amounts are significant. EITF 06-3 is effective for fiscal years beginning after December 15,
2006. We are currently evaluating the impact of this statement on our financial statements.
18
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FASB No. 157”).
FASB No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure
requirements regarding fair value measurement. Where applicable, this statement simplifies and codifies fair
value related guidance previously issued within U.S. GAAP. FASB No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
Management currently does not anticipate FASB No. 157 to have a material effect on our results of operations or
financial position.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB No. 109, Accounting for Income Taxes (“FIN 48”), to create a single model to address
accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a
minimum recognition threshold a tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. We are currently evaluating the impact of the interpretation on our financial statements,
which the Company is required to adopt beginning in our first fiscal quarter of 2007.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (“FASB No. 159”). FASB No. 159 permits entities to choose to measure certain financial
instruments and other items at fair value that are not currently required to be measured at fair value. It also
creates presentation and disclosure requirements that will enhance comparability between entities that choose
different measurement attributes for similar types of assets and liabilities. FASB No. 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. We currently do not anticipate FASB No.
159 to have a material effect on our results of operations or financial position.
Newly Adopted Accounting Principles
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No.
108”). SAB No. 108 addresses how the effects of prior year uncorrected financial statement misstatements should
be considered in current year financial statements. SAB No. 108 requires registrants to quantify misstatements
using both balance sheet and income statement approaches and to evaluate whether either approach results in
quantifying an error that is material after all of the relevant quantitative and qualitative factors are considered.
SAB No. 108 is effective for annual financial statements covering the first fiscal year ending after November 15,
2006 and is effective for our fiscal year ending May 31, 2007. The adoption of SAB No. 108 did not have a
material effect on our financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations in foreign countries with a functional currency that is not the United States Dollar. We
are exposed to market risk, primarily related to foreign currency fluctuations related to these operations.
We hold certain floating-rate obligations. We are exposed to market risk, primarily related to potential
increases in interest rates related to our debt.
From time to time, we have utilized, and expect to continue to utilize, derivative financial instruments with
respect to a portion of our interest rate risks to achieve a more predictable cash flow by reducing our exposure to
interest rate fluctuations. These transactions generally are interest rate swap agreements and are entered into with
major financial institutions. Derivative financial instruments related to our interest rate risks are intended to
reduce our exposure to increases in the LIBOR-based interest rates underlying our floating rate Credit Facility.
We do not enter into derivative financial instrument transactions for speculative purposes.
At May 31, 2007 we entered into an interest rate swap agreement with a fixed pay rate of 4.97% that has a
notional value of $30.0 million beginning June 1, 2007 and decreasing to $16.3 million by March 1, 2010. The
interest rate swap agreement is designated as a cash flow hedge, therefore, the changes in fair value, to the extent
19
the swap agreement is effective, are recognized in other comprehensive income until the hedged interest expense
is recognized in earnings.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and financial statement schedules, found at the end of this annual report on
Form 10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements concerning accounting and financial disclosures with our independent
accountants during any of the periods presented.
ITEM 9A. CONTROLS AND PROCEDURES
Limitations on Effectiveness of Control. Our management, including the principal executive and financial
officers, does not expect that our disclosure controls and procedures or our internal control over financial
reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
The design of our control system reflects the fact that there are resource constraints and the benefits of such
controls must be considered relative to their costs. Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud,
if any, have been detected. These inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is also based in part on certain assumptions about
the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of management’s assessments of the current effectiveness
of our disclosure controls and procedures and its internal control over financial reporting are subject to risks.
However, our disclosure controls and procedures are designed to provide reasonable assurance that the objectives
of our control system are met.
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, an
evaluation was carried out under the supervision and with the participation of our management, including our
Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). This
evaluation included consideration of the various processes carried out under the direction of our disclosure
committee in an effort to ensure that information required to be disclosed in our SEC reports is recorded,
processed, summarized and reported within the time periods specified by the SEC. This evaluation also
considered the work completed relating to our compliance with Section 404 of the Sarbanes-Oxley Act of 2002,
which is further described below.
Based on this evaluation, our CEO and CFO concluded that, as of May 31, 2007, our disclosure controls and
procedures were operating effectively to ensure that the information required to be disclosed in our SEC reports
is recorded, processed, summarized and reported within the requisite time periods and that such information is
accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely
decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control
over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) of the Exchange Act) that have materially
affected or are reasonably likely to materially affect our internal control over financial reporting during the fourth
quarter of fiscal 2006.
ITEM 9B. OTHER INFORMATION
None
20
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
our consolidated financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Internal control over financial reporting cannot provide absolute assurance of achieving financial objectives
because of its inherent limitations. Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting can also be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected
on a timely basis by internal control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design into the process safeguards to
reduce, though not eliminate, this risk.
We have used the framework set forth in the report entitled Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our
internal control over financial reporting. We have concluded that our internal control over financial reporting was
effective as of May 31, 2007. KPMG LLP, an independent registered public accounting firm, has issued an
attestation report on our assessment of our internal control over financial reporting.
/s/ PHILIP J. HAWK
Philip J. Hawk
Chairman and Chief Executive Officer
/s/ TED W. OWEN
Ted W. Owen
Senior Vice President and Chief Financial Officer
ITEM 9B. OTHER INFORMATION
None
21
PART III
The information for the following items of Part III has been omitted from this Report on Form 10-K since
we will file, not later than 120 days following the close of our fiscal year ended May 31, 2007, our definitive
proxy statement. The information required by Part III will be included in that proxy statement and such
information is hereby incorporated by reference, with the exception of the information under the headings
“Compensation Committee Report” and “Comparison of Total Shareholders’ Return.”
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
22
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The financial statements and notes thereto can be found on the following pages:
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of May 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended May 31, 2007, 2006 and 2005 . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended May 31, 2007, 2006 and 2005 . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2007, 2006 and 2005 . . . . . .
Consolidated Statements of Cash Flows for the Years Ended May 31, 2007, 2006 and 2005 . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
26
27
28
29
30
31
23
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Team, Inc. and Subsidiaries:
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting, that Team, Inc. and Subsidiaries maintained effective internal control
over financial reporting as of May 31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Team,
Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, evaluating management’s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, management’s assessment that Team, Inc. and Subsidiaries maintained effective internal
control over financial reporting as of May 31, 2007, is fairly stated, in all material respects, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Also, in our opinion, Team, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of May 31, 2007, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Team, Inc. and Subsidiaries as of May 31, 2007 and 2006, and
the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows
for each of the years in the three-year period ended May 31, 2007, and our report dated August 13, 2007
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Houston, Texas
August 13, 2007
24
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Team, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Team, Inc. and Subsidiaries as of
May 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2007. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Team, Inc. and Subsidiaries as of May 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period ended May 31, 2007, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, effective June 1, 2006 the Company
adopted Statement of Financial Accounting Standards No. 123(R), Share Based Payment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Team, Inc.’s internal control over financial reporting as of May 31, 2007,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated August 13, 2007 expressed an
unqualified opinion on management’s assessment of, and the effective operation of, internal control over
financial reporting.
