T e a m , I n c . 2 0 0 9 A n n u a l R e p o r t
M a i n t a i n i n g F o c u s
D e a r F e l l o w S h a r e h o l d e r s
Major customers are increasingly con-
solidating their procurement of specialty
industrial services with fewer, larger and
more professional service providers. As
a result, the breadth of Team’s service
capabilities is an impor tant competitive
advantage for us. Ref lecting the signif i-
cance of these procurement trends, ser-
vices provided under our multi-service,
multi-location agreements now represent
approximately 30% of Team’s total annual
revenues.
We believe Team has exciting oppor tu-
nities for attractive growth. Despite our
strong growth over the past decade, we
believe that Team’s current market share
in Nor th America is less than 20%. The
structure of our market, the demand for
our services and the consolidation of cus-
tomer procurement processes that have
been present during our rapid historical
growth remain the same. We have a long
runway for continued growth in Nor th
America. Fur thermore, using the same
operating practices and f inancial tools
that have been the foundation of our suc-
cess in Nor th America, we intend to pur-
sue the development of a similar service
network in Europe. Currently, we have an
established presence in The Netherlands
and Belgium.
Ref lecting our strong f inancial perfor-
mance for the past several years, Team
was listed on the Forbes List of 200 Best
Small Companies, the For tune List of
100 Fastest Growing Companies and ENR
List of Largest Specialty Contractors
during the past year.
FY09 Financial and Operating Results
Despite the severe recession that
began affecting Team’s business in the
second half of the f iscal year, the Com-
pany achieved the second highest prof it
performance in Team’s histor y. For the
year ending May 31, 2009, total Team rev-
enues were $498 million. Net income was
$22.9 million or $1.16 per fully diluted
share. Team’s operating income as a
percentage of sales was 8.3%. Net income
as a percentage of revenues was 4.6%.
Return on equity was greater than 17%.
In addition to a solid prof it perfor-
mance, Team also enjoys a strong balance
sheet. During the year, Team reduced
its net debt (debt less cash) by approxi-
mately $28 million. We currently have
approximately $68 million of additional
borrowing capacity on our credit facility,
which is in place until May 2012. We are
well-positioned to both weather the eco-
nomic downturn and to take advantage
of potential oppor tunities created by
the diff icult near-term conditions in
our markets.
FY10 Outlook and Priorities
The economic recession is likely to
continue to impact our service demand
through at least par t of the upcoming
f iscal year. We have already taken the
diff icult steps necessar y to bring our
suppor t cost structure in line with our
current revenue run-rates. We expect
to maintain solid f inancial performance
during this downturn, while maintain-
ing our capabilities to return to business
growth when business conditions in our
markets improve.
We remain conf ident that market
demand for our services will rebound
with improving economic conditions
and as customers return to steady state
maintenance practices. As the market re-
covers, we expect to regain our historical
growth momentum. In our view, the basic
market fundamentals remain unchanged
and Team’s network and service advan-
tages are as robust as ever.
We remain conf ident and excited
about our potential for continued busi-
ness growth. We also remain committed
to being a safety and service leader in
our industr y. We fully understand that
to be successful we must continue to
re-earn and aff irm our customers’
conf idence in Team by providing out-
standing service at ever y oppor tunity,
one job at a time.
Thank you for your continuing interest
in and suppor t of our company. We all
look for ward to continued success and
improvement in the coming year.
Philip J. Hawk
Chairman and CEO
Philip J. Hawk
C hair man an d CEO
D espite the impact of the global
credit crisis and severe economic
recession in the second half of the
year, Team performed well in Fiscal 2009
and remains well-positioned to continue
its attractive long term growth.
Business Strategy
Team is a leading provider of spe-
cialty maintenance services related to
pressurized piping and related systems.
Throughout Nor th America and, more
recently in Europe, we serve a wide
range of customers in the ref ining,
petrochemical, power, pipeline and other
industries. We provide critical specialty
industrial services that are instrumental
in plant productivity, uptime and the
management of overall system integrity.
Our customers may need our services at
any time, seven days a week, 24 hours
a day. Our success depends upon our
customers having complete conf idence
in both our service capabilities and our
service teams.
Over the past decade, Team’s rev-
enues have increased at a more than
25% compound average annual growth
rate. While approximately one-third of
this growth has been the result of f ive
acquisitions completed during this pe-
riod, the remaining business growth has
been achieved organically. The resulting
15+% average annual organic growth rate
ref lects our customers’ conf idence in
Team and a growing preference for
Team’s services.
Team is among only a handful of com-
panies that have the capability to provide
our critical specialty industrial services
at customer locations throughout Nor th
America, and no other competitor offers
the breadth of service lines of Team.
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, 2009
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)
200 Hermann Drive, Alvin, Texas
(Address of principal executive offices)
74-1765729
(I.R.S. Employer Identification No.)
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
Common Stock, $.30 par value
Name of Each Exchange on which Registered
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 has submitted electronically and posted on its corporate website, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ‘ No ‘
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. ‘
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
State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant as of the completion of the most recent second quarter:
Voting common stock (November 30, 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For purposes for the foregoing calculation only, all directors, executive officers, the Team, Inc. Salary Deferral
$443,655,396
Plan and Trust and known 5% or greater beneficial owners have been deemed affiliates. The 5% beneficial owners
have been determined based on summarized December 31, 2008 Section 13 filings.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest
practicable date:
As of July 31, 2009
Common Stock, par value $.30 per share
Documents Incorporated by Reference
Portions of our definitive proxy statement for the 2009 Annual Meeting of Stockholders are incorporated by
18,853,037 shares
reference into Part III of this report. These will be filed no later than September 28, 2009.
FORM 10-K INDEX
PART I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Narrative Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Segment and Divisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and Customers
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compliance Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . .
ITEM 4.
PART II
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Annual Report on Internal Control Over Financial Reporting . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
1
1
1
1
3
3
4
4
4
4
5
5
5
6
6
9
9
10
10
11
11
14
15
24
25
25
25
26
27
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MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . .
28
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
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58
Certain items required in Part III of this Form 10-K can be found in our 2009 Proxy Statement and are
incorporated herein by reference. A copy of the 2009 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 Team, Inc., Attn: Corporate
Secretary, 200 Hermann Drive, Alvin, Texas, 77511.
PART I
ITEM 1. BUSINESS
General Information
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. We are incorporated in the State of Texas and our company website can be found at
www.teamindustrialservices.com. Our corporate headquarters is located at 200 Hermann Drive, Alvin, Texas,
77511 and our telephone number is (281) 331-6154. Our stock is traded on the NASDAQ Global Select Market
(“NASDAQ”) under the symbol “TISI” and 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 utilized extensively in heavy industries. We
offer an array of complementary services including:
•
•
•
•
•
•
•
•
leak repair,
hot tapping,
fugitive emissions control,
field machining,
technical bolting,
field valve repair,
non-destructive testing, and
field heat treating.
We offer these services in over 100 locations throughout the United States and international markets
including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.
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 heavy industries which include the petrochemical, refining, power, pipeline,
pulp and paper, steel industries, municipalities, shipbuilding, original equipment manufacturers (“OEMs”),
distributors and end users, and some of the world’s largest engineering and construction firms. Our services are
also provided across a broad geographic reach. For our fiscal year ended May 31, 2009, our revenues by
geographic region originated in the United States (70%), Canada (23%), Europe (5%) and other foreign locations
(2%). While we continue to develop different types of services and products which meet the needs of our
customers, the following discussion describes the primary services we currently offer:
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 utilize both standard and
1
custom-designed clamps and enclosures for piping systems. 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 centers 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.
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
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 U.S. Environmental Protection Agency (“EPA”) and local regulatory requirements.
We also provide enhanced custom-designed reports to customer specifications.
Field Machining Services; Technical Bolting. We use 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. We provide customers technical bolting 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
following plant maintenance turnarounds or expansion projects. Additional services include bolt disassembly and
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 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.
2
Non-destructive Testing Services. We offer inspection 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, and 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. Inspection
services are marketed to our traditional industrial customer base, and customers outside our traditional customer
base such as the aerospace and automotive industries. Inspection services frequently require industry recognized
training and certification processes. We maintain training and certification programs which are designed to 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.
Description of Segment and Divisions
We operate in only one segment—industrial services. Within the industrial services segment, we are
organized as 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. Each division has goodwill relating to past acquisitions
and we assess goodwill for impairment at the lower TMS and TCM divisional level. Both divisions derive their
revenues from providing specialized labor intensive industrial services and the market for their services is
principally dictated by the population of process piping systems in industrial plants and facilities. Services
provided by both the TMS and TCM divisions are provided through a network of field branch locations in
proximity to industrial plants. The structure of those branch locations is similar, with locations overseen by a
branch/regional manager, one or more sales representatives and a cadre of technicians to service the business
requirements of our customers. While TMS and TCM division field locations are generally separate, both
divisions are supported by common and often centralized technical and commercial support staffs, quality
assurance, training, finance, legal, human resources and health and safety departments.
Acquisitions and Dispositions
On January 9, 2008, we acquired all the stock of Leak Repairs Specam (“LRS”), a specialty industrial
services company. LRS currently provides a range of services similar to those offered by our TMS division,
including on-stream leak sealing, hot tapping, fugitive emissions monitoring, field machining and bolting
services. LRS is headquartered near Vlissingen, The Netherlands and has four service locations in The
Netherlands and Belgium. The purchase price of the acquisition was $18.6 million plus working capital
adjustments, professional fees, and net of cash acquired. Financing for the acquisition was obtained through our
bank syndicate.
On June 1, 2007, we acquired all of the stock of Aitec, Inc. (“Aitec”) for $33.8 million, plus working capital
adjustments, professional fees, and net of cash acquired. The final purchase price of $34.7 million includes
working capital adjustments of $0.1 million and professional fees of $0.8 million. Aitec, is a non-destructive
testing and inspection services company headquartered near Toronto, Ontario with 13 service locations across
Canada. We believe the Aitec acquisition made Team the second-largest inspection service provider in Canada.
Financing for the acquisition was obtained through our bank syndicate.
3
Marketing and Customers
Our industrial services are marketed principally by personnel based at our service locations. We believe that
these service locations are situated to facilitate timely responses to customer needs with on-call expertise, which is
an important feature of selling and providing our services. Our array of integrated services also causes us to benefit
from the procurement trends of many of our customers who are seeking reductions in the number of contractors and
vendors in their facilities. No customer accounted for 10% or more of consolidated revenues during any of the last
three fiscal 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 most purchase orders provide for the performance of a single job, some provide for
services to be performed on a run and maintain basis. Substantially all our agreements and contracts 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 many contracts cover specific plants or locations, we also enter
into multiple-site regional or national contracts, which cover multiple plants or locations.
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. Large turnarounds can significantly
impact our revenues.
Employees
At May 31, 2009, we had approximately 3,400 employees in our worldwide operations. Our employees in
the U.S. are predominantly not unionized. Our Canadian employees and certain employees outside of North
America, primarily Europe, are unionized. There have been no employee work stoppages to date and we believe
our relations with our employees and their representative organizations are good. One of our subsidiaries is a
party to a collective bargaining agreement with certain employees that requires the subsidiary to pay specified
wages, provide certain benefits to their union employees and contribute certain amounts to multi-employer
pension plans and employee benefit trusts. If the participating subsidiary withdrew from, or otherwise terminated
participation in, the multi-employer pension plan were to otherwise become under-funded, the subsidiary could
be assessed liabilities for additional contributions related to the under-funding of this plan. The collective
bargaining agreement has typically been renegotiated and renewed on similar terms.
Regulation
A significant portion of our business activities are subject to foreign, federal, state and local laws and
regulations. These regulations are administered by various foreign, 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 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
4
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, 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.