/s/ KPMG LLP
Houston, Texas
August 13, 2007
25
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Current Assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net of allowance of $2,348 and $1,255 . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $792 and $542 . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
2007
2006
$
4,335
84,496
11,518
—
7,164
107,513
35,166
458
26,452
1,465
$
2,578
68,487
10,525
781
2,460
84,831
26,448
708
26,452
1,532
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$171,054
$139,971
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity:
4,862
10,560
15,906
4,734
—
1,222
37,284
486
48,774
86,544
307
$
5,899
7,978
16,898
—
4,837
—
35,612
404
39,804
75,820
266
Preferred stock, 500,000 shares authorized, none issued . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $.30 per share, 30,000,000 shares authorized; 9,948,219
and 9,658,957 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 1,018,308 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
2,984
(5,032)
49,159
36,447
645
2,898
(5,032)
44,723
20,932
364
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84,203
63,885
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$171,054
$139,971
See notes to consolidated financial statements.
26
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Twelve Months Ended May 31,
2007
2006
2005
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$318,348
208,186
$259,838
170,709
$193,035
128,237
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
110,162
79,825
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,337
4,204
26,133
10,618
15,515
89,129
67,752
21,377
3,992
17,385
6,755
10,630
Discontinued operations:
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
—
6
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,515
$ 10,636
Net income per share: Basic
From continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
From discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Diluted
From continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
From discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
1.77
0.00
1.77
1.64
0.00
1.64
$
$
$
$
1.26
0.00
1.26
1.16
0.00
1.16
64,798
55,250
9,548
2,306
7,242
2,958
4,284
504
4,788
0.53
0.06
0.59
0.48
0.05
0.53
$
$
$
$
$
Weighted averages shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,770
9,433
8,413
9,199
8,140
8,982
See notes to consolidated financial statements.
27
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
Tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,515
429
(148)
$10,636
302
(114)
$4,788
246
(118)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,796
$10,824
$4,916
Twelve Months Ended May 31,
2005
2006
2007
See notes to consolidated financial statements.
28
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common
Stock
Treasury
Stock
Additional
Paid in
Capital
$2,715
—
$(5,032) $39,060
—
—
Retained
Earnings
$ 5,508
4,788
Accumulated
Other
Comprehensive
Income
$ 48
—
Total
Stockholders’
Equity
$42,299
4,788
128
—
—
—
—
176
188
—
—
—
—
364
—
281
—
—
—
128
60
237
892
538
48,942
10,636
188
123
385
2,149
1,462
63,885
15,515
281
60
1,425
1,711
—
$645
1,326
$84,203
options . . . . . . . . . . . . . . . . . . . . . . . .
—
2,778
(5,032)
40,724
Balance at June 1, 2004 . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustment
. . . . . . . . . . . . . . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . .
Non-cash compensation . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . .
Tax benefit from exercise of stock
Balance at May 31, 2005 . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustment
. . . . . . . . . . . . . . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . .
Non-cash compensation . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . .
Tax benefit from exercise of stock
Balance at May 31, 2006 . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustment
. . . . . . . . . . . . . . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . .
Non-cash compensation . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . .
Tax benefit from exercise of stock
—
1
—
62
—
5
—
115
—
1
—
85
options . . . . . . . . . . . . . . . . . . . . . . . .
—
2,898
—
(5,032)
—
—
—
—
—
—
—
59
237
830
538
—
—
—
—
—
—
—
—
—
—
—
118
385
2,034
1,462
44,723
—
—
59
1,425
1,626
1,326
—
—
—
—
—
10,296
10,636
—
—
—
—
—
20,932
15,515
—
—
—
—
—
options . . . . . . . . . . . . . . . . . . . . . . . .
—
Balance at May 31, 2007 . . . . . . . . . . . .
$2,984
$(5,032) $49,159
$36,447
See notes to consolidated financial statements.
29
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Twelve Months Ended May 31,
2007
2006
2005
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less income attributable to discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,515
—
$ 10,636
(6)
$ 4,788
(504)
Income attributable to continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities: . . . . . .
Depreciation and amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest in earnings and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash compensation cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of effects from business acquisitions:
(Increase) decrease:
15,515
10,630
7,777
446
1,094
(303)
2,085
1,425
6,345
415
1,183
(107)
(482)
235
4,284
5,135
460
943
22
655
287
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,103)
(993)
30
(10,747)
(667)
(452)
(24,813)
(613)
823
Increase (decrease):
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .
2,582
(992)
(4,837)
$ 6,726
(3,536)
3,986
2,509
$ 9,312
5,100
2,146
1,471
$ (4,100)
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of Equipment Rental Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in other assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16,497)
—
262
746
—
(7,081)
14,689
196
133
—
$(15,489) $ 7,937
(4,231)
—
15
(529)
(33,940)
$(38,685)
Cash Flows From Financing Activities:
Borrowings (payments) under revolving credit agreement . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings related to term loans and financing arrangements . . . . . . . . . . . . . . . . . . . . . .
Payments related to term loans and financing arrangements . . . . . . . . . . . . . . . . . . . . . . .
Loan financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
12,250
—
(4,317)
(510)
3,097
10,520
Cash flows of discontinued operations:
Operating cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
(15,062)
—
(3,831)
(189)
2,272
(16,810)
(1,939)
(223)
308
(1,854)
22,408
25,000
(2,250)
(1,773)
892
44,277
1,184
(702)
—
482
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year
1,757
2,578
$ 4,335
(1,415)
3,993
$ 2,578
1,974
2,019
$ 3,993
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,034
$ 4,471
$ 2,379
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,078
$ 5,928
$ 2,277
Significant non-cash transactions:
Software Licensing Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $
854
$ —
See notes to consolidated financial statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Introduction. Our corporate headquarters is located at 200 Hermann Drive, Alvin, Texas, 77511 and our
telephone number is (281) 331-6154. On December 28, 2006, we transferred the listing of our common stock
from the AMEX to the NASDAQ, at which time we began trading on the NASDAQ under the symbol “TISI”.
Our fiscal year ends on May 31 of each calendar year.
We are a leading provider of specialty maintenance and construction services required in maintaining high
temperature and high pressure piping systems and vessels that are primarily utilized in heavy industries. We offer
an array of complimentary service lines including:
•
•
•
•
•
•
•
•
leak repair,
hot tapping,
fugitive emissions control,
field machining,
technical bolting,
field valve repair,
non-destructive testing,
field heat treating.
We offer these service lines in over 70 branch locations throughout the United States, Aruba, Canada,
Singapore, Trinidad and Venezuela. As a result of our acquisition of Aitec on June 1, 2007, subsequent to our
fiscal year end we have over 80 branch locations (Please see Note 16).
Consolidation. Our consolidated financial statements include the financial statements of Team, Inc. and
our majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation. Minority interest is recognized for the portion not owned by us. Certain amounts in prior years
have been reclassified to conform to the current year presentation.