Compliance Matters
During a recent internal management review of one of our branch operations in Trinidad, we were informed
of allegations of improper payments, made by our local employees, to employees of certain customers, including
foreign government owned enterprises. Consequently, the Audit Committee of our Board of Directors initiated an
investigation of those allegations with the assistance of independent outside counsel. The investigation has found
evidence suggesting that payments, which may violate the Foreign Corrupt Practices Act (“FCPA”), were made
to employees of foreign government owned enterprises. While the investigation is ongoing, there has been no
indication that the improper payments extend beyond the one Trinidad branch. Based upon the evidence obtained
to date, we believe that the total of these improper payments over the past five years did not exceed $50,000. The
total annual revenues from the impacted Trinidad branch represent approximately one-half of one percent of our
annual consolidated revenues. Based on current information, we are unable at this time to predict when the
investigation will be completed or what regulatory or other outcomes may result.
We have voluntary disclosed information relating to the initial allegations, the investigation and the initial
findings to the U.S. Department of Justice (“DOJ”) and to the Securities and Exchange Commission (“SEC”),
and we will cooperate with the DOJ and SEC in connection with their review of this matter. The outcome of this
investigation cannot be predicted at this time; however, the FCPA and related statutes and regulations do provide
for potential monetary penalties as well as criminal and civil sanctions in connection with FCPA violations.
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.
Competition
In general, competition stems from a large number of other outside service contractors. More than 100
different competitors are currently active in our markets. 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, our broad range of services, and 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.
5
Available Information
As a public company, we are required to file periodic reports with the 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 www.sec.gov.
Our internet website address is 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, Proxy
Statements 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, our governance principles 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
Team, Inc., Attn: Corporate Secretary, 200 Hermann Drive, Alvin, Texas, 77511.
ITEM 1A. RISK FACTORS
The risk factors described below should be carefully considered in addition to other information contained
or incorporated by reference herein. 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 should be considered in evaluating our outlook of
future Company performance.
The current economic environment may affect our customers demand for our services. The current
economic recession has reduced the availability of liquidity and credit and, in many cases, reduced demand for
our customers’ products. Continued disruption of the credit markets could also adversely affect our customers’
ability to finance on-going maintenance and new projects, resulting in contract cancellations or suspensions, and
project delays. An extended or deepening recession may result in further plant closures or other contractions in
our customer base. These factors may also adversely affect our ability to collect payment for work we have
previously performed. Furthermore, our ability to expand our business could be limited if, in the future, we are
unable to increase our credit capacity under our Credit Facility on favorable terms or at all. Such disruptions,
should they occur, could materially impact our results of operations, financial position or cash flows.
Our revenues are heavily dependent on certain industries. Sales of our services are dependent on
customers in certain industries, particularly the refining and petrochemical industries. As experienced in the past,
and as expected to occur in the future, downturns characterized by diminished demand for services in these
industries could have a material impact on our results of operations, financial position or cash flows.
We sell our services in highly competitive markets, which places pressure on our profit margins and
limits our ability to maintain or increase the market share of our services. Our competition generally stems
from other outside service contractors, many of whom offer a similar range of services. The current economic
recession has generally reduced demand for industrial services and thus created a more competitive bidding
environment for new and existing work. Additionally, our customers may bring historically out-sourced services
back in-house to improve their staffing utilization and reduce the need for staffing reductions. 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 maintaining or renewing our contracts with our
customers. A significant portion of our contracts and agreements with customers may be terminated by either
party on short notice. Although we actively pursue the renewal of our contracts, we can not assure that we will be
able to renew these contracts or that the terms of the renewed contracts will be as favorable as the existing
contracts. If we are unable to renew or replace these contracts, or if we renew on less favorable terms, we may
suffer a material reduction in revenue and earnings.
6
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 inability to predict the length
and breadth of the current economic recession may result in staffing levels below the level required to achieve
our financial objectives when markets recover.
Unsatisfactory safety performance can affect customer relationships, result in higher operating costs and
negatively impact our ability to hire and retain a skilled technical workforce. Our workers are subject to the
normal hazards associated with providing services at industrial facilities. Even with proper safety precautions,
these hazards can lead to personal injury, loss of life, damage to, or destruction of, property, plant and equipment,
lower employee morale and environmental damage. We are intensely focused on maintaining a strong safety
environment and reducing the risk of accidents to the lowest possible level. Poor safety performance may limit or
eliminate potential revenue streams from many of our largest customers and may materially increase our future
insurance and other operating costs. Our growth strategy requires that we increase the size of our workforce.
While we normally target experienced personnel for employment, we also hire inexperienced employees. Even
with thorough training, inexperienced employees have a higher likelihood of injury which could lead to higher
operating costs and insurance rates. Although we maintain insurance coverage, such coverage may be inadequate
to protect us from all expenses related to these risks.
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. Some of our services involve handling or monitoring highly regulated materials,
including hazardous wastes. Environmental laws and regulations generally impose limitations and standards for
regulated materials and require us to obtain permits and comply with various other requirements. The improper
characterization, handling, disposal or monitoring of regulated materials or any other failure by us to comply
with increasingly complex and strictly enforced federal, state and local environmental laws and regulations or
associated environmental permits could subject us to the assessment of administrative, civil and criminal
penalties, the imposition of investigatory or remedial obligations, or the issuance of injunctions that could restrict
or prevent our ability to operate our business and complete contracted services. A defect in our services or faulty
workmanship could result in an environmental liability if, as a result of the defect or faulty workmanship, a
contaminate is released into the environment.
We currently maintain liability insurance to limit any potential loss, but there can be no assurance that
our insurance will fully protect us against a claim or loss. We perform services in hazardous environments on
or around high-pressure, high temperature systems and our employees are exposed to a number of hazards,
including exposure to hazardous materials, explosion hazards and fire hazards. Incidents that occur at these large
industrial facilities or systems, regardless of fault, may be catastrophic and adversely impact our employees and
third parties by causing serious personal injury, loss of life, damage to property or the environment, and
interruption of operations. Our contracts typically require us to indemnify our customers for injury, damage or
loss arising out of our presence at our customers’ location, regardless of fault, or the performance of our services
and provide for warranties for materials and workmanship. We may also be required to name the customer as an
additional insured under our insurance policies. We maintain insurance coverage against these and other risks
associated with our business in accordance with standard industry practice. This insurance may not protect us
against liability for some kinds of events, including events involving pollution, product or professional liability,
losses resulting from business interruption or acts of terrorism or damages from breach of contract by the
Company. We cannot assure you our insurance will be adequate in risk coverage or policy limits to cover all
7
losses or liabilities that we may incur. Moreover, in the future, we cannot assure that we will be able to maintain
insurance at levels of risk coverage or policy limits that we deem adequate. Any future damages caused by our
products or services that are not covered by insurance or are in excess of policy limits could have a material
adverse effect on our results of operations, financial position or cash flows.
We are involved and are likely to continue to be involved in legal proceedings, which will increase our
costs and, if adversely determined, could have a material effect on our results of operations, financial position
or cash flows. We are currently a defendant in legal proceedings arising from the operation of our business and
it is reasonable to expect that we will be named in future actions. Most of the legal proceedings against us arise
out of the normal course of performing services at customer facilities, and include claims for workers’
compensation, personal injury and property damage. Legal proceedings 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, financial condition or cash flows.
Economic, political and other risks associated with international operations could adversely affect our
business. A significant 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. In many foreign countries, particularly in those with
developing economies, it is common to engage in business practices that are prohibited by U.S. regulations
applicable to us such as the FCPA. Our international business operations may include projects in countries where
corruption is prevalent. Although we have and continue to implement policies and procedures designed to ensure
compliance with these laws, there can be no assurance that all of our employees, contractors or agents, including
those based in or from countries where practices which violate such U.S. laws may be customary, will not take
actions in violation of our policies and procedures. Any violation of foreign or U.S. laws by our employees,
contractors or agents, even if such violation is prohibited by our policies and procedures, could have a material
adverse effect on our results of operations, financial position or cash flows.
Our growth strategy entails risk for investors. We intend to continue to pursue acquisitions in the
specialty maintenance and construction services industry to complement and diversify our existing business. 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 businesses 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. The consideration paid in connection with an acquisition may also affect our financial results. To the
extent we issue stock or other rights to purchase stock, including options or other rights, existing shareholders
may be diluted and earnings per share may decrease. In addition, acquisitions may result in the incurrence of
additional debt.
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.
8
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, the timing of planned maintenance projects at
customer facilities, changes in competitive pricing, wide variations in profitability by product line, variations in
operating expenses, rapid increases in raw material and labor costs, 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 revenues 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, 2009, we had approximately 3,400 employees and contractors, approximately 600 of
whom were located in Canada and Europe where employees predominantly are represented by unions. Although
we believe that our relations with our employees are good and we have had no strikes or work stoppages, no
assurances can be made that we will not 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. Other risk factor may include interruption of our operations, or the operations of our
customers due to fire, hurricanes, earthquakes, power loss, telecommunications failure, terrorist attacks, labor
disruptions, health epidemics and other events beyond our control.
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 several facilities used in our operations. Our 88,000 square foot facility in Alvin, Texas consists of
our corporate office, primary training facility and ISO-9001 certified manufacturing facility for clamps,
enclosures and sealants. Our 11,000 square foot facility in Pearland, Texas is used as an equipment distribution
center to support regional operations. Our 18,000 square foot facility in Houston, Texas, 10,000 square foot
facility in Milwaukee, Wisconsin, and our 17,000 square foot facility in Edmonton, Alberta are offices for our
branch service locations in those areas. All other facilities used in our operations are provided through operating
leases.
Included in property, plant and equipment is $7.5 million pertaining to land in or around Houston. This
primarily consists of $6.9 million attributable to 50 acres purchased in October 2007 to construct future facilities
to replace those currently in Alvin, Texas and Pearland, Texas. Due to the current economic recession and its
effect on our growth, we have postponed construction of the future facilities until such time as the industrial
services sector recovers.
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.
9
ITEM 3. LEGAL PROCEEDINGS
We have, from time to time, provided temporary leak repair services for the steam operations of
Consolidated Edison of New York (“Con Ed”) located in New York City. In July 2007, a Con Ed steam main
located in midtown Manhattan ruptured causing one death and other injuries and property damage. Multiple
separate lawsuits have been filed against Con Ed, the City of New York and us in the Supreme Courts of New
York located in Kings, New York and Bronx County, alleging that our temporary leak repair services may have
contributed to the cause of the rupture. The lawsuits seek generally unspecified compensatory damages for
personal injury, property damage and business interruption. Additionally, on March 31, 2008 we received a letter
from Con Ed alleging that our contract with Con Ed requires us to indemnify and defend Con Ed for additional
claims filed against Con Ed as a result of the rupture. Con Ed filed an action to join Team and the City of New
York as defendants in all lawsuits filed against Con Ed that did not include Team and the City of New York as
direct defendants. We intend to vigorously defend the lawsuits and Con Ed’s claim for indemnification. We are
unable to estimate the amount of liability to us, if any, associated with these lawsuits and the claim for
indemnification. We maintain insurance coverage, subject to a deductible limit of $250,000, which we believe
should cover these claims and have placed our insurers on notice. We do not believe the final resolution of these
matters will have a material adverse effect on our results of operations, financial position or cash flows.
We are involved in various claims, suits, investigations, and legal proceedings. We accrue a liability when
we believe that it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. We review these accruals at least quarterly and adjust them to reflect ongoing negotiations,
settlements, rulings, advice of legal counsel, and other relevant information. However, litigation is inherently
unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could adversely affect
our results of operations, financial position or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the NASDAQ under the ticker symbol “TISI”. The table below reflects the
high and low closing sales prices of our common stock on the NASDAQ by quarter for the fiscal years ended
May 31, 2009 and 2008, respectively.