Use of Estimates. Our accounting policies conform to GAAP. Our most significant accounting policies are
described below. The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and judgments that affect our reported financial position and results of
operations. We review significant estimates and judgments affecting our consolidated financial statements on a
recurring basis and record the effect of any necessary adjustments prior to their publication. Estimates and
judgments are based on information available at the time such estimates and judgments are made. Adjustments
made with respect to the use of these estimates and judgments often relate to information not previously
available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial
statements. Estimates and judgments are used in, among other things, (1) aspects of revenue recognition,
(2) analyzing tangible and intangible assets for possible impairment, (3) assessing future tax exposure and the
realization of tax assets, (4) estimating various factors used to accrue liabilities for workers compensation, auto,
medical and general liability (5) establishing an allowance for uncollectible accounts receivable, and
(6) estimating the useful lives of our assets.
Fair Value of Financial Instruments. The Company’s financial instruments consist primarily of cash,
cash equivalents, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash
equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values
31
due to the short-term maturity of these instruments. The fair values of the Company’s credit facility are
representative of their carrying values based upon the variable rate terms and management’s opinion that the
current rates offered to the Company with the same maturity and security structure are equivalent to that of the
credit facility.
Cash and Cash Equivalents. Cash and cash equivalents consist of all demand deposits and funds invested
in highly liquid short-term investments with original maturities of three months or less.
Inventories.
Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories
include material, labor, and certain fixed overhead costs.
Property, Plant and Equipment. Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of assets are computed by the straight-line method
over the following estimated useful lives of the assets:
Classification
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Useful Life
20-40 years
2-10 years
2-10 years
2-10 years
2-5 years
2-5 years
Goodwill and Other Intangible Assets. Goodwill represents the excess of costs over fair value of assets of
businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined
to have an indefinite useful life are not amortized, but are instead tested for impairment at least annually in
accordance with the provisions of FASB No. 142. Intangible assets with estimated useful lives are amortized
over their respective estimated useful lives to their estimated residual values and reviewed for impairment in
accordance with FASB No. 144.
Our annual goodwill impairment test is conducted by first comparing the estimated fair value of the
reporting unit to which the intangible asset is attributable and then comparing the ‘implied fair value’ of goodwill
with its carrying amount. The estimated fair value of the reporting unit is determined by using discounted future
cash flow estimates. The reporting units used for purposes of computing the annual impairment test of goodwill,
pursuant to FASB No. 142, are the TCM and TMS divisions, both of which comprise our industrial services
segment. All goodwill assigned to those reporting units is attributable to business acquisitions that are part of
those units. There was $26.5 million of goodwill at May 31, 2007 and 2006. All of which is attributable to the
TCM division. Based upon results of the annual impairment testing, last conducted in May 2007, there have been
no impairments of goodwill. A summary of goodwill as of May 31, 2007 and 2006 is as follows (in thousands):
Twelve Months Ended
May 31,
2007
2006
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and purchase price adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,452
—
—
$26,452
—
—
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,452
$26,452
Income Taxes. We follow the guidance in FASB No. 109 which requires that we use the asset and liability
method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary
differences. As part of the process of preparing our consolidated financial statements, we are required to estimate
32
our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual
current tax payable and related tax expense together with assessing temporary differences resulting from
differing treatment of certain items, such as depreciation, for tax and accounting purposes. These differences can
result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must
then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the
extent we believe that it is more likely than not (a likelihood of more than 50%) that some portion or all of the
deferred tax assets will not be realized, we must establish a valuation allowance. We consider all available
evidence, both positive and negative, to determine whether, based on the weight of the evidence, a valuation
allowance is needed. Evidence used includes information about our current financial position and our results of
operations for the current and preceding years, as well as all currently available information about future years,
including our anticipated future performance, the reversal of deferred tax liabilities and tax planning strategies.
Allowance for Doubtful Accounts.
In the ordinary course of business, a percentage of our accounts
receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we
performed and other various reasons. To account for those accounts receivable that will eventually be deemed
uncollectible we establish an allowance. The allowance for doubtful accounts is based on a combination of our
historical experience and management’s review of long outstanding accounts receivable.
Workers Compensation, Auto, Medical and General Liability Accruals.
In accordance with FASB No. 5,
we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can
be reasonably estimated. We review our loss contingencies on an ongoing basis to ensure that we have
appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims
incurred but not received, estimates and judgments made by management, applicable insurance coverage for
litigation matters, and are adjusted as circumstances warrant. For workers’ compensation and automobile liability
claims, our self-insured retention is $250,000 per case. For medical claims, our self-insured retention is
$150,000 per individual claimant determined on an annual basis. Our estimates and judgment could change based
on new information, changes in laws or regulations, changes in management’s plans or intentions, or the outcome
of legal proceedings, settlements or other factors.
Revenue Recognition. We determine our revenue recognition guidelines for our operations based on
guidance provided in applicable accounting standards and positions adopted by the FASB or the SEC. Most of
our projects are short-term in nature and we predominantly derive revenues by providing a variety of industrial
services, on a time and material basis. For all of these services our revenues are recognized when services are
rendered or when product is shipped and risk of ownership passes to the customer. However, due to various
contractual terms with our customers, at the end of any reporting period there may be earned but unbilled
revenue that is accrued to properly match revenues with related costs. At May 31, 2007 and 2006 the amount of
earned but unbilled revenue was $6.6 million and $3.8 million, respectively. For services performed pursuant to a
fixed price bid, revenues are recognized upon completion of the job. Costs associated with such jobs are deferred
until completion, resulting in deferred costs of $0.4 million and $0.1 million at May 31, 2007 and 2006,
respectively.
Concentration of Credit Risk. No single customer accounts for more than 10% of consolidated revenues.
Earnings Per Share. Basic earnings per share are computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted earnings per share are computed
by dividing net income by the sum of (1) the weighted-average number of shares of common stock outstanding
during the period and (2) the dilutive effect of the assumed exercise of stock options using the treasury stock
method. There is no difference, for any of the years presented, in the amount of net income (numerator) used in
the computation of basic and diluted earnings per share. With respect to the number of weighted average shares
outstanding (denominator), diluted shares reflects only the pro forma exercise of options to acquire common
stock to the extent that the options’ exercise prices are less than the average market price of common shares
during the period.
33
Options to purchase 104,500, 107,000, and 84,500 shares of common stock were outstanding during the
years ended May 31, 2007, 2006 and 2005, respectively, but were not included in the computation of diluted
earnings per share because the options’ exercise prices were greater than the average market price of common
shares during the period.
Foreign Currency. For subsidiaries whose functional currency is not the United States dollar, assets and
liabilities are translated at year-end rates of exchange and revenues and expenses are translated at average
exchange rates during the period. Translation adjustments for the asset and liability accounts are included as a
separate component of accumulated other comprehensive loss in stockholders’ equity. Currency transaction gains
and losses are recorded in other SG&A, net on the consolidated statements of operations.
Accounting Principles Not Yet Adopted
In June 2006, the EITF issued consensus EITF 06-3. In EITF 06-3, the Task Force reached a consensus that
the presentation of tax assessed by a governmental authority that is both imposed on and concurrent with a
specific revenue-producing transaction between a seller and a customer and disclosed on either a gross basis
(included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that
should be disclosed. In addition, for any such taxes that are reported on a gross basis, an entity should disclose
the amounts of those taxes in interim and annual financial statements for each period for which an income
statement is presented if those amounts are significant. EITF 06-3 is effective for fiscal years beginning after
December 15, 2006. We are currently evaluating the impact of this EITF on our financial statements.