Sales Price
High
Low
2009
Quarter Ended:
August 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 28, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39.66
$39.43
$27.89
$15.87
$30.94
$19.89
$12.87
$10.32
2008
Quarter Ended:
August 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 29, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24.19
$34.35
$38.00
$34.52
$20.26
$22.46
$27.46
$27.22
11
Performance Graph
The following performance graph compares the performance of our common stock to the NASDAQ
Composite Index and a Peer Group Index. The comparison assumes $100 was invested on May 31, 2004 in our
common stock, the NASDAQ Composite Index and in the Peer Group Index. The values of each investment are
based on share price appreciation, with reinvestment of all dividends, assuming any were paid. For each graph,
the investments are assumed to have occurred at the beginning of each period presented. The following
companies are included in the Peer Group Index used in the graph: Furmanite Corporation, Matrix Service
Company, T-3 Energy Services, and Versar, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Team, Inc., The NASDAQ Composite Index
And A Peer Group
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
5/04
5/05
5/06
5/07
5/08
5/09
Team, Inc.
NASDAQ Composite
Peer Group (1)
* $100 invested on 5/31/04 in stock or index, including reinvestment of dividends.
Fiscal year ending May 31.
Team, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100.00
$100.00
$100.00
$121.02
$104.91
$ 64.58
$200.32
$113.08
$169.85
$249.62
$136.66
$286.61
$408.15
$132.60
$371.27
$180.25
$ 92.61
$136.79
5/04
5/05
5/06
5/07
5/08
5/09
Notes: The above information was provided by Research Data Group, Inc.
Holders
There were 194 holders of record of our common stock as of July 31, 2009 excluding beneficial owners of
stock held in street name.
Dividends
No cash dividends were declared or paid during the fiscal years ended May 31, 2009, 2008 and 2007. We
are not permitted to pay cash dividends without the consent of our bank syndicate. 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.
12
Description of Securities
On July 25, 2007, we announced a two-for-one stock split in the form of a 100 percent dividend payable on
August 29, 2007 to all shareholders of record on August 15, 2007. To fund the requirement of new shares, we
utilized approximately 1 million shares of treasury stock and issued an additional 8 million shares of common
stock. All share and per share information has been retroactively adjusted to reflect the stock split.
Securities Authorized for Issuance Under 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, 2009.
The information required regarding equity compensation plans is hereby incorporated by reference.
13
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial information for the five years ended May 31, 2009
(amounts in thousands, except per share data):
2009
Twelve Months Ended May 31,
2006
2007
2008
2005
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from continuing operations . . . . . . . . . . . .
Net income from discontinued operations (1) . . . . . . .
$497,559
22,911
—
$478,475
23,623
—
$318,348
15,515
—
$259,838
10,630
6
$193,035
4,284
504
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,911
$ 23,623
$ 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 average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividend declared, per common share . . . . . . . . .
$
$
$
$
$
1.22
0.00
1.22
1.16
0.00
1.16
18,793
19,725
0.00
$
$
$
$
$
1.30
0.00
1.30
1.20
0.00
1.20
18,226
19,676
0.00
$
$
$
$
$
0.88
0.00
0.88
0.82
0.00
0.82
17,540
18,866
0.00
$
$
$
$
$
0.63
0.00
0.63
0.58
0.00
0.58
16,826
18,398
0.00
$
$
$
$
$
$
4,788
0.26
0.03
0.29
0.24
0.03
0.27
16,280
17,964
0.00
2009
2008
May 31,
2007
2006
2005
Balance Sheet data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and other long-term liabilities . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital
$275,921
$ 82,628
$146,501
$109,845
$280,461
$102,955
$120,762
$100,470
$171,054
$ 49,260
$ 84,203
$ 70,229
$139,971
$ 40,208
$ 63,885
$ 49,219
$143,326
$ 62,089
$ 48,942
$ 49,089
(1) Discontinued operations consist of the operating results of Climax, an equipment rental company, and
interest on debt allocated to such operations.
14
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.
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 in other materials we
release to the public including all statements, other than statements of historical facts, included or incorporated
by reference in this Form 10-K, that address activities, events or developments which we expect or anticipate will
or may occur in the future. You can generally 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.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided
as a supplement to the accompanying consolidated financial statements and notes to help provide an
understanding of our financial condition, changes in financial condition, and results of operations.
General Information
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 utilized extensively in heavy industries. We
offer an array of complimentary services including:
•
•
•
•
•
•
•
•
leak repair,
hot tapping,
fugitive emissions control,
field machining,
technical bolting,
field valve repair,
non-destructive testing, and
field heat treating.
15
We offer these services in over 100 locations throughout the United States and international markets
including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.
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, steel industries, municipalities, shipbuilding, OEMs, distributors and end users and some of the world’s
largest engineering and construction firms. Our products and services are provided across a broad geographic
reach.
Year Ended May 31, 2009 Compared to Year Ended May 31, 2008
The following table sets forth the components of revenue and operating income from our continuing
operations for fiscal 2009 and 2008 (in thousands):
Year ended
May 31, 2009
Year ended
May 31, 2008
Increase (Decrease)
$
%
Revenues:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$270,420
227,139
$274,531
203,944
$ (4,111)
23,195
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
497,559
478,475
19,084
Gross margin:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,654
75,405
84,145
71,520
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157,059
155,665
(2,491)
3,885
1,394
(1)%
11%
4%
(3)%
5%
1%
S, G&A expenses:
Field Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total S, G&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . .
96,571
20,190
116,761
973
91,390
18,402
109,792
—
5,181
1,788
6,969
973
6%
10%
6%
100%
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 41,271
$ 45,873
$ (4,602)
(10)%
Revenues. Our revenues for the year ended May 31, 2009 were $497.6 million compared to $478.5 million
for the year ended May 31, 2008, an increase of $19.1 million or 4%. Our revenues for the year ended May 31, 2009
include incremental revenues associated with the LRS acquisitions of $14.2 million. Revenues for our TCM
division for the year ended May 31, 2009 were $270.4 million compared to $274.5 million for the year ended
May 31, 2008, a decrease of $4.1 million or 1%. Revenues for our TMS division (inclusive of LRS) for the year
ended May 31, 2009 were $227.1 million compared to $203.9 million for the year ended May 31, 2008, an increase
of $23.2 million or 11%. The increase in revenues during the current year was primarily due to the positive sales
environment in the first half of our 2009 fiscal year. The effects of the economic recession did not dramatically
affect our revenues until the second half of our fiscal year. Specifically, revenues for the second half of the fiscal
year were $225.5 million, sequentially down $46.6 million or 17% from the first half of the year, and down $27.2
million or 11% from the same period in the prior year. This second half decrease reflects the change in spending
habits of our customers who sought to cancel or delay projects, cut discretionary project spending, and delay
maintenance when and where possible. While several industrial sectors which we serve are more economically
distressed than others, nearly all our customers are adopting more conservative near-term spending postures. As a
result, we are seeing more frequent deferrals and downsizing of turnarounds, a shift to reduced spending by many
customers, and more discussions about the need for rate adjustments. Consistent with these observations, we
experienced recent revenue softness in virtually all service lines and geographic areas. Additionally, exchange rate
fluctuations, specifically between the United States and Canada, further adversely affected revenues by $19.0
million.
16
Gross Margin. Our gross margin for the year ended May 31, 2009 was $157.1 million compared to $155.7
million for the year ended May 31, 2008, an increase of $1.4 million or 1%. Gross margin as a percentage of
revenue was 32% for the year ended May 31, 2009 compared to 33% for the year ended May 31, 2008. Gross
margin for our TCM division for the year ended May 31, 2009 was $81.7 million compared to $84.1 million for the
year ended May 31, 2008, a decrease of $2.5 million or 3%. TCM division gross margin as a percentage of revenue
was 30% for the year ended May 31, 2009 and 31% for the year ended May 31, 2008. Gross margin for our TMS
division (inclusive of LRS) was $75.4 million for the year ended May 31, 2009 compared to $71.5 million for the
year ended May 31, 2008, an increase of $3.9 million or 5%. TMS division gross margin as a percentage of revenue
was 33% for the year ended May 31, 2009 and 35% for the year ended May 31, 2008.
Selling, General and Administrative Expenses. Our S,G&A for the year ended May 31, 2009 was $116.8
million compared to $109.8 million for the year ended May 31, 2008, an increase of $7.0 million or 6%. This
reflects investments in our network of over 100 locations. Approximately $5.2 million of the increase in S,G&A
was due to field operations and $1.8 million of the increase was due to centralized corporate support costs. The
$1.8 million increase in corporate support costs in the current period included a $1.4 million increase of stock
based employee compensation expense. S,G&A as a percentage of revenue was 23% for the year ended May 31,
2009 consistent with the year ended May 31, 2008.
Earnings From Unconsolidated Affiliates. Our earnings from unconsolidated affiliates consists entirely
of our joint venture (50% ownership) formed in May 2008, to perform non-destructive testing and inspection
services in Alaska. The joint venture is an integral part of our operations in Alaska and all technicians working
on behalf of the joint venture are our employees.
Interest.
Interest expense was $4.9 million for the year ended May 31, 2009 compared to $6.5 million for
the year ended May 31, 2008. This decrease is the result of lower levels of outstanding borrowings during the
year and lower interest rates applied to those borrowings.
Taxes. The provision for income taxes was $13.5 million on pretax income of $36.4 million for the year
ended May 31, 2009. The provision for income taxes was $15.8 million on pretax income of $39.4 million for the
year ended May 31, 2008. The effective tax rate for fiscal 2009 was 37% compared to 40% for fiscal 2008. The
lower effective tax rate for fiscal 2009 is primarily due to the recognition of employment and research tax credits
and the mixture of state and foreign taxes to which the income is subject.
Year Ended May 31, 2008 Compared to Year Ended May 31, 2007
The following table sets forth the components of revenue and operating income from our continuing
operations for fiscal 2008 and 2007 (in thousands):
Year ended
May 31, 2008
Year ended
May 31, 2007
Increase
$
%
Revenues:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$274,531
203,944
478,475
$171,030
147,318
318,348
$103,501
56,626
160,127
Gross margin:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84,145
71,520
155,665
S, G&A expenses:
Field Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total S, G&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,390
18,402
109,792
$ 45,873
54,478
55,684
110,162
65,377
14,448
79,825
$ 30,337
29,667
15,836
45,503
26,013
3,954
29,967
$ 15,536
61%
38%
50%
54%
28%
41%
40%
27%
38%
51%
17
Revenues. Our revenues from continuing operations for the year ended May 31, 2008 were $478.5 million
compared to $318.3 million for the year ended May 31, 2007, an increase of $160.1 million or 50%. Our
revenues for the year ended May 31, 2008 include revenues associated with the recent Aitec and LRS
acquisitions of $53.9 million and $11.6 million, respectively. Organic revenue growth also continues to be broad
based across all service lines and geographic regions. Revenues for our TCM division (inclusive of Aitec) for the
year ended May 31, 2008 were $274.5 million compared to $171.0 million for the year ended May 31, 2007, an
increase of $103.5 million or 61%. Revenues for our TMS division (inclusive of LRS) for the year ended
May 31, 2008 were $203.9 million compared to $147.3 million for the year ended May 31, 2007, an increase of
$56.6 million, or 38%.