In September 2006, the FASB issued FASB No. 157. FASB No. 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosure requirements regarding fair value measurement.
Where applicable, this statement simplifies and codifies fair value related guidance previously issued within U.S.
GAAP. FASB No. 157 is effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. Management currently does not anticipate FASB No. 157 to
have a material effect on our results of operations or financial position.
In July 2006, the FASB issued FIN 48, to create a single model to address accounting for uncertainty in tax
positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance
on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently
evaluating the impact of the interpretation on our financial statements, which the Company is required to adopt
beginning in our first fiscal quarter of 2007.
In February 2007, the FASB issued FASB No. 159. FASB No. 159 permits entities to choose to measure
certain financial instruments and other items at fair value that are not currently required to be measured at fair
value. It also creates presentation and disclosure requirements that will enhance comparability between entities
that choose different measurement attributes for similar types of assets and liabilities. FASB No. 159 is effective
for financial statements issued for fiscal years beginning after November 15, 2007. We currently do not
anticipate FASB No. 159 to have a material effect on our results of operations or financial position.
Newly Adopted Accounting Principles
In September 2006, the SEC staff issued SAB No. 108. SAB No. 108 addresses how the effects of prior year
uncorrected financial statement misstatements should be considered in current year financial statements. SAB
No. 108 requires registrants to quantify misstatements using both balance sheet and income statement approaches
and to evaluate whether either approach results in quantifying an error that is material after all of the relevant
quantitative and qualitative factors are considered. SAB No. 108 is effective for annual financial statements
covering the first fiscal year ending after November 15, 2006 and is effective for our fiscal year ending May 31,
2007. The adoption of SAB No. 108 did not have a material effect on our financial position or results of
operations.
34
2. ACQUISITIONS AND DISPOSITIONS
On June 1, 2007, subsequent to our year end, we acquired all of the stock of Aitec for $33.8 million, subject
to a working capital adjustment. Aitec, is a non-destructive testing and inspection services company
headquartered near Toronto, Ontario with 13 service locations across Canada. Financing for the acquisition was
obtained through an amended and restated Credit Facility provided through our bank syndicate (Please see
Note 8 and 16).
In November 2005, we sold all of the outstanding stock of our wholly-owned subsidiary, Climax, for
approximately $14.5 million plus subsequent purchase price adjustments of approximately $0.2 million. Climax
was engaged in equipment sales and rental and was a designer and manufacturer of portable metal cutting
machinery used for industrial maintenance at customer locations. We recognized a pre-tax gain on the sale of
Climax of $1.5 million, net of costs and expenses associated with the transaction of approximately $0.9 million,
including approximately $0.2 million of cash bonuses paid to certain Climax personnel.
The assets and liabilities of Climax at the time of sale were as follows (in thousands):
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Climax
$ 2,618
2,785
97
5,500
4,498
2,953
662
13,613
675
802
1,477
—
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,136
The results of operations for Climax, presented as discontinued operations, include interest on our debt that
is required to be repaid with proceeds from the sale of Climax. The revenues, operating income, interest expense
allocation and earnings before income tax, presented in discontinued operations for the fiscal years ended 2007,
2006 and 2005 are as follows (in thousands):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2006
2005
$—
—
—
$—
$7,462
394
472
$16,010
1,469
651
$ (78)
$
818
In August 2004, we completed the acquisition of substantially all the assets of Cooperheat-MQS.
Cooperheat-MQS was operating as debtor-in-possession in a Chapter 11 case pending in the United States
Bankruptcy Court. The transaction involved cash consideration of $34.8 million, subject to a working capital
adjustment, the assumption of certain liabilities, including the assumption of $1.7 million in letters of credit, and
the issuance of warrants to purchase 100,000 shares of the our common stock with $.30 par value per share. The
warrants were exercisable at $65 cash per share and expired on August 11, 2007, subsequent to our fiscal year
end. The assets Cooperheat-MQS are associated with our non-destructive testing and inspection and field heat
treating services.
35
Our unaudited fiscal year 2005 pro-forma consolidated results as if the Cooperheat-MQS acquisition had
occurred at the beginning of our fiscal year, are shown below. These results are not necessarily indicative of the
results which would actually have occurred if the purchase had taken place at the beginning of the period, nor are
they necessarily indicative of future results (in thousands):
Pro-forma data
(unaudited)
Twelve months
ended May 31,
2005
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$220,654
971
$
3. RECEIVABLES
A summary of accounts receivable as of May 31, 2007 and 2006 is as follows (in thousands):
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$80,277
6,567
(2,348)
$65,979
3,763
(1,255)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$84,496
$68,487
May 31,
2007
2006
The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our
existing accounts receivable. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is remote. The following summarizes the activity in the
allowance for doubtful accounts at May 31, 2007 and 2006 (in thousands):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write off of bad debt
$1,255
1,730
(637)
$ 1,233
1,183
(1,161)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,348
$ 1,255
Twelve Months Ended
May 31,
2007
2006
4. INVENTORIES
A summary of inventory as of May 31, 2007 and 2006 is as follows (in thousands):
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,870
358
8,290
$ 1,398
318
8,809
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,518
$10,525
May 31,
2007
2006
36
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of May 31, 2007 and 2006 is as follows (in thousands):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
$
2007
955
7,118
53,670
1,400
3,884
2,106
578
$
2006
934
6,820
37,706
1,543
2,932
2,411
827
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
69,711
(34,545)
53,173
(26,725)
Property, plant, and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,166
$ 26,448
6. OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities as of May 31, 2007 and 2006 is as follows (in thousands):
Payroll and other compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, sales and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto lease rebate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,509
2,583
527
1,366
1,921
$11,548
2,283
158
1,127
1,782
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,906
$16,898
May 31,
2007
2006
7. INCOME TAXES
Income tax expense for the years ended May 31, 2007, 2006, and 2005 was as follows (in thousands):
Income tax expense attributable to income from continuing operations . . . . . . . . . .
Income tax expense attributable to income from discontinued operations . . . . . . . . .
Taxes allocated to stockholders’ equity, related to compensation expense
recognized for tax purposes in excess of amounts recognized for financial
reporting purposes.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes allocated to stockholders’ equity, related to foreign currency translation
Twelve Months Ended May 31,
2007
2006
2005
$10,618
—
$ 6,755
1,410
$2,958
314
(1,326)
(1,462)
(538)
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148
114
118
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,440
$ 6,817
$2,852
37
Income tax expense attributable to income from continuing operations for the years ended May 31, 2007,
2006 and 2005 was as follows (in thousands):
Year ended May 31, 2007:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended May 31, 2006:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended May 31, 2005:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$6,099
854
1,566
$1,900
164
35
$ 7,999
1,018
1,601
$8,519
$2,099
$10,618
$4,776
584
1,877
$ (284) $ 4,492
386
1,877
(198)
—
$7,237
$ (482) $ 6,755
$1,217
310
727
$ 528
122
54
$ 1,745
432
781
$2,254
$ 704
$ 2,958
The components of pre-tax income for the years ended May 31, 2007, 2006 and 2005 were as follows (in
thousands):
2007
2006
2005
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,661 $12,209 $5,664
1,578
5,176
4,472
$26,133 $17,385 $7,242
Income tax expense attributable to income from continuing operations differed from the amounts computed
by applying the U.S. Federal income tax rate of 35% (34% for year ended May 31, 2005) to pretax income from
continuing operations as a result of the following (in thousands):
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,133
$17,385
$7,242
Computed income taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,147
719
35
717
$ 6,085
250
98
322
$2,462
327
123
46
Provision for income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,618
$ 6,755
$2,958
Twelve Months Ended May 31,
2007
2006
2005
38
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below (in thousands):
May 31,
2007
2006
Deferred tax assets:
Accrued compensation & benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vendor rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
890
828
178
—
816
$
994
553
176
471
234
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,712
2,428
Deferred tax liabilities:
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative foreign currency translation gain . . . . . . . . . . . . . . . . . . . . . . . .