Gross Margin. Our gross margin for the year ended May 31, 2008 was $155.7 million compared to $110.2
million for the year ended May 31, 2007, an increase of $45.5 million or 41%. Gross margin as a percentage of
revenue was relatively consistent with the prior year as improvements in the TCM divisional gross margin
percentages during the current year offset decreases in the TMS divisional gross margin percentages. Gross
margin for our TCM division for the year ended May 31, 2008 was $84.1 million compared to $54.5 million for
the year ended May 31, 2007, an increase of $29.7 million or 54%. TCM division gross margins as a percentage
of revenue was 31% for the year ended May 31, 2008 and 32% for the year ended May 31, 2007. Gross margin
for our TMS division was $71.5 million for the year ended May 31, 2008 compared to $55.7 million for the year
ended May 31, 2007, an increase of $15.8 million or 28%. TMS division gross margin as a percentage of revenue
was 35% for the year ended May 31, 2008 and 38% for the year ended May 31, 2007 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 S,G&A for the year ended May 31, 2008 was $109.8
million compared to $79.8 million for the year ended May 31, 2007, an increase of $30.0 million or 38%. This
reflects investments in our network of over 100 service locations. Approximately $26.0 million of the increase in
S,G&A was due to field operations and $4.0 million of the increase was due to centralized corporate support
costs. The $4.0 million increase in corporate support costs in the current period included a $1.9 million increase
of stock based employee compensation. S,G&A as a percentage of revenue was 23% for the year ended May 31,
2008 compared to 25% for the year ended May 31, 2007.
Interest.
Interest expense was $6.5 million for the year ended May 31, 2008 as compared to $4.2 million
for the year ended May 31, 2007. This increase is the result of higher interest rates on our LIBOR based debt and
higher levels of outstanding borrowings during the year.
Taxes. The provision for income taxes was $15.8 million on pretax income of $39.4 million for the year
ended May 31, 2008. The provision for income taxes was $10.6 million on pretax income of $26.1 million for the
year ended May 31, 2007. The effective tax rate for the year ended May 31, 2008 was 40% compared to 41% for
the year ended May 31, 2007. 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, which we believe are sufficient to fund our business needs.
Vendor Financing.
In February 2009, we renewed our enterprise agreement with a vendor for server and
desktop volume licensing with software assurance for a term of three years. Financing for the agreement was
provided by the vendor under a three year non-interest bearing note (the “Software Licensing Note”) with
monthly payments of $26,901. The Software Licensing Note has been discounted at 3.5%, which approximated
our effective borrowing rate at the time we entered into the agreement. At May 31, 2009, the outstanding
principal balance of the Software Licensing Note was $0.8 million.
18
Leasing Arrangements. We also entered into operating leases to rent facilities and obtain vehicles and
equipment for our field operations. Our obligations under non-cancellable operating leases, primarily consisting
of facility and auto leases, were approximately $35.0 million at May 31, 2009 and are as follows (in thousands):
Twelve Months Ended May 31,
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating
Leases
$13,368
9,832
6,219
3,467
1,928
188
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,002
Total rent expense resulting from operating leases for the twelve months ended May 31, 2009, 2008 and
2007 was $19.9 million, $18.7 million and $12.9 million, respectively.
Bank Facility.
In May 2007, we amended and restated our existing banking facility comprised of a term
loan and a revolving credit facility. Our existing banking facility, further amended in June 2008, provides us with
a $145 million revolving line of credit and a $15 million term loan through a banking syndicate. In January 2008,
we amended our existing banking facility to allow us to borrow in Euros or U.S. Dollars. Our existing banking
facility, as amended (collectively, the “Credit Facility”) bears interest based on a variable Eurodollar rate option
(LIBOR plus 1.25% at May 31, 2009) and the margin is set based on our financial covenants as set forth in the
Credit Facility. The Credit Facility matures in May 2012 and is secured by virtually all of our domestic assets
and a majority of the stock of our foreign subsidiaries, and has commitment fees of .25% that are applied to
unused borrowing capacity. It also 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, 2009, there were $1.0
million of capitalized loan costs which are being amortized over the life of the Credit Facility. At May 31, 2009,
we were in compliance with all covenants of the Credit Facility.
On May 31, 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 variable Eurodollar interest expense on our Credit
Facility. The portion of the Credit Facility hedged begins with a notional value of $30.0 million effective June 1,
2007 and decreases 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, with the changes in fair value, to the extent the swap agreement is effective, recognized in other
comprehensive income until the hedged interest expense is recognized in earnings.
On February 12, 2008, we borrowed €12.3 million under the Credit Facility to serve as an economic hedge
of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to
the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our
European operations.
In October 2008, our Canadian subsidiary entered into a revolving credit facility with a bank (the “Canadian
Line of Credit”). The Canadian Line of Credit allows our subsidiary to borrow up to $7.5 million Canadian
(approximately $6.8 million U.S.). We have provided an unconditional guarantee of borrowings by our Canadian
subsidiary, effectively making Team, Inc. liable to the bank as principal debtor. The Canadian Line of Credit also
contains cross-default provisions with our Credit Facility. Borrowings under the Canadian Line of Credit are
used for working capital and other general needs of our Canadian operations, bear interest at a LIBOR based
interest rate (LIBOR plus 1.25% at May 31, 2009) and matures in May 2012.
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
19
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, 2009, we were contingently liable for outstanding stand-by letters of credit totaling
$6.8 million. Outstanding letters of credit reduce amounts available under our Credit Facility and are considered
as having been funded for purposes of calculating our financial covenants under the Credit Facility.
Restrictions On Cash.
Included in our cash and cash equivalents at May 31, 2009 is $3.1 million of cash
in Europe. Any repatriation of cash from Europe, if deemed to be a dividend from our European subsidiary for
tax purposes, would result in adverse tax consequences. While not legally restricted from repatriating this cash,
we consider all earnings of our European subsidiary to be permanently reinvested and access to cash in Europe to
be limited.
Cashflows Attributable to Our Operations. For the year ended May 31, 2009, cash provided by operating
activities was $38.9 million. Net income of $22.9 million, when adjusted for non-cash items such as depreciation
and amortization, deferred financing costs, allowance for doubtful accounts, non-cash compensation and deferred
tax charges, was $41.4 million.
Cashflows Attributable to Our Investing Activities. For the year ended May 31, 2009, cash used in
investing activities was $14.7 million, consisting primarily of $16.4 million of capital expenditures (we incurred
approximately $25.6 million and $16.5 million for capital expenditures during fiscal years 2008 and 2007,
respectively). Capital expenditures can vary depending upon specific customer needs that may arise
unexpectedly. We anticipate capital expenditures for the next twelve months to be approximately $10 million to
$15 million for equipment.
Cashflows Attributable to Our Financing Activities. For the year ended May 31, 2009, cash used in
financing activities was $16.2 million. Repayments of the Credit Facility used $19.4 million of cash.
Critical Accounting Policies
The process of preparing financial statements in accordance with Generally Accepted Accounting Principles
in the U.S. (“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,
•
Income Taxes,
• Workers Compensation, Auto, Medical and General Liability Accruals,
• Allowance for Doubtful Accounts Receivable, and
• 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
20
May 31, 2009 and 2008, the amount of earned but unbilled revenue was $6.5 million and $7.5 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 $0.5 million
and $0.4 million at May 31, 2009 and 2008, respectively.
Valuation of Intangible Assets.
Intangible assets consists primarily 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 $56.5 million and $62.9 million of goodwill at May 31, 2009 and 2008, respectively.
Based upon results of the annual impairment testing, conducted in May 2009, 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.
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, 2009, 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 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.
21
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, automobile liability and general liability claims, our self-insured retention is $500,000 per
occurrence. For medical claims, our self-insured retention is $150,000 per individual claimant determined on an
annual basis. For environmental liability claims, our self-insured retention is $100,000 per occurrence. We maintain
insurance for claims that exceed such self-retention limits. The insurance is subject to terms, conditions, limitations
and exclusions that may not fully compensate us for all losses. Our estimates and judgments 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 $3.7 million and $3.6 million at May 31, 2009 and 2008, 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
FASB No. 168.
In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles (“FASB No. 168”). FASB No. 168
identifies the sources of accounting principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP.
FASB No. 168 will supersede all then-existing non-SEC accounting and reporting standards. All other non-
grandfathered non-SEC accounting literature not included in the Codification will be come non-authoritative.
FASB No. 168 is effective for financial statements issued for interim and annual periods ending after September
15, 2009. We do not believe this pronouncement will have any effect on our results of operations, financial
position or cash flows.
FASB No. 167.
In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R), which amends the consolidation guidance applicable to variable interest entities. The amendments
will significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R). This statement is
effective as of the beginning of the first fiscal year that begins after November 15, 2009. We are still assessing
the impact of this statement on our results of operations, financial position or cash flows.
FASB No. 165.
In May 2009, the FASB issued Statement No. 165, Subsequent Events, which established
principles and requirements for subsequent events. The statement details the period after the balance sheet date
during which the Company should evaluate events or transactions that may occur for potential recognition or
22
disclosure in the financial statements, the circumstances under which the Company should recognize events or
transactions occurring after the balance sheet date in its financial statements and the required disclosures for such
events. This statement is effective for interim or annual reporting periods ending after June 15, 2009. We do not
believe this pronouncement will have a material effect on our results of operations, financial position or cash
flows.
FASB No. 141R.
In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business
Combinations” (“FASB No. 141R”) which replaces FASB No. 141, “Business Combinations”. FASB No. 141R
applies to all business combinations, including combinations among mutual entities and combinations by contract
alone. FASB No. 141R requires that all business combinations will be accounted for by applying the acquisition
method. FASB No. 141R is effective for business combinations consummated in fiscal years beginning on or
after December 15, 2008. Early application is prohibited. We are still assessing what impact this pronouncement
will have on our results of operations, financial position or cash flows.
Newly Adopted Accounting Principles
FASB No. 162.
In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“FASB No. 162”). FASB No. 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of non-governmental
entities that are presented in conformity with generally accepted accounting principles. FASB No. 162 directs the
hierarchy to the entity, as the entity is responsible for selecting accounting principles for financial statements that
are presented in conformity with generally accepted accounting principles. FASB No. 162 became effective on
November 13, 2008 and had no effect on our results of operations, financial position or cash flows.
FASB No. 161.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“FASB No. 161”). FASB
No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for, and how such derivative instruments affect an entity’s
financial position, financial performance and cash flows. FASB No. 161 became effective for us on
November 15, 2008 and did not have a material effect on our results of operations, financial position or cash
flows.
FASB No. 159.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“FASB
No. 159”), which permits an entity to choose to measure financial instruments and certain other items similar to
financial instruments at fair value. All subsequent changes to fair value for the financial instrument would be
reported in earnings. FASB No. 159 was effective June 1, 2008. We did not adopt the fair value option permitted
under this statement.
FASB No. 157.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements
(“FASB No. 157”). This statement defines fair value, establishes a framework for measuring fair value in GAAP
and expands disclosures about fair value measurements for financial assets and liabilities, as well as any other
assets and liabilities that are carried at fair value on a recurring basis in financial statements. It applies under
other accounting pronouncements that require or permit fair value measurements, and does not require any new
fair value measurements. The application of FASB No. 157, however, may change current practice within an
organization. FASB No. 157 was effective January 1, 2008, applied prospectively. In February 2008, the FASB
issued FASB Staff Position No. 157- 2, Effective Date of FASB Statement No. 157, which provided a one-year
deferral for the implementation of FASB No. 157 for certain non-financial assets and liabilities measured on a
nonrecurring basis. Effective June 1, 2008, we adopted the provisions of FASB No. 157 relating to financial
assets and liabilities. The adoption of FASB No. 157 with respect to financial assets and liabilities did not have a
material financial impact on our consolidated results of operations, financial condition or cash flows. We are
23
currently evaluating the impact of implementation with respect to non-financial assets and liabilities measured on
a nonrecurring basis on our consolidated financial statements, which will be primarily limited to asset
impairments including goodwill, intangible assets and other long-lived assets, assets acquired and liabilities
assumed in a business combination.
FSP FAS 157-3.
In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (“FSP FAS 157-3”). This FSP clarifies the
application of SFAS No. 157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that financial asset is not
active. This FSP was effective upon issuance, including prior periods for which financial statements have not
been issued. The adoption of FSP FAS 157-3 had no effect on our results of operations, financial position or cash
flows.
EITF 06-3.
In June 2006, the FASB’s Emerging Issues Task Force (the “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 reporting periods
beginning after December 15, 2006. The adoption of EITF 06-3 on June 1, 2007 did not have a material effect on
our results of operations, financial position or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations in foreign countries with a functional currency that is not the U.S. Dollar. We are
exposed to market risk, primarily related to foreign currency fluctuations related to these operations. A
significant part of these assets relate to our operations in Europe and Canada. During the year ended May 31,
2009, the exchange rate with the Euro decreased from $1.55 per Euro to $1.41 per Euro, a decrease of 9%.
During the same period, the exchange rate with the Canadian Dollar decreased from near parity with the
U.S. Dollar to $0.91 per Canadian Dollar, a decrease of 9%. For foreign subsidiaries whose functional currency
is not the U.S. Dollar, such as our operations in Europe and Canada, assets and liabilities are translated at period
ending rates of exchange. Translation adjustments for the assets and liability accounts are included as a separate
component of accumulated other comprehensive income in stockholders’ equity. We had $9.5 million of foreign
currency translation losses in other comprehensive income for the year ended May 31, 2009.
We carry Euro based debt to serve as an economic hedge of our net investment in our European operations
as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset
translation gains or losses attributable to our investment in our European operations. We are exposed to market
risk, primarily related to foreign currency fluctuations related to the unhedged portion of our investment in our
European operations.
We carry Canadian Dollar based debt on our Canadian Line of Credit. The Canadian Line of Credit supports
the operating and investing activities of our Canadian operations. We are exposed to market risk, primarily
related to foreign currency fluctuations related to our Canadian Line of Credit and our investment in our
Canadian operations.
24
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 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 on 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, with the changes in fair value, to the extent
the swap agreement is effective, recognized in other comprehensive income until the hedged interest expense is
recognized in earnings. At May 31, 2009, the notional amount of our swap was $21.3 million.
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 (“CEO”) and our Chief Financial Officer (“CFO”), 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
25
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, 2009, 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 2009.
ITEM 9B. OTHER INFORMATION
None
26
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, 2009.
/S/ PHILIP J. HAWK
Philip J. Hawk
Chairman and Chief Executive Officer
/S/ TED W. OWEN
Ted W. Owen
Principal Financial Officer and Principal Accounting Officer
27
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, 2009, 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.”
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, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
28
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, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended May 31, 2009, 2008 and 2007 . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended May 31, 2009, 2008 and 2007 . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2009, 2008 and 2007 . . . . . .
Consolidated Statements of Cash Flows for the Years Ended May 31, 2009, 2008 and 2007 . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
32
33
34
35
36
37
29
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Team, Inc. and Subsidiaries:
We have audited Team, Inc. and Subsidiaries’ internal control over financial reporting as of May 31, 2009,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Team, Inc. and Subsidiaries management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included 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, Team, Inc. and Subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of May 31, 2009, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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, 2009 and 2008, 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, 2009, and our report dated August 11, 2009
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Houston, Texas
August 11, 2009
30
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, 2009 and 2008, 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, 2009. 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, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the three-year period ended May 31, 2009, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Team, Inc. and Subsidiaries’ internal control over financial reporting as of May 31, 2009, 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 11, 2009 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Houston, Texas
August 11, 2009
31
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 $3,662 and $3,586 . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net
Intangible assets, net of accumulated amortization of $1,734 and $1,308 . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
2009
2008
$ 12,632
114,279
19,647
1,461
944
7,674
156,637
59,582
953
56,453
2,296
$
6,600
126,854
16,408
834
687
6,831
158,214
56,138
1,276
62,904
1,929
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$275,921
$280,461
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,813
14,928
23,102
3,949
46,792
5,939
76,689
$
6,249
21,462
25,636
3,397
56,744
6,137
96,818
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129,420
159,699
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, 500,000 shares authorized, none issued . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $.30 per share, 30,000,000 shares authorized; 18,836,709
and 18,580,171 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
5,651
63,125
80,278
(2,553)
5,573
55,251
57,367
2,571
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146,501
120,762
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$275,921
$280,461
See notes to consolidated financial statements.
32
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Twelve Months Ended May 31,
2007
2008
2009
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$497,559
340,500
$478,475
322,810
$318,348
208,186
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157,059
116,761
973
41,271
4,872
36,399
13,488
155,665
109,792
—
45,873
6,491
39,382
15,759
110,162
79,825
—
30,337
4,204
26,133
10,618
Net income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,911
$ 23,623
$ 15,515
Net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.22
1.16
$
$
1.30
1.20
$
$
0.88
0.82
Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,793
19,725
18,226
19,676
17,540
18,866
See notes to consolidated financial statements.
33
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,911
(9,541)
(151)
1,767
2,801
$ 23,623
4,935
(665)
(1,163)
(1,181)
$ 15,515
429
—
—
(148)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,787
$ 25,549
$ 15,796
Twelve Months Ended May 31,
2007
2008
2009
See notes to consolidated financial statements.
34
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common
Shares
Treasury
Shares
Common
Stock
Treasury
Stock
Additional
Paid in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Balance at June 1, 2006 . . . . 19,318 (1,018) $2,898 $(5,032) $44,723 $20,932
Net income . . . . . . . . . . . . . —
— 15,515
Foreign currency translation
—
—
—
adjustment, net of tax . . . —
Non-cash compensation . . . —
4
Shares issued . . . . . . . . . . . .
Exercise of stock options . .
574
Tax benefit from exercise of
stock options . . . . . . . . . . —
—
—
—
—
—
Balance at May 31, 2007 . . . 19,896 (1,018)
Net income . . . . . . . . . . . . . —
Foreign currency translation
—
adjustment, net of tax . . . —
Foreign currency hedge, net
of tax . . . . . . . . . . . . . . . . —
Interest rate swap, net of
—
—
tax . . . . . . . . . . . . . . . . . . —
Non-cash compensation . . . —
Shares issued . . . . . . . . . . . .
1
Stock split
. . . . . . . . . . . . . .
Exercise of stock options . .
Tax benefit of exercise of
—
—
—
(2,035) 1,018
—
718
—
—
1
85
—
2,984
—
—
—
—
—
1
2,397
191
—
—
—
—
—
—
1,425
59
1,626
1,326
—
—
—
—
—
(5,032) 49,159
36,447
— 23,623
—
—
—
—
—
—
—
—
—
—
5,032
—
—
3,329
59
(4,726)
3,117
—
—
—
(2,703)
—
stock options . . . . . . . . . . —
—
—
—
4,313
—
Balance at May 31, 2008 . . . 18,580
Net income . . . . . . . . . . . . . —
Foreign currency translation
adjustment, net of tax . . . —
Foreign currency hedge, net
of tax . . . . . . . . . . . . . . . . —
Interest rate swap, net of
tax . . . . . . . . . . . . . . . . . . —
Non-cash compensation . . . —
Shares issued . . . . . . . . . . . .
4
Exercise of stock options
and vesting of stock
awards . . . . . . . . . . . . . . .
253
Tax benefit of exercise of
stock options . . . . . . . . . . —
— 5,573
—
—
— 55,251
—
57,367
— 22,911
—
—
—
—
—
—
—
—
—
—
—
1
77
—
—
—
—
—
—
—
—
—
—
—
4,626
134
1,544
1,570
—
—
—
—
—
—
—
Total
Stockholders’
Equity
$ 63,885
15,515
281
1,425
60
1,711
1,326
84,203
23,623
$
364
—
281
—
—
—
—
645
—
3,052
3,052
(716)
(410)
—
—
—
—
—
2,571
—
(716)
(410)
3,329
60
—
3,308
4,313
120,762
22,911
(6,119)
(6,119)
1,089
1,089
(94)
—
—
—
—
(94)
4,626
135
1,621
1,570
Balance at May 31, 2009 . . . 18,837
— $5,651 $ — $63,125 $80,278
$(2,553)
$146,501
See notes to consolidated financial statements.
35
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease):
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve Months Ended
May 31,
2009
2008
2007
$ 22,911
$ 23,623
$ 15,515
12,116
189
76
(973)
2,350
4,761
7,320
(3,461)
(351)
(6,545)
(1,158)
1,727
11,285
278
1,238
(8)
2,299
3,329
7,777
446
1,094
(303)
2,085
1,425
(23,292)
(3,929)
1,172
(17,103)
(993)
30
5,780
2,960
—
2,582
(992)
(4,837)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,962
24,735
6,726
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16,383)
136
1,500
—
—
(25,612)
47
(1,934)
(297)
(53,261)
(16,497)
262
465
—
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,747)
(81,057)
(15,770)
Cash Flows From Financing Activities:
Borrowings (payments) under revolving credit agreement
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit of stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,428)
(6,000)
1,570
—
1,621
53,120
(4,852)
4,313
(99)
3,368
12,250
(4,317)
1,326
(510)
1,771
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16,237)
55,850
10,520
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,946)
6,032
6,600
2,737
2,265
4,335
281
1,757
2,578
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,632
$ 6,600
$ 4,335
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,336
$ 5,720
$ 4,034
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,909
$ 8,952
$ 13,078
See notes to consolidated financial statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Introduction. 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. We are incorporated in the State of Texas and our company website can be found at
www.teamindustrialservices.com . Our corporate headquarters is located at 200 Hermann Drive, Alvin, Texas,
77511 and our telephone number is (281) 331-6154. Our stock is traded on the NASDAQ Global Select Market
(“NASDAQ”) under the symbol “TISI” and 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 utilized extensively in heavy industries. We
offer an array of complimentary services including:
•
•
•
•
•
•
•
•
leak repair,
hot tapping,
fugitive emissions control,
field machining,
technical bolting,
field valve repair,
non-destructive testing, and
field heat treating.
We offer these services in over 100 locations throughout the United States and international markets
including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.
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, steel industries municipalities, shipbuilding, OEMs, distributors and end users and some of the world’s
largest engineering and construction firms. Our products and services are provided across a broad geographic
reach. For fiscal year ending May 31, 2009, our revenues by geographic region originated in the United States
(70%), Canada (23%), Europe (5%) and other locations outside of North America (2%).
Consolidation. Our consolidated condensed 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. Investments in operating entities where we have the ability to exert significant
influence, but where we do not control their operating and financial policies, are accounted for using the equity
method.
Use of Estimates. Our accounting policies conform to Generally Accepted Accounting Principles in the
U.S. (“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
37
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. Our 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
due to the short-term maturity of these instruments. The fair value of our Credit Facility is representative of the
carrying value based upon the variable terms and management’s opinion that the current rates available to us
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 the Financial Accounting Standards Board (“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.
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 divisions one level below our industrial segment, 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 $56.5 million and $62.9 million of goodwill at May 31, 2009 and 2008,
respectively. Based upon results of the annual impairment testing, conducted in May 2009, there have been no
impairments of goodwill. A summary of goodwill as of May 31, 2009 and 2008 is as follows (in thousands):
Balance at beginning of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and purchase price adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve Months Ended
May 31,
2009
2008
$62,904
(3,097)
(3,354)
—
$26,452
35,238
1,214
—
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,453
$62,904
38
Income Taxes. We follow the guidance in FASB Statement No. 109, Accounting for Income Taxes, 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.