Unremitted earnings of foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other
(949)
(1,212)
(219)
(196)
(1,844)
(927)
(716)
(232)
(160)
(16)
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,420)
(2,051)
Net deferred asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,708)
$
377
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income
and projection for future taxable income over the periods in which the deferred tax assets are deductible, we
believe it is more likely than not that we will realize the benefits of these deductible temporary differences and
therefore a valuations allowance is not necessary at May 31, 2007.
At May 31, 2007, current income taxes payable includes acquired tax uncertainties of $2.2 million
associated with Cooperheat-MQS’s foreign operations. To the extent the uncertainties are ultimately resolved
favorably, the resultant reduction of recorded liabilities will be applied to reduce the balance of goodwill
attributable to the Cooperheat-MQS acquisition.
8. LONG-TERM DEBT
In January 2006, we entered into a three-year enterprise agreement with a vendor for server and desktop
volume licensing with software assurance. Financing for the agreement was provided by the vendor under a three
year non-interest bearing note (the “Software Licensing Note”). The Software Licensing Note has been
discounted at 7.3%, which was our effective borrowing rate at the time we entered into the agreement, and the
discount of $0.1 million is being amortized to interest expense over the life of agreement.
On May 31, 2007 in anticipation of our acquisition of Aitec (Please see Note 16) we amended and restated our
existing banking facility comprised of a term loan and a revolving credit facility. The Credit Facility provides us
with a $120 million revolving line of credit and a $15 million term loan. The Credit Facility bears interest at a
LIBOR based interest rate (currently LIBOR plus 1.5%) and matures in May 2012. At May 31, 2007, there are $1.3
million of capitalized loan costs which are being amortized over the life of the Credit Facility. The Credit Facility is
secured by virtually all of our assets and contains financial covenants and restrictions on the creation of liens on
assets, the acquisition or sale of subsidiaries and the incurrence of certain liabilities. At May 31, 2007 we were in
compliance with all financial covenants of the Credit Facility.
39
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“FASB
No. 133”), established accounting and reporting standards requiring that derivative instruments be recorded at
fair value and included in the balance sheet as assets or liabilities. The accounting for changes in the fair value of
a derivative instrument depends on the intended use of the derivative and the resulting designation, which is
established at the inception date of a derivative. Special accounting for derivatives qualifying as fair value hedges
allows a derivative’s gain and losses to offset related results on the hedged item in the statement of earnings. For
derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective,
are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge
effectiveness is measured at least quarterly based on the relative cumulative changes in fair value between the
derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness, as
defined by FASB No. 133, is recognized immediately in earnings.
In May 2007, we entered into an interest rate swap with our bank to hedge at a fixed pay rate of 4.97%, a
portion of the variable cash flows associated with the floating rate interest expense on our Credit Facility. The
portion of the Credit Facility hedged begins with a notional value of $30 million effective June 1, 2007 and
decreasing to $16.3 million by March 1, 2010. Changes in the cash flows of the interest rate swap are expected to
be highly effective in offsetting the changes in cash flows attributable to fluctuations in the variable LIBOR rate
on the notional amounts of the Credit Facility. The interest rate swap agreement is designated as a cash flow
hedge, therefore, the changes in fair value, to the extent the swap agreement is effective, are recognized in other
comprehensive income until the hedged interest expense is recognized in earnings.
A summary of Long-term debt as of May 31, 2007 and 2006 is as follows (in thousands):
Credit Facility:
Revolving loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software Licensing Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2006
$38,015
15,000
554
67
53,636
4,862
$25,765
19,000
854
84
45,703
5,899
Long-term debt, excluding current installments . . . . . . . . . . . . . . . . . . . . . .
$48,774
$39,804
Future maturities of long-term debt as of May 31, 2007 are as follows (in thousands):
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
$ 4,862
6,226
4,525
8
38,015
$53,636
In order to secure our insurance programs we are required to post letters of credit generally issued by a bank
as collateral. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder
demonstrates that we failed to meet our obligations under the letter of credit. If this were to occur, we would be
obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of
credit. At May 31, 2007, we were contingently liable for outstanding stand-by letters of credit totaling $4.8
million.
40
9. SHARE BASED COMPENSATION
We have adopted various stock option plans pursuant to which the Board of Directors may grant stock
options to officers and key employees. At May 31, 2007, there were approximately 1.4 million stock options
under the plans outstanding to officers, directors and key employees at prices equal to or greater than the market
value of the common stock on the date of grant. The exercise price, terms and other conditions applicable to each
option granted under our plans are generally determined by the Compensation Committee of the Board of
Directors at the time of grant of each option and may vary.
In December 2004, the FASB issued FASB No. 123(R), Share-Based Payment (“FASB No. 123(R)”).
FASB No. 123(R) requires all companies to expense the fair value of employee stock options and other forms of
stock-based compensation. We adopted FASB No. 123(R) effective June 1, 2006, using the modified prospective
transition method permitted under this pronouncement. Our cumulative effect of implementing this statement,
which consists entirely of a forfeiture adjustment, was immaterial. The application of FASB No. 123(R) had a
material impact on the audited consolidated financial statements and basic and diluted earnings per share for
2007 compared to amounts that would have been reported pursuant to our previous accounting treatment. Had
compensation cost for all stock options granted prior to June 1, 2006 been determined on a fair value basis
consistent with FASB No. 123(R), our net income and basic and diluted earnings per share amounts for the years
ended May 31, 2006 and 2005 would have been as follows (in thousands):
Income from continuing operations, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add stock-based employee compensation expense included in reported net
income, net of tax
Deduct total stock-based employee compensation expense determined under fair
value based method for all awards, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
2005
$10,630
$4,284
143
189
(542)
(558)
Pro forma net income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .
$10,231
$3,915
Earnings per share, as reported—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma earnings per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share, as reported—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma earnings per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
1.26
1.22
1.16
1.11
$ 0.53
$ 0.48
$ 0.48
$ 0.44
Our share-based payments consist of stock options and restricted stock awards. For stock options, we
determine the fair value of each stock option at the grant date using a Black-Scholes model, with the following
weighted-average assumptions used for grants made during the years ended May 31, 2007, 2006, and 2005:
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility factor of the expected market price of the Company’s common stock . . . . .