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
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. As of May 31, 2009, for workers’ compensation, automobile liability and general liability claims, our
self-insured retention increased to $500,000 per occurrence. For medical claims, our self-insured retention is
$150,000 per individual claimant determined on an annual basis. For environmental liability claims, our self-
insured retention is $100,000 per occurrence. We maintain insurance for claims that exceed such self-retention
limits. The insurance is subject to terms, conditions, limitations and exclusions that may not fully compensate us
for all losses. 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.
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, 2009 and 2008, the amount of
earned but unbilled revenue included in accounts receivable was $6.5 million and $7.5 million, 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
39
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.
Options to purchase 695,000, 659,000 and 209,000 shares of common stock were outstanding during the
twelve month periods ended May 31, 2009, 2008 and 2007, 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 U.S. Dollar, assets and liabilities
are translated at period ending rates of exchange and revenues and expenses are translated at period average
exchange rates. Translation adjustments for the asset and liability accounts are included as a separate component
of accumulated other comprehensive income in stockholders’ equity. There were no material transaction gains or
losses in any periods presented.
Accounting Principles Not Yet Adopted
FASB No. 168.
In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles (“FASB No. 168”). FASB No. 168
identifies the sources of accounting principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP.
FASB No. 168 will supersede all then-existing non-SEC accounting and reporting standards. All other non-
grandfathered non-SEC accounting literature not included in the Codification will be come non-authoritative.
FASB No. 168 is effective for financial statements issued for interim and annual periods ending after
September 15, 2009. We do not believe this pronouncement will have any effect on our results of operations,
financial position or cash flows.
FASB No. 167.
In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation
No. 46(R), which amends the consolidation guidance applicable to variable interest entities. The amendments
will significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R). This statement is
effective as of the beginning of the first fiscal year that begins after November 15, 2009. We are still assessing
the impact of this statement on our results of operations, financial position or cash flows.
FASB No. 165.
In May 2009, the FASB issued Statement No. 165, Subsequent Events, which established
principles and requirements for subsequent events. The statement details the period after the balance sheet date
during which the Company should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which the Company should recognize events or
transactions occurring after the balance sheet date in its financial statements and the required disclosures for such
events. This statement is effective for interim or annual reporting periods ending after June 15, 2009. We do not
anticipate FASB No. 165 will have a material effect on our results of operations, financial position or cash flows.
FASB No. 141R.
In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business
Combinations” (“FASB No. 141R”) which replaces FASB No. 141, “Business Combinations”. FASB No. 141R
applies to all business combinations, including combinations among mutual entities and combinations by contract
alone. FASB No. 141R requires that all business combinations will be accounted for by applying the acquisition
method. FASB No. 141R is effective for business combinations consummated in fiscal years beginning on or
after December 15, 2008. Early application is prohibited. We are still assessing what impact this pronouncement
will have on our results of operations, financial position or cash flows.
40
Newly Adopted Accounting Principles
FASB No. 162.
In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“FASB No. 162”). FASB No. 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of non-governmental
entities that are presented in conformity with generally accepted accounting principles. FASB No. 162 directs the
hierarchy to the entity, as the entity is responsible for selecting accounting principles for financial statements that
are presented in conformity with generally accepted accounting principles. FASB No. 162 became effective on
November 13, 2008 and had no effect on our results of operations, financial position or cash flows.
FASB No. 161.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“FASB No. 161”). FASB No.
161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for, and how such derivative instruments affect an entity’s
financial position, financial performance and cash flows. FASB No. 161 became effective for us on November
15, 2008 and did not have a material effect on our results of operations, financial position or cash flows.
FASB No. 159.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“FASB No.
159”), which permits an entity to choose to measure financial instruments and certain other items similar to
financial instruments at fair value. All subsequent changes to fair value for the financial instrument would be
reported in earnings. FASB No. 159 was effective June 1, 2008. We did not adopt the fair value option permitted
under this statement.
FASB No. 157.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements
(“FASB No. 157”). This statement defines fair value, establishes a framework for measuring fair value in GAAP
and expands disclosures about fair value measurements for financial assets and liabilities, as well as any other
assets and liabilities that are carried at fair value on a recurring basis in financial statements. It applies under
other accounting pronouncements that require or permit fair value measurements, and does not require any new
fair value measurements. The application of FASB No. 157, however, may change current practice within an
organization. FASB No. 157 was effective January 1, 2008, applied prospectively. In February 2008, the FASB
issued FASB Staff Position No. 157- 2, Effective Date of FASB Statement No. 157, which provided a one-year
deferral for the implementation of FASB No. 157 for certain non-financial assets and liabilities measured on a
nonrecurring basis. Effective June 1, 2008, we adopted the provisions of FASB No. 157 relating to financial
assets and liabilities. The adoption of FASB No. 157 with respect to financial assets and liabilities did not have a
material financial impact on our consolidated results of operations, financial condition or cash flows. We are
currently evaluating the impact of implementation with respect to non-financial assets and liabilities measured on
a nonrecurring basis on our consolidated financial statements, which will be primarily limited to asset
impairments including goodwill, intangible assets and other long-lived assets, assets acquired and liabilities
assumed in a business combination.
FSP FAS 157-3.
In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (“FSP FAS 157-3”). This FSP clarifies the
application of SFAS No. 157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that financial asset is not
active. This FSP was effective upon issuance, including prior periods for which financial statements have not
been issued. The adoption of FSP FAS 157-3 had no effect on our results of operations, financial position or cash
flows.
41
EITF 06-3.
In June 2006, the FASB’s Emerging Issues Task Force (the “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 reporting periods
beginning after December 15, 2006. The adoption of EITF 06-3 on June 1, 2007 did not have a material effect on
our results of operations, financial position or cash flows.
2. ACQUISITIONS AND DISPOSITIONS
On January 9, 2008, we acquired all the stock of Leak Repair Specam, (“LRS”), a specialty industrial
services company. LRS provides a range of services similar to those offered by our TMS division including
on-stream leak sealing, hot tapping, fugitive emissions monitoring, field machining and bolting services. LRS is
headquartered near Vlissingen, The Netherlands and has four service locations in The Netherlands and Belgium.
The purchase price of the acquisition including working capital adjustments, professional fees, and net of cash
acquired, was $18.6 million. Financing for the acquisition was obtained through our banking syndicate.
Information regarding the allocation of the purchase price to our acquisition, including intangible assets
amortizing over five years, is set forth below (in thousands):
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets—Trade-mark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
(unaudited)
$ 6,030
579
760
1,499
237
13,737
Total Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,842
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,871
2,412
Total Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,283
Net Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,559
42
On June 1, 2007, we acquired all the stock of Aitec, Inc. (“Aitec”). The final purchase price of $34.7 million
includes working capital adjustments of $0.1 million and professional fees of $0.8 million. 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 our banking syndicate. Information
regarding the allocation of the purchase price to our acquisition, including intangible assets amortizing over five
years, is set forth below (in thousands):
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets—Non-competes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
(unaudited)
$12,983
382
1,415
4,460
1,250
20,622
Total Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,112
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,251
3,021
99
Total Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,371
Net Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,741
3. RECEIVABLES
A summary of accounts receivable as of May 31, 2009 and 2008 is as follows (in thousands):
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$111,465
6,476
(3,662)
$122,943
7,497
(3,586)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$114,279
$126,854
May 31,
2009
2008
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 as of May 31, 2009 and 2008 (in thousands):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of bad debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,586
3,406
(3,330)
$2,348
1,824
(586)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,662
$3,586
Twelve Months Ended
May 31,
2009
2008
43
4. INVENTORY
A summary of inventory as of May 31, 2009 and 2008 is as follows (in thousands):
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,071
674
15,902
$ 2,817
498
13,093
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,647
$16,408
May 31,
2009
2008
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of May 31, 2009 and 2008 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,
$
2009
945
7,939
88,129
1,659
5,942
2,311
8,081
$
2008
986
7,643
74,063
1,508
4,596
2,273
8,559
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
115,006
(55,424)
99,628
(43,490)
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 59,582
$ 56,138
Included in property, plant and equipment is $0.4 million of capitalized interest attributable to 50 acres
purchased in October 2007 to construct future facilities in Houston, Texas. Due to the current economic recession
and its effect on our growth, we have postponed construction of the future facilities until such time as the
industrial services sector recovers, and accordingly, have ceased to further capitalize interest until the project
resumes.
6. OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities as of May 31, 2009 and 2008 is as follows (in thousands):
Payroll and other compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, sales and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto lease rebate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
2009
2008
$14,698
5,020
1,082
446
1,856
$15,723
4,087
1,158
992
3,676
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,102
$25,636
44
7. INCOME TAXES
Income tax expense for the years ended May 31, 2009, 2008 and 2007 was as follows (in thousands):
Income tax expense attributable to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2009
2008
2007
$13,488
$15,759
$10,618
(1,565)
(4,313)
(1,326)
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes allocated to stockholders’ equity, related to interest rate swap . . . . . . . . . . .
Taxes allocated to stockholders’ equity, related to foreign currency hedge . . . . . .
(3,422)
(57)
678
1,883
(255)
(447)
148
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,122
$12,627
$ 9,440
Income tax expense attributable to income for the years ended May 31, 2009, 2008 and 2007 was as follows
(in thousands):
Year ended May 31, 2009:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended May 31, 2008:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended May 31, 2007:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$ 4,383
911
5,844
$2,226
235
(111)
$ 6,609
1,146
5,733
$11,138
$2,350
$13,488
$ 7,608
1,243
4,609
$1,899
198
202
$ 9,507
1,441
4,811
$13,460
$2,299
$15,759
$ 6,099
854
1,566
$1,900
164
35
$ 7,999
1,018
1,601
$ 8,519
$2,099
$10,618
The components of pre-tax income for the years ended May 31, 2009, 2008 and 2007 were as follows (in
thousands):
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,524
16,875
$25,993
13,389
$21,661
4,472
$36,399
$39,382
$26,133
Twelve Months Ended May 31,
2009
2008
2007
45
Income tax expense attributable to income differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to pretax income from continuing operations as a result of the following (in
thousands):
Twelve Months Ended May 31,
2007
2008
2009
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,399
$39,382
$26,133
Computed income taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Production activity deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,740
816
(192)
(75)
339
(338)
803
68
$13,784
1,018
103
(120)
415
—
601
(42)
$ 9,147
719
35
(80)
344
—
441
12
Current provision for income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits related to prior years, net of FIN No. 48 reserve . . . . . . . . . . . . . .
14,161
(673)
15,759
—
10,618
—
Total provision for income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,488
$15,759
$10,618
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,
2009
2008
Deferred tax assets:
Accrued compensation & benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vendor rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation and other equity adjustments . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
Goodwill and intangible costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation and other equity adjustments . . . . . . . . . . . .
Unremitted earnings of foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
987
910
612
172
1,458
1,385
173
5,697
(6,338)
(2,033)
—
(420)
(1,901)
—
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,692)
$
807
1,053
385
381
560
—
308
3,494
(3,613)
(1,740)
(1,416)
(420)
(1,725)
(30)
(8,944)
Net deferred liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (4,995)
$ (5,450)
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
46
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 valuation allowance is not necessary at May 31, 2009.
At May 31, 2009, undistributed earnings of foreign operations totaling $2.8 million were considered to be
permanently reinvested. We have recognized no deferred tax liability for the remittance of such earnings to the
U.S. since it is our intention to utilize those earnings in the foreign operations. Generally, such earnings become
subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to
estimate the amount of deferred tax liability on such undistributed earnings.
We adopted the provisions of FASB Financial Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB No. 109 (“FIN No. 48”) on June 1, 2007. The adoption of FIN No. 48 did not
have a material impact on our consolidated financial condition, results of operations or cash flows. At May 31,
2009, we have established liabilities for tax uncertainties of $0.1 million, inclusive of interest. To the extent these
uncertainties are ultimately resolved favorably, the resultant reduction of recorded liabilities would have an effect
on our effective tax rate. We do not believe that any of the liabilities recorded for tax uncertainties will be
effectively settled in the next 12 months. In accordance with FIN No. 48, paragraph 19, our policy is to recognize
interest and penalties related to unrecognized tax benefits through the tax provision.
We file income tax returns in the U.S. with federal and state jurisdictions as well as various foreign
jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax
examinations by tax authorities for fiscal years prior to fiscal year 2005. While we believe there is appropriate
support for the income tax positions taken, and to be taken, on our returns, and that our accruals for tax liabilities are
adequate for all open tax years based on an assessment of many factors including past experience and interpretations
of tax law applied to the facts of each matter. The income tax laws and regulations are voluminous and are often
ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our tax
positions that may have a material effect on our results of operations, financial position or cashflows.
Set forth below is a reconciliation of the changes in our unrecognized tax benefits associated with FIN
No. 48 (in thousands):
Balance at June 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . .
Reductions resulting from a lapse of the applicable statute of limitations . . . . . . . .
$ 2,218
50
75
(2,218)
Balance at May 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
125
We do not believe that in the next 12 months, any of the $0.1 million of liabilities recorded for tax
uncertainties will be effectively settled.
8. LONG-TERM DEBT, DERIVATIVES AND LETTERS OF CREDIT
In May 2007, we amended and restated our existing banking facility comprised of a term loan and a
revolving credit facility. Our existing banking facility, further amended in June 2008, provides us with a $145
million revolving line of credit and a $15 million term loan through a banking syndicate. In January 2008, we
amended our existing banking facility to allow us to borrow in Euros or U.S. Dollars. Our existing banking
facility, as amended (collectively, the “Credit Facility”) bears interest based on a variable Eurodollar rate option
(LIBOR plus 1.25% at May 31, 2009) and the margin is set based on our financial covenants as set forth in the
Credit Facility. The Credit Facility matures in May 2012 and is secured by virtually all of our domestic assets
and a majority of the stock of our foreign subsidiaries, and has commitment fees of .25% that are applied to
unused borrowing capacity. It also contains financial covenants and restrictions on the creation of liens on assets,
47
the acquisition or sale of subsidiaries and the incurrence of certain liabilities. At May 31, 2009, there were $1.0
million of capitalized loan costs which are being amortized over the life of the Credit Facility. At May 31, 2009,
we were in compliance with all covenants of the Credit Facility.
In October 2008, our Canadian subsidiary entered into a revolving credit facility with a bank (the “Canadian
Line of Credit”). The Canadian Line of Credit allows our subsidiary to borrow up to $7.5 million Canadian
(approximately $6.8 million U.S.). We have provided an unconditional guarantee of borrowings by our Canadian
subsidiary, effectively making Team, Inc. liable to the bank as principal debtor. The Canadian Line of Credit also
contains cross-default provisions with our Credit Facility. Borrowings under the Canadian Line of Credit are
used for working capital and other general needs of our Canadian operations, bear interest at a LIBOR based
interest rate (LIBOR plus 1.25% at May 31, 2009) and mature in May 2012.
In February 2009, we renewed our enterprise agreement with a vendor for server and desktop volume
licensing with software assurance for a term of three years. 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 approximately 3.5%, which approximated 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 a
three year period.
A summary of long-term debt as of May 31, 2009 and May 31, 2008 is as follows (in thousands):
Revolving loan portion of the Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canadian Line of Credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan portion of the Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software Licensing Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31,
2009
2008
$76,164
—
4,500
821
17
$ 92,298
—
10,500
232
37
81,502
(4,813)
103,067
(6,249)
Long-term debt, excluding current maturities . . . . . . . . . . . . . . . . . . . . . . .
$76,689
$ 96,818
Future maturities of long-term debt are as follows (in thousands):
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,813
310
76,379
—
$81,502
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
allow a derivative’s gains and losses to offset related results on the hedged item in the statement of operations.
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. Credit risks related to derivatives include the possibility that
the counter party will not fulfill the terms of the contract. We considered counter party credit risk to our
derivative contracts when valuing our derivative instruments.
48
On May 31, 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 variable Eurodollar interest expense on our Credit
Facility. The portion of the Credit Facility hedged begins with a notional value of $30.0 million effective June 1,
2007 and decreases 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, with the changes in fair value, to the extent the swap agreement is effective, recognized in other
comprehensive income until the hedged interest expense is recognized in earnings. We estimate $0.8 million of
net losses on the interest rate swap agreement will be transferred into earnings (based on current LIBOR rates).
These are currently included in other accumulated comprehensive income and will be reclassified into earnings
prior to settlement of the derivative in June 2010. Losses reclassified from accumulated other comprehensive
income into earnings will be located in interest expense.
The amounts recognized in other comprehensive income, and reclassified into income, for the twelve
months ended May 31, 2009 and 2008, are as follows (in thousands):
Gain (Loss)
Recognized in
Other
Comprehensive
Income
Twelve Months
Ended May 31,
Loss Reclassified
from Other
Comprehensive
Income to
Earnings
Twelve Months
Ended May 31,
2009
2008
2009
2008
Economic hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,767
(151)
(1,163) —
(665)
(744)
—
(140)
On February 12, 2008, we borrowed €12.3 million under the Credit Facility to serve as an economic hedge
of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to
the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our
European operations.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the
gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on
the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings. Any ineffectiveness related to our hedges was not material for
any of the periods presented.
The following table presents the fair value totals and balance sheet classification for derivatives designated
as hedges under FASB No. 133 (in thousands):
2009
2008
Classification
Balance Sheet
Location
Fair
Value
Classification
Balance Sheet
Location
Fair
Value
Economic hedge . . . . . . . . . . . Liability
Interest rate swap . . . . . . . . . . Liability
Long-term debt
Other liabilities
$ 604 Liability
(816) Liability
Long-term debt
Other liabilities
Total Derivatives . . . . . . . . . .
$(212)
$(1,163)
(665)
$(1,828)
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, 2009, we were contingently liable for outstanding stand-by letters of credit totaling
$6.8 million. Outstanding letters of credit reduce amounts available under our Credit Facility and are considered
as having been funded for purposes of calculating our financial covenants under the Credit Facility.
49
We also entered into operating leases to rent facilities and obtain equipment for our field operations. Our
obligations under non-cancellable operating leases, primarily consisting of facility and auto leases, were
approximately $35.0 million at May 31, 2009 and are as follows (in thousands):
Twelve Months Ended May 31,
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating
Leases
$13,368
9,832
6,219
3,467
1,928
188
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,002
Total rent expense resulting from operating leases for the twelve months ended May 31, 2009, 2008 and
2007 was $19.9 million, $18.7 million and $12.9 million, respectively.
9. FAIR VALUE MEASUREMENTS
Effective June 1, 2008, we adopted the provisions of FASB No. 157, which among other things, requires
enhanced disclosures about assets and liabilities carried at fair value.
As defined in FASB No. 157, fair value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. We utilize market data
or assumptions that market participants would use in pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value
measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of
unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any,
market activity for the asset or liability at the measurement date. We are able to classify fair value balances based
on the observability of those inputs. FASB No. 157 establishes a fair value hierarchy such that “Level 1”
measurements include unadjusted quoted market prices for identical assets or liabilities in an active market,
“Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which
have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are
observable through corroboration with observable market data, including quoted market prices for similar assets,
and “Level 3” measurements include those that are unobservable and of a highly subjective measure.
The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that
are accounted for at fair value on a recurring basis as of May 31, 2009. As required by FASB No. 157, financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair
value measurement (in thousands):
Liabilities:
Euro denominated long-term debt . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Quoted Prices in
Active Markets for
Identical Items (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$—
—
$—
50
$ 604
(816)
$(212)
$—
—
$—
Total
$ 604
(816)
$(212)
10. SHARE BASED COMPENSATION
We have adopted stock incentive plans and other arrangements pursuant to which our Board of Directors
may grant stock options, restricted stock, stock units, stock appreciation rights, common stock or performance
awards to officers, directors and key employees. At May 31, 2009, there were approximately 2.5 million stock
options, restricted stock units and performance awards outstanding to officers, directors and key employees. The
exercise price, terms and other conditions applicable to each form of share-based compensation under our plans
is generally determined by the Compensation Committee of our Board of Directors at the time of grant and may
vary.
Our share-based payments consist primarily of stock options, stock units and performance awards. The
governance of our share-based compensation does not directly limit the number of future awards so long as the
total number of shares ultimately issued does not exceed the total number of shares cumulatively authorized
which is 6,620,000 at May 31, 2009. Shares issued in connection with our share-based compensation are issued
out of authorized but unissued common stock. Compensation expense related to share-based compensation
totaled $4.7 million, $3.3 million and $1.4 million for the years ended May 31, 2009, 2008 and 2007,
respectively. Tax benefits related to share-based compensation were $1.6 million, $4.3 million and $1.3 million
for the years ended May 31, 2009, 2008 and 2007, respectively. At May 31, 2009, $10.5 million of unrecognized
compensation expense related to share-based compensation is expected to be recognized over a remaining
weighted-average period of three years.
We determine the fair value of each stock option at the grant date using a Black-Scholes model and
recognize the resulting cost of our stock option awards over the period during which an employee is required to
provide services in exchange for the awards, usually the vesting period. Our options typically vest in equal
annual installments over a four year service period. Expense related to an option grant is recognized on a straight
line basis over the specify vesting period for those options. Stock options generally have a ten year term.
Transactions involving our stock options during the years ended May 31, 2009, 2008 and 2007 are summarized
below:
Year Ended May 31, 2009
Year Ended May 31, 2008
Year Ended May 31, 2007
Weighted
Average
Exercise
Price
No. of
Options
Weighted
Average
Exercise
Price
No. of
Options
Weighted
Average
Exercise
Price
No. of
Options
(in thousands)
(in thousands)
(in thousands)
Shares under option, beginning of
year
. . . . . . . . . . . . . . . . . . . . . . . .
2,627
$15.37
2,822
$ 8.58
2,868
$ 6.33
Changes during the year:
Granted . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . .
Shares under option, end of year . . . .
Exercisable at end of year . . . . . . . . .
—
(253)
(20)
2,354
1,505
—
$ 6.41
$26.96
$16.24
$12.19
736
(718)
(213)
2,627
1,178
$30.22
$ 4.63
$14.31
$15.37
$ 8.34
552
(574)
(24)
2,822
1,754
$14.67
$ 2.99
$11.33
$ 8.58
$ 6.00
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,
2008 and 2007:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
4.4% 4.7%
Volatility factor of the expected market price of the Company’s common stock . . . . . . . . . N/A 40.2% 39.2%
0.0% 0.0%
Expected dividend yield percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Weighted average expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 7 Yrs
6 Yrs
2009
2008
2007
51
Options exercisable at May 31, 2009 had a weighted average remaining contractual life of 5.8 years. For total
options outstanding at May 31, 2009, the range of exercise prices and remaining contractual lives are as follows:
Range of Prices
$0.00 to $3.21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3.21 to $6.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6.41 to $9.62 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9.62 to $12.82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12.82 to $16.03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16.03 to $32.05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(in years)
$ 2.32
$ 4.19
$ 8.43
$11.24
$15.00
$30.20
$16.24
1.96
3.71
5.57
6.69
7.08
8.36
6.54
No. of
Options
(in thousands)
183
90
554
190
643
694
2,354
Performance awards and stock units are either settled with common stock or cash upon vesting. We
determine the fair value of each performance award and stock unit based on the market price on the date of grant.