Expected dividend yield percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7% 4.3% 3.1%
39.2% 31.2% 23.6%
0.0% 0.0% 0.0%
6 Yrs
4 Yrs
3 Yrs
2007
2006
2005
We recognize the fair value of our share-based payments over the vesting periods of the awards. The stock
options generally have ten year terms and vest and become fully exercisable after a period ranging from three to
four years from the date of grant. Shares issued in connection with our stock option grants are issued out of
authorized but unissued common stock. The governance of our stock option grants does not directly limit the
number of future stock options we may award so long as the total number of shares ultimately issued does not
exceed the total number of shares cumulatively authorized, which was 2,350,000 shares at May 31, 2007.
41
In September 2004, we executed a Restricted Stock Award Agreement with our President and Chief
Operating Officer. The agreement awards up to 15,000 shares of restricted stock which may vest upon the
achievement of specific financial targets related to earnings before interest and taxes for the fiscal years 2005,
2006 and 2007. As of May 31, 2007, all shares are vested or expected to vest. For restricted stock awards, we
consider the fair value to be the closing price of the stock on the grant date.
We granted 276,000, 392,000 and 429,000 stock options during the years ended May 31, 2007, 2006 and
2005, respectively. Compensation expense related to options granted and restricted stock awards totaled $1.4
million, $0.2 million and $0.3 million during the years ended May 31, 2007, 2006 and 2005 respectively. Tax
benefits related to stock option exercises were $0.5 million, $1.5 million and $1.3 million for the year ended
May 31, 2005, 2006 and 2007, respectively. As of May 31, 2007, $4.1 million of unrecognized compensation
expense related to options granted and restricted stock awarded is expected to be recognized over a remaining
weighted-average period of 2 years.
Transactions under all plans are summarized below:
Twelve Months Ended May 31,
2007
2006
2005
No. of
Options
Weighted
Average
Price
No. of
Options
Weighted
Average
Price
No. of
Options
Weighted
Average
Price
Shares under option, beginning of year . . . . . 1,434,000
Changes during the year:
$12.65
1,494,000
$ 8.23
1,286,000
$ 5.06
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . .
276,000
$29.33
(287,000) $ 5.97
(12,000) $22.66
392,000
$23.79
(391,000) $ 6.09
(61,000) $17.62
$15.95
429,000
(208,000) $ 4.40
(13,000) $10.39
Shares under option, end of year . . . . . . . . . . 1,411,000
877,000
Exercisable at end of year
. . . . . . . . . . . . . . .
$17.16
$11.99
1,434,000
842,000
$12.65
$ 6.87
1,494,000
992,000
$ 8.23
$ 4.84
For options outstanding at May 31, 2007, the range of exercise prices and remaining contractual lives are as
follows:
Range of Prices
$1.94 to $4.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.00 to $10.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10.00 to $16.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16.00 to $22.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22.00 to $32.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No. of
Options
248,000
54,000
406,000
322,000
381,000
Weighted
Average
Price
$ 3.55
$ 8.61
$13.80
$17.97
$30.15
1,411,000
$17.16
Weighted
Average
Remaining
Life (in
years)
2.1
5.5
5.6
7.9
9.1
6.5
10. EMPLOYEE BENEFIT PLANS
Under the Team, Inc. Salary Deferral Plan (the “Plan”), contributions are made to the Plan by qualified
employees at their election and our matching contributions to the Plan are made at specified rates. Our
contributions to the Plan in fiscal years 2007, 2006 and 2005, were approximately $1.2 million, $1.1 million and
$0.7 million, respectively, and are included in selling, general, and administrative expenses.
42
11. COMMITMENTS AND CONTINGENCIES
In August 2005, we were served in a lawsuit styled Paulette Barker, as named Executor for the Estate of
Robert Barker, et. al. v. Emmett J. Lescroart, Michael Urban, Team, Inc. et. al., Case Number 355868-402 in the
Probate Court #1, Harris County, Texas. The dispute arises out of the sale by Mr. Barker to Mr. Lescroart of
stock in Thermal Solutions, Inc. (“TSI”). Subsequently, we acquired all of the outstanding stock of TSI in April
2004 allegedly for a much higher price than Mr. Lescroart paid Mr. Barker in July 2003. Mr. Lescroart is a
member of our Board of Directors. The plaintiff claims damages in excess of $1,000,000. We intend to
vigorously defend this action and do not believe that we have any legal liability under the allegations of the suit
and, further, we believe that we are entitled to be indemnified from any loss we may incur under the terms of the
Stock Purchase Agreement related to the acquisition. We have filed a motion for summary judgment seeking
dismissal from the case. The motion is currently pending before the judge.
We are involved in various other lawsuits and are subject to various claims and proceedings encountered in
the normal conduct of business. In our opinion, any uninsured losses that might arise from these lawsuits and
proceedings will not have a materially adverse effect on our consolidated financial statements.
We also enter into operating leases to obtain equipment for our field operations and administrative
functions. Our obligations under non-cancellable operating leases, primarily consisting of facility and auto leases,
were approximately $18.8 million at May 31, 2007 and are as follows (in thousands):
Twelve Months Ended May 31,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating
Leases
$ 5,433
3,151
2,283
2,503
1,751
3,672
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,793
Total rent expense under operating leases, including rental expense under short term leases, was
approximately $12.9 million, $10.8 million and $5.6 million in 2007, 2006 and 2005, respectively.
12. COMMON STOCK
The following summarizes the activity of common shares outstanding for the years ended May 31, 2007,
2006 and 2005:
Number of shares, May 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued for director fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares, May 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued for director fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares, May 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued for director fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common
Stock
Issued
9,070,250
3,708
185,784
9,259,742
3,255
380,960
15,000
9,658,957
2,394
286,868
Treasury
Stock
Shares
Outstanding
(1,018,308) 8,051,942
3,708
185,784
—
—
(1,018,308) 8,241,434
3,255
380,960
15,000
—
—
—
(1,018,308) 8,640,649
2,394
286,868
—
—
Number of shares, May 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,948,219
(1,018,308) 8,929,911
43
13. INDUSTRY SEGMENT INFORMATION
FASB Statement No. 131, Disclosure about Segments of an Enterprise and Related Information (“FASB
No. 131”), requires we disclose certain information about our operating segments where 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 in deciding how to allocate resources and in assessing
performance.” Generally, financial information is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to segments.
Prior to the sale of Climax on November 30, 2005, we operated as two business segments, industrial
services and equipment sales and rentals. As a result of the sale of Climax, we now operate in only one
segment—industrial services. Significant prior acquisitions within the industrial services segment have led to the
creation of two divisions. Our TMS division provides the services of leak repair, hot tapping, fugitive emissions
control, field machining, technical bolting and field valve repair. Our TCM division provides the services of
non-destructive testing and field heat treating.
Revenues from continuing operations and long-lived assets in the United States and other countries are as
follows (in thousands):
FY 2007
Total
Revenues
Total
Assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$276,188
26,142
16,018
$139,735
17,051
14,268
$318,348
$171,054
FY 2006
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$223,560
21,309
14,969
$124,135
11,339
4,497
$259,838
$139,971
FY 2005
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$171,897
12,149
8,989
$130,829
8,006
4,491
$193,035
$143,326
44
14. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following is a summary of selected quarterly financial data for the years ended May 31, 2007 and 2006
(in thousands, except per share data):
First
Quarter
Second
Quarter
Fiscal 2007
Third
Quarter
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . . . . .
$65,739
3,702
1,522
—
$83,185
10,262
5,467
—
$73,291
5,050
2,442
—
Fourth
Quarter
$96,133
11,323
6,084
—
Total
Year
$318,348
30,337
15,515
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,522
$ 5,467
$ 2,442
$ 6,084
$ 15,515
Net income per share: Basic
From continuing operations . . . . . . . . . . . . . . . . . . . . .
From discontinued operations . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Diluted
From continuing operations . . . . . . . . . . . . . . . . . . . . .
From discontinued operations . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
0.18
—
0.18
0.16
—
0.16
$
$
$
$
0.63
—
0.63
0.58
—
0.58
0.68
—
0.68
0.63
—
0.63
$
$
$
$
1.77
—
1.77
1.64
—
1.64
$
$
$
$
0.28
—
0.28
0.26
—
0.26
$
$
$
$
Fiscal 2006
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . .
$54,152
1,685
517
32
$67,046
7,087
3,831
(26)
$62,630
4,830
2,279
—
$76,010
7,775
4,003
—
$259,838
21,377
10,630
6
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
549
$ 3,805
$ 2,279
$ 4,003
$ 10,636
Net income per share: Basic
From continuing operations . . . . . . . . . . . . . . . . . . . . .
From discontinued operations . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Diluted
From continuing operations . . . . . . . . . . . . . . . . . . . . .
From discontinued operations . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
0.07
—
0.07
0.06
—
0.06
$
$
$
$
0.46
—
0.46
0.41
—
0.41
$
$
$
$
0.27
—
0.27
0.25
—
0.25
$
$
$
$
0.47
—
0.47
0.42
—
0.42
$
$
$
$
1.26
—
1.26
1.16
—
1.16
45
15. INVESTIGATION
In December 2006, our management was alerted that certain false sales entries were made to revenue and
accounts receivable at one of our branch locations and, subsequently, our management determined that such
entries, totaling $0.4 million, were indeed made at that branch location in November 2005. In addition, our
management became aware of certain instances of the unauthorized use of Company funds for personal expenses
at the same branch location. These matters were promptly reported to our audit committee, who initiated an
independent investigation into these matters with the assistance of outside counsel and forensic accountants. The
independent investigation was concluded in March 2007. In their respective reports to the audit committee, our
outside counsel and forensic accountants found no further false sales entries from this branch location. Based
upon the findings of the outside counsel and forensic accountants, and our management’s internal review of these
matters, we have concluded that these matters did not have a material effect on any of our previously issued
financial statements and that the wrong doing was limited to a single branch location. We incurred costs with
respect to the investigation of approximately $1 million.
16. SUBSEQUENT EVENTS
On June 1, 2007, subsequent to our year end, we acquired all of the stock of Aitec for $33.8 million, subject
to a working capital adjustment. Aitec is a non-destructive testing and inspection services company
headquartered near Toronto, Ontario with 13 service locations across Canada. The acquisition will be accounted
for using the purchase method of accounting. We are in the early stages of determining the fair values of the
assets and liabilities assumed. Information regarding the allocation of the purchase price is set forth below (in
thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(unaudited)
443
$
13,062
383
692
2,631
22,947
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,158
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,251
3,020
99
6,370
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,788
Our unaudited fiscal year 2007 pro-forma consolidated results as if the Aitec acquisition had occurred at the
beginning of our fiscal year, are shown below. These results are not necessarily indicative of the results which
would actually have occurred if the purchase had taken place at the beginning of the period, nor are they
necessarily indicative of future results (in thousands):
Pro-forma data
(unaudited)
Twelve months
ended May 31,
2007
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$365,424
$ 16,872
On July 25, 2007, subsequent to year end, our Board of Directors approved a two-for-one stock split in the
form of a 100% stock dividend payable on August 29, 2007 to all shareholders of record on August 15, 2007.
This action will double the total number of common shares outstanding to nearly 18 million shares.
46
3. Exhibits
Exhibit
Number
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Second Restated Articles of Incorporation of the Company, as amended through August 31, 1999,
(filed as Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended May 31,
1999).
Bylaws of the Company (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-2,
File No. 33-31663).
Certificate representing shares of common stock of Company (filed as Exhibit 4(1) to the Company’s
Registration Statement on Form S-1, File No. 2-68928).
Team, Inc. Salary Deferral Plan (filed as Exhibit 99(a) to the Company’s Registration Statement on
form S-8, File No. 333-74062).
Team, Inc. Restated Non-Employee Directors’ Stock Option Plan as amended through June 24,
2004 (filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended
May 31, 2004).
Standard Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc.
dated November 2, 1998 (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended November 30, 1998).
First Amendment to Price Vested Restricted Stock Option Award Agreement by and between Philip
J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended February 28, 2002).
Second Amendment dated July 11, 2002 to Price Vested Restricted Stock Option Award Agreement
by and between Philip J. Hawk and Team, Inc (filed as Exhibit 10.12 to the Company’s Annual
Report on Form 10-K for the year ended May 31, 2002).
1998 Incentive Stock Option Plan dated January 29, 1998 as amended through June 24, 2004 (filed
as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2004).
Stock Purchase Agreement dated as of April 1, 2004, by and among Team, Inc., Team Industrial
Services, Inc. (“Team Industrial”), Thermal Solutions, Inc. (“TSI”), the TSI shareholders named
therein and Michael J. Urban as the shareholder representative (filed as Exhibit 2.1 to the Company’s
Current Report on Form 8-K filed April 16, 2004).
Escrow Agreement dated April 15, 2004 by and among Team, Inc., Team Industrial, TSI, the TSI
shareholders named therein, Michael J. Urban as the shareholder representative and Compass Bank
(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 16, 2004).
Asset Purchase Agreement dated July 16, 2004 by and among International Industrial Services, Inc.,
Cooperheat-MQS, Inc., Team Acquisition Corp. and Team, Inc. (filed as Exhibit 99.1 to the
Company’s Current Report on Form 8-K filed, dated July 16, 2004, filed July 20, 2004).
Credit Agreement dated August 11, 2004 among Team, Inc., each lender from time to time party
thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
(filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 12, 2004).
Team, Inc. 2004 Restricted Stock Option and Award Plan dated June 24, 2004 (filed as
Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2004).
Consulting agreement between Team, Inc. and Emmett J. Lescroart dated July 30, 2004 (filed as
Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2004).
47
Exhibit
Number
10.13†
10.14†
10.15
10.16
10.17
10.18
10.19†
10.20†
10.21
10.22
14.1
21
23.1
31.1
31.2
32.1
32.2
Restricted Stock Award Agreement by and between Kenneth M. Tholan and Team, Inc. dated
September 23, 2004. (filed as Exhibit 10.1 to the Company Quarterly Report on Form 10-Q for the
quarter ended February 28, 2005).
Employment Agreement by and between Philip J. Hawk and Team, Inc. dated January 31, 2005.
(filed as Exhibit 10.2 to the Company Quarterly Report on Form 10-Q for the quarter ended
February 28, 2005).
Amendment to Credit Agreement dated April 12, 2005 among Team, Inc., Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party thereto. (filed as
Exhibit 10.3 to the Company Quarterly Report on Form 10-Q for the quarter ended February 28,
2005).
Stock Purchase Agreement by and among Climax Technologies, Inc., Team Investment, Inc., Team,
Inc. and Climax Portable Machine Tools, Inc. dated November 30, 2005 (filed as Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed December 6, 2005).
First Amendment to Credit Agreement dated October 5, 2005, among Team, Inc., Bank of America,
N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party thereto
(filed as Exhibit 10.1. to the Company’s Current Report on Form 8-K filed December 6, 2005).
Second Amendment to Credit Agreement dated November 15, 2005, among Team, Inc., Bank of
America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party
thereto (filed as Exhibit 10.2. to the Company’s Current Report on Form 8-K filed December 6,
2005).
Cancellation Agreement Philip J. Hawk Employment Agreement with Team, Inc. (filed as Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended February 28, 2007).
Team, Inc. 2006 Stock Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed October 3, 2006).
Share Purchase Agreement dated May 13, 2007 (filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on May 17, 2007).
Amended and Restated Credit Agreement dated as of May 31, 2007 among Team, Inc. as the
Borrower, Bank of America, NA, as Administrative Agent, Saving Line Lender and L/C Issuer, and
other Lenders Party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on June 6, 2007).
Code of Ethics (filed as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year
ended May 31, 2003).
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm—KPMG LLP
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
† Management contract or compensation plan or arrangement.
48
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 August 13,
2007.
TEAM, INC.
By:
/S/ PHILIP J. HAWK
Philip J. Hawk
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
/S/ PHILIP J. HAWK
(Philip J. Hawk)
Chief Executive Officer and
Director
August 13, 2007
/S/ VINCENT D. FOSTER
Director
August 13, 2007
(Vincent D. Foster)
/S/
JACK M. JOHNSON, JR.
(Jack M. Johnson, Jr.)
Director
August 13, 2007
/S/ EMMETT J. LESCROART
Director
August 13, 2007
(Emmett J. Lescroart)
/S/ ROBERT A. PEISER
(Robert A. Peiser)
/S/ LOUIS A. WATERS
(Louis A. Waters)
Director
Director
August 13, 2007
August 13, 2007
/S/ SIDNEY B. WILLIAMS
Director
August 13, 2007
(Sidney B. Williams)
/S/ TED W. OWEN
(Ted W. Owen)
Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
August 13, 2007
49
Operating Locations
Directors and Officers
Directors
Philip J. Hawk
Chairman of the Board and
Chief Executive Officer
Team, Inc.
Vincent D. Foster
Senior Managing Director
Mainstreet Capital Partners
Corporate Officers
Philip J. Hawk
Chairman of the Board and
Chief Executive Officer
Ted W. Owen
Senior Vice President
Chief Financial Officer and
Treasurer
Jack M. Johnson, Jr.
Managing General Partner
Wintermann & Company
(real estate management)
John P. Kearns
Senior Vice President
Operations Support and
Technology Development
David C. Palmore
Senior Vice President
TMS Division
Arthur F. Victorson
Senior Vice President
TCM Division
Peter W. Wallace, Jr.
Senior Vice President
Commercial Support and
Business Development
Robert A. Peiser
President and CEO
Imperial Sugar
Emmett J. Lescroart
Managing Director
Chapman Associates®
Louis A. Waters
Chairman
Simdesk Technologies, Inc.
Sidney B. Williams
Partner
Chamberlain, Hrdlicka, White,
Williams & Martin
(legal services)
Company
Team, Inc.
Subsidiaries
Team Facilities & Services, Inc.
Team Investment, Inc.
Team Facilities & Services, L.P.
Team Industrial Services, Inc.
Aitec Investments USA Inc.
Aitec USA, Inc.
Team Industrial Services
International, Inc.
TISI Acquisition Inc.
Aitec Inc.
Aitec (Western) Inc.
Team Industrial Services
of Canada, ULC
TISI Canada, Inc.
Global Heat (1988), Inc.
Global Heat U.K. Ltd.
Teaminc. Europe B.V.
Team Industrial Services
Asia (PTE) Ltd.
Team Industrial Services
Trinidad, Ltd.
TISI Trinidad, Limited
Team Industrial Services,
C.V. de S.A.
North American Locations
United States
Decatur, Alabama
Mobile, Alabama
Kenai, Alaska
Phoenix, Arizona
Benicia, California
Los Angeles, California
San Francisco, California
Denver, Colorado
Hartford, Connecticut
Jacksonville, Florida
Chicago, Illinois
Wood River, Illinois
Hammond, Indiana
Baton Rouge, Louisiana
Lafayette, Louisiana
Lake Charles, Louisiana
New Orleans, Louisiana
Rumford, Maine
Boston, Massachusetts
Detroit, Michigan
Minneapolis, Minnesota
Kansas City, Missouri
St. Louis, Missouri
New York, New York
Syracuse, New York
Charlotte, North Carolina
Wilmington, North Carolina
Cincinnati, Ohio
Cleveland, Ohio
Columbus, Ohio
Toledo, Ohio
Tulsa, Oklahoma
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Butler, Pennsylvania
San Juan, Puerto Rico
Augusta, South Carolina
Chattanooga, Tennessee
Alvin, Texas
Angleton, Texas
Beaumont, Texas
Borger, Texas
Corpus Christi, Texas
Houston, Texas
Longview, Texas
Odessa, Texas
Richmond, Virginia
Seattle, Washington
Charleston, West Virginia
Milwaukee, Wisconsin
Canada
Calgary, Alberta
Edmonton, Alberta
Grand Prairie, Alberta
Red Deer, Alberta
Slave Lake, Alberta
Lloydminster, Alberta/
Saskatchewan
Campbell River, British Colombia
White Rock, British Colombia
Mount Pearl, Newfoundland
Dartmouth, Nova Scotia
Kitchener, Ontario
Milton, Ontario
Oakville, Ontario
Sarnia, Ontario
Thunder Bay, Ontario
Whitby, Ontario
Weyburn, Ontario
International Locations
Aruba
Singapore
Trinidad
Venezuela
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Our Values
The Company has adopted a Code
of Ethical Conduct which can be
accessed on our Internet web site at
www.teamindustrialservices.com.
This Code encompasses our
Core Values, which are:
• Safety First in everything we do.
• Integrity means doing the right
thing.
• Service Leadership throughout
the Company.
• Innovation supports continuous
growth and improvement.
• Pride and Respect for ourselves
and our Company.
Corporate Information
Registrar and transfer agent
Communications regarding change of
address, transfer of stock ownership,
lost stock certificates or consolidation of
multiple listings should be directed to:
Registrar and Transfer Company
Attn: Investor Relations
10 Commerce Drive
Cranford, New Jersey 07016
Phone: 800/368-5948
Fax: 908/497-2318
E-Mail: invrelations@rtco.com
Corporate headquarters
Stockholders or other interested persons
wishing to be placed on the corporate
mailing list should write to the corporate
headquarters:
200 Hermann Drive
Alvin,Texas 77511
Phone: 281/331-6154
Fax: 281/331-4107
Independent Auditors
KPMG LLP
700 Louisiana St.
Houston, TX 77002