Performance awards, awarded to our Chairman, vest over the longer of four years or the achievement of
performance goals based upon our future results of operations. Stock units generally vest over four years,
although stock units granted to our non-employee directors vest immediately. During the year ended May 31,
2009 we granted 27,383 performance awards with a weighted average fair value of $27.39. During the fiscal
years ended May 31, 2008 and 2007 we granted no performance awards. Transactions involving our stock units
during the year ended May 31, 2009 are summarized below:
Stock units, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes during the period:
Year Ended
May 31, 2009
No. of Stock
Units
Weighted
Average
Fair Value
—
$ —
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133,100
(2,032)
(3,545)
27.53
36.91
27.39
Stock units, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127,523
$27.39
11. STOCK SPLIT
On July 25, 2007, we announced a two-for-one stock split in the form of a 100 percent stock dividend
payable on August 29, 2007 to all shareholders of record on August 15, 2007. To fund the requirement of new
shares, we utilized approximately 1 million shares of treasury stock and issued an additional 8 million shares of
common stock. All share and per share information has been retroactively adjusted to reflect the stock split.
12. 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 2009, 2008 and 2007, were approximately $2.6 million, $2.2 million and
$1.2 million, respectively, and are included in selling, general and administrative expenses.
52
13. COMMITMENTS AND CONTINGENCIES
We have, from time to time, provided temporary leak repair services for the steam operations of
Consolidated Edison of New York (“Con Ed”) located in New York City. In July 2007, a Con Ed steam main
located in midtown Manhattan ruptured causing one death and other injuries and property damage. Five separate
lawsuits have been filed against Con Ed, the City of New York and us in the Supreme Courts of New York
located in Kings, New York and Bronx County, alleging that our temporary leak repair services may have
contributed to the cause of the rupture. The lawsuits seek generally unspecified compensatory damages for
personal injury, property damage and business interruption. Additionally, on March 31, 2008 we received a letter
from Con Ed alleging that our contract with Con Ed requires us to indemnify and defend Con Ed for additional
claims filed against Con Ed as a result of the rupture. Subsequently, Con Ed filed an action to join Team and the
City of New York as defendants in more than 40 separate lawsuits previously filed against Con Ed that did not
include Team and the City of New York as direct defendants. We intend to vigorously defend the lawsuits and
Con Ed’s claim for indemnification. We are unable to estimate the amount of liability to us, if any, associated
with these lawsuits and the claim for indemnification. We maintain insurance coverage, subject to a deductible
limit of $250,000, for these losses should they be incurred and have notified our insurers of the incident. We do
not believe the final resolution of these matters will have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
We are involved in various claims, suits, investigations, and legal proceedings. We accrue a liability when
we believe that it is both probable that a liability has been incurred and the amount of loss can be reasonably
estimated. We review these accruals at least quarterly and adjusts them to reflect ongoing negotiations,
settlements, rulings, advice of legal counsel, and other relevant information. However, litigation is inherently
unpredictable. Therefore, we could incur judgments or enter into settlements of claims that could adversely affect
our results of operations, financial position or cash flows.
14. ENTITY WIDE DISCLOSURES
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.” We operate in only one segment—industrial services. Within the industrial services segment, we
are organized as 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. Each division has goodwill relating to past acquisitions
and we assess goodwill for impairment at the lower TMS and TCM divisional level. Both divisions derive their
revenues from providing specialized labor intensive industrial services and the market for their services is
principally dictated by the population of process piping systems in industrial plants and facilities. Services
provided by both the TMS and TCM divisions are provided through a network of field branch locations located
in proximity to industrial plants. The structure of those branch locations is similar, with locations overseen by a
branch/regional manager, one or more sales representatives and a cadre of technicians to service the business
requirements of our customers. While TMS and TCM division field locations are generally separate, both
divisions are supported by common and often centralized technical and commercial support staffs, quality
assurance, training, finance, legal, human resources and health and safety departments.
53
Revenues and total assets in the United States and other countries are as follows for the fiscal years ended
May 31, 2009, 2008 and 2007 (in thousands):
FY 2009
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FY 2008
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FY 2007
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Revenues
Total
Assets
$350,001
112,930
23,443
11,185
$497,559
$346,074
106,121
12,322
13,958
$478,475
$276,188
26,142
—
16,018
$318,348
$180,889
62,678
25,353
7,001
$275,921
$169,491
73,788
25,044
12,138
$280,461
$139,735
17,051
—
14,268
$171,054
15. UNCONSOLIDATED SUBSIDIARIES
Our earnings from unconsolidated affiliates consists entirely of our joint venture (50% ownership) formed in
May 2008, to perform non-destructive testing and inspection services in Alaska. The joint venture is an integral
part of our operations in Alaska and all technicians working on behalf of the joint venture are our employees. Our
investment in the net assets of the joint venture, accounted for using the equity method of accounting, was
$1.1 million and $1.4 million as of May 31, 2009 and 2008, respectively. Revenues from the joint venture not
reflected in our consolidated revenues were $12.6 million and zero as of May 31, 2009 and 2008, respectively.
16. INTERNAL INVESTIGATION
During a recent internal management review of one of our branch operations in Trinidad, we were informed
of allegations of improper payments, made by our local employees, to employees of certain customers, including
foreign government owned enterprises. Consequently, the Audit Committee of our Board of Directors initiated an
investigation of those allegations with the assistance of independent outside counsel. The investigation has found
evidence suggesting that payments, which may violate the Foreign Corrupt Practices Act (FCPA), were made to
employees of foreign government owned enterprises. While the investigation is ongoing, there has been no
indication that the improper payments extend beyond the one Trinidad branch. Based upon the evidence obtained
to date, we believe that the total of these improper payments over the past five years did not exceed $50,000. The
total annual revenues from the impacted Trinidad branch represent approximately one-half of one percent of our
annual consolidated revenues.
We have voluntary disclosed information relating to the initial allegations, the investigation and the initial
findings to the U.S. Department of Justice (“DOJ”) and to the Securities and Exchange Commission (“SEC”),
and we will cooperate with the DOJ and SEC in connection with their review of this matter. The outcome of this
investigation cannot be predicted at this time; however, the FCPA and related statutes and regulations do provide
for potential monetary penalties as well as criminal and civil sanctions in connection with FCPA violations. It is
possible that monetary penalties could be assessed by the Federal government in connection with this matter. The
nature and amount of any monetary penalty cannot be estimated. We have not recorded any provision for
monetary penalties or other costs related to criminal and civil sanctions.
54
17. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following is a summary of selected quarterly financial data for the years ended May 31, 2009 and 2008
(in thousands, except per share data):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Basic . . . . . . . . . . . . . . . . .
Net income per share: Diluted . . . . . . . . . . . . . . .
First
Quarter
$123,338
9,715
$
4,957
$
0.27
$
0.25
$
Year ended May 31, 2009
Third
Quarter
Fourth
Quarter
Second
Quarter
$148,752
$ 18,364
$ 10,217
0.54
$
0.51
$
$104,266
3,470
$
2,181
$
0.12
$
0.11
$
$121,203
9,722
$
5,556
$
0.29
$
0.29
$
Total
Year
$497,559
$ 41,271
$ 22,911
1.22
$
1.16
$
Year ended May 31, 2008
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Basic . . . . . . . . . . . . . . . .
Net income per share: Diluted . . . . . . . . . . . . . . .
$103,488
7,771
$
3,512
$
0.19
$
0.18
$
$122,310
$ 14,553
7,816
$
0.43
$
0.40
$
$108,823
6,505
$
2,934
$
0.16
$
0.15
$
$143,854
$ 17,044
9,361
$
0.51
$
0.47
$
$478,475
$ 45,873
$ 23,623
1.30
$
1.20
$
55
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
10.11†
10.12†
10.13†
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).
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).
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).
56
Exhibit
Number
10.14†
10.16
10.19†
10.20†
10.21†
10.22†
10.23
10.24
10.25
10.26
14.1
21
23.1
31.1
31.2
32.1
32.2
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).
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).
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 (as Amended and Restated August 1, 2008) (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 17, 2008).
Form of Stock Unit Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on October 17, 2008).
Form of Performance-Based Stock Unit Agreement (filed as Exhibit 10.3 to the Company’s Current
Report on Form 8-K filed on October 17, 2008).
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, Swing 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).
First Amendment to Amended and Restated Credit Agreement dated January 29, 2008 among Team,
Inc. as the Borrower, Bank of America, NA, as Administrative Agent, Swing Line Lender and L/C
Issuer, and other Lenders Party thereto (filed as Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended February 29, 2008).
Commitment Increase Agreement dated June 13, 2008 to the Amended and Restated Credit
Agreement among Team, Inc. as the Borrower, Bank of America, NA, as Administrative Agent,
Swing Line Lender and L/C Issuer, and other Lenders Party thereto (filed as Exhibit 10.24 to the
Company’s Annual Report on Form 10-K for the year ended May 31, 2008).
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.
57
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 11,
2009.
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 11, 2009
/S/ VINCENT D. FOSTER
Director
August 11, 2009
(Vincent D. Foster)
/S/
JACK M. JOHNSON, JR.
(Jack M. Johnson, Jr.)
Director
August 11, 2009
/S/ EMMETT J. LESCROART
Director
August 11, 2009
(Emmett J. Lescroart)
/S/ ROBERT A. PEISER
(Robert A. Peiser)
/S/ LOUIS A. WATERS
(Louis A. Waters)
Director
Director
August 11, 2009
August 11, 2009
/S/ SIDNEY B. WILLIAMS
Director
August 11, 2009
(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 11, 2009
58
Corpor ate Information
Operating Locations*
Canada
Calgary, Alberta
Edmonton, Alberta
Fort McMurray, Alberta
Grand Prairie, Alberta
Red Deer, Alberta
Slave Lake, Alberta
Lloydminster, Alberta/
Saskatchewan
Mount Pearl, Newfoundland
Dartmouth, Nova Scotia
Kitchener, Ontario
Milton, Ontario
Oakville, Ontario
Sarnia, Ontario
Thunder Bay, Ontario
Whitby, Ontario
Weyburn, Saskatchewan
International
Locations
Aruba
Belgium
Netherlands
Singapore
Trinidad
Venezuela
*As of August 1, 2009
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
Registrar and transfer
agent
Communications regarding
change of address, transfer
of stock ownership, lost stock
certif icates or consolidation
of multiple listings should be
directed to:
Registrar and Transfer Co.
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.
Attn: Corporate Secretary
André C. Bouchard
200 Hermann Drive
Alvin, Texas 77511
Phone: 281/331-6154
Fax: 281/331-4107
Investor Relations
Ted W. Owen
Senior Vice President, Chief
Financial Offi cer & Treasurer
Team, Inc.
Phone: 281/388-5525
E-mail:
ir@teamindustrialservices.com
Independent Auditors
KPMG LLP
700 Louisiana St.
Houston, TX 77002
Directors
Philip J. Hawk
Chairman of the Board and
Chief Executive Offi cer
Team, Inc.
Vincent D. Foster
Chairman and CEO
Main Street Capital Corp.
(NASDAQ GS: “MAIN”)
Jack M. Johnson, Jr.
Managing General Partner
Wintermann & Company
(real estate management)
Emmett J. Lescroart
Managing Director
EJL Capital, LLC.
Robert A. Peiser
Chairman and CEO
Omnifl ight Helicopters, Inc.
Louis A. Waters
Investor, Retired Chairman of
Browning-Ferris Industries, Inc.
Sidney B. Williams
Shareholder, Chamberlain,
Hrdlicka, White, Williams &
Martin (legal services)
Corporate Officers
Philip J. Hawk
Chairman of the Board and
Chief Executive Offi cer
Ted W. Owen
Senior Vice President
Chief Financial Offi cer and
Treasurer
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
André C. Bouchard
Senior Vice President
Administration, General Counsel
& Secretary
Our Values
The Company’s Code of Ethical Conduct 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.