Proud of Our Performance
Focused on the Future
F Y 2011 Re venues $508 Million
T e a m , I n c . 2 0 1 1 A n n u a l R e p o r t
D e a r F e l l o w S h a r e h o l d e r s
W e are pleased to report that Team
achieved record revenue and
earnings results in the recently
completed Fiscal Year 2011. Improved
market demand, the exciting expansion of
our capabilities, and improved business
productivity as a result of actions we took
during the downturn all contributed to our
significant growth and performance
improvement during the year.
Looking forward, we are well positioned
for continued attractive business growth as
we capitalize on our outstanding service
performance, natural structural advantages,
and expanding capabilities. Achieving
attractive business growth is not new to
Team. Over the past 10 years, our average
annual compound growth rates for revenue,
earnings, and shareholder return have been
21%, 25%, and 31% respectively.
Record-Setting Results
Total revenues for fiscal year 2011 were
$508 million, up 12% overall and 8%
organically – excluding the impact of the
Quest Integrity Group (Quest) acquisition
during the year. With the benefit of improv-
ing market conditions through the year, we
achieved attractive organic revenue growth
in most of our major markets.
Our net income (adjusted for non-
recurring items) was $25.2 million ($1.26
per fully diluted share), up more than 50%
from the prior year. Both net income and
EPS results are new record levels for Team.
Adjusted operating profit was $43 million,
also up approximately 50%. Adjusted
operating profit margin as a percentage of
revenue was about 8%, up two percentage
points.
As a result of SG&A cost actions taken
previously and continuing productivity
improvements in direct labor utilization, we
were able to achieve significant operating
leverage on our revenue growth. For the
year, overall operating leverage (expressed
as the growth in EBIT divided by the growth
in revenues) was approximately 27%. This
strong operating leverage also reflected
our outstanding service and safety
performance.
Expansion of Business Capabilities with
Acquisition of Quest Integrity Group
In November 2010, we acquired
substantially all of Quest, bringing exciting
new capabilities for in-line inspection
services and engineering assessment ser-
vices to our company. Quest’s proprietary
in-line inspection tools and accompanying
analytical software represent a very exciting
solution to a large and growing market.
We expect to utilize Quest’s engineering
assessment services in combination with
our NDT service capabilities to offer our
customers more comprehensive support
for their mechanical integrity management
and assessment requirements.
We are pleased with Quest’s integration
into Team and with its continuing business
progress. We have high growth expectations
for this business.
Reconciliation of GAAP net income
to adjusted net income
Twelve Months Ended
May 31,
Net income available to shareholders
Adjustments for non-routine items:
FCPA investigation costs
Severance costs
Quest Integrity acquisition costs
Venezuela foreign currency losses
Total pre-tax adjustments
Tax impact of non-routine items
Non-routine tax benefit
Adjusted net income available to
common shareholders
2011
$26,585
-
-
632
-
632
(253)
(1,758)
$25,206
Adjusted diluted earnings per common share
$1.26
2010
$12,275
3,153
662
-
1,734
5,549
(2,214)
-
$15,610
$0.80
Strong Outlook and Future Prospects
We look forward to the continued growth
of our business and its value in the upcom-
ing year and beyond. Our confidence and
enthusiasm is based on several factors. The
markets we serve continue to have strong
fundamentals including stable, broad-based
demand for our services. The improving
economic conditions for our major custom-
er segments are also a plus. Furthermore,
Team continues to benefit from on-going
customer procurement consolidation trends
that favor the larger, more professional
multi-service line, multi-location service
providers.
Despite our significant growth over the
past decade, we still have considerable
growth potential in our existing service
lines. We estimate that our composite
market share in North America is only about
20%. We look forward to earning additional
business for years to come in this highly
fragmented industry.
At the same time, we continue to expand
our service line capabilities and sources of
value that we deliver to our customers. In
the past year, we have added the Quest
capabilities and have organically developed
and expanded our heat exchanger repair
services, GUL advanced inspection services,
insert valve product line, and wireless heat
treating services.
We are all proud of the sustained high
growth performance of our company. I
thank all of our Team colleagues for their
vital role in this success. It takes the
outstanding contributions and leadership
from all 3,500 of our colleagues to meet the
needs of our customers safely, effectively,
and efficiently. I am proud of our team!
Thank you for your continuing interest
in and support of our company. We look
forward to continued success and improve-
ment in the coming year.
Philip J. Hawk
Chairman and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
FORM 10-K
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2011
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 001-08604
TEAM, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State of Incorporation)
74-1765729
(I.R.S. Employer Identification No.)
200 Hermann Drive, Alvin, Texas
(Address of Principal Executive Offices)
77511
(Zip Code)
Registrant’s telephone number, including area code: (281) 331-6154
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
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 (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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Large accelerated filer ‘
Accelerated filer È
Non-accelerated filer ‘
Act). Yes ‘ No È
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, 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For purposes for the foregoing calculation only, all directors, executive officers, the Team, Inc. Salary Deferral Plan
$252,928,208
and Trust and known 5% or greater beneficial owners have been deemed affiliates.
The Registrant had 19,513,769 shares of common stock, par value $0.30, outstanding and 89,569 shares of treasury
stock as of July 28, 2011.
Portions of our definitive proxy statement for the 2011 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report. These will be filed no later than September 28, 2011.
Documents Incorporated by Reference
FORM 10-K INDEX
PART I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Narrative Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Segment and Divisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(REMOVED AND RESERVED)
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
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1
1
3
3
4
4
4
4
5
5
5
5
6
9
9
10
10
11
11
14
15
25
26
26
26
28
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29
29
29
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . .
29
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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60
Certain items required in Part III of this Form 10-K can be found in our 2011 Proxy Statement and are
incorporated herein by reference. A copy of the 2011 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.
ITEM 1. BUSINESS
General Information
PART I
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 complementary services including:
•
•
Inspection and Assessment,
Field Heat Treating,
• Leak Repair,
•
Fugitive Emissions Control,
• Hot Tapping,
•
Field Machining,
• Technical Bolting, and
•
Field Valve Repair.
We offer these services in over 100 locations throughout the world. 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, steel, pulp and paper industries, as well as
municipalities, shipbuilding, original equipment manufacturers (“OEMs”), distributors, and some of the world’s
largest engineering and construction firms. Our services are also provided across a broad geographic reach.
Narrative Description of Business
Inspection and Assessment 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, 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.
1
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.
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
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 plant shut downs. Our leak repair services
involve inspection of the leak by our field crew who records pertinent information about the faulty part of the
system and transmits 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.
Fugitive 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 the U.S. Environmental Protection Agency (“EPA”) and local regulatory
requirements. We also provide enhanced custom-designed reports to customer specifications.
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.
Field Machining Services and Technical Bolting Services. 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 plant shut downs or maintenance activities. These services
involve the use of hydraulic or pneumatic equipment with industry standard bolt tightening techniques to achieve
2
reliable and leak-free connections following plant maintenance 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.
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 TCM division provides the services of inspection and assessments and field heat
treating. Our TMS division provides the services of leak repair, fugitive emissions control, hot tapping, field
machining, technical bolting and field valve repair. Each division has goodwill relating to past acquisitions and
we assess goodwill for impairment at the lower TCM and TMS 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 TCM and TMS 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. Both divisions share the same chief operating decision maker and 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
On November 3, 2010, we purchased Quest Integrity Group, LLC (“Quest Integrity”), a privately held
advanced inspection services and engineering assessment company. We effectively purchased 95% of Quest
Integrity for a total consideration paid to Quest Integrity shareholders of $41.7 million, consisting of a cash
payment of $39.1 million and the issuance of our restricted common stock with a fair value of $2.6 million
(approximately 186,000 shares). Additionally, we also assumed debt, net of cash on hand, with a value of $2.3
million. We repaid the debt upon consummation of the purchase. In connection with this transaction, we
borrowed $41.4 million under our bank facility which was used to fund the cash portion of the purchase price.
We expect to purchase the remaining 5% in fiscal year 2015 for a purchase consideration based upon the future
financial performance of Quest Integrity as defined in the purchase agreement. Future consideration would be
payable in unregistered shares of our common stock for an aggregate value of no less than $2.4 million, provided
the aggregate value of the consideration does not exceed 20% of our outstanding common stock. Our valuation of
the remaining 5% equity of Quest Integrity at the date of acquisition was $4.9 million, which is reflected in the
shareholders’ equity section of the Consolidated Balance Sheet as “Non-controlling interest”. Please see Note 2
to our consolidated audited financial statements.
Headquartered near Seattle, Washington, Quest Integrity has leading technical capabilities related to the
measurement and assessment of facility and pipeline mechanical integrity. Quest Integrity has developed several
proprietary tools for advanced tube and pipeline inspection and measurement. Supporting and augmenting these
proprietary inspection tools, Quest Integrity has an advanced technical team that provides specialized engineering
assessments of facility conditions and serviceability. Quest Integrity maintains operations in Seattle, Boulder, and
New Zealand, and has service locations in Houston, Calgary, Australia, The Netherlands, and the Middle East.
The results of Quest Integrity will be reflected in our TCM division.
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 allows 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, 2011, we had approximately 3,500 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.
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. Failure to comply with these laws and regulations may involve civil and
criminal liability. 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 that
compliance with such laws and regulations will require us to make material expenditures.
From time to time, in the operation of our environmental consulting and engineering services, the assets of
which were sold in 1996, we handled small quantities of certain hazardous wastes or other substances generated
by our customers. Under the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (the “Superfund Act”), the EPA is authorized to take administrative and judicial action to either cause
parties who are responsible under the Superfund Act for cleaning up any unauthorized release of hazardous
substances to do so, or to clean up such hazardous substances and to seek reimbursement of the costs thereof
from the responsible parties, who are jointly and severally liable for such costs under the Superfund Act. The
EPA may also bring suit for treble damages from responsible parties who unreasonably refuse to voluntarily
participate in such a clean up or funding thereof. Responsible parties include anyone who owns or operates the
4
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.
Internal Investigation
During an internal management review of our TMS branch operations in Trinidad in the spring of 2009,
employees informed us of allegations of improper payments made by local employees of our wholly-owned
Trinidad subsidiary to employees of certain customers, including foreign government owned enterprises. In June
2009, the Audit Committee of our Board of Directors (the “Board”) commenced an internal investigation of our
Trinidad operations, focusing on the legality, under the U.S. Foreign Corrupt Practices Act (“FCPA”) and other
laws. In May 2010, we voluntarily disclosed information relating to the initial allegations and the findings of the
independent investigation to the U.S. Department of Justice (“DOJ”) and to the Securities and Exchange
Commission (the “SEC”).
In May 2010, we met with representatives of the SEC and the DOJ. In a letter to us dated July 12, 2011, the
staff of the SEC informed us that it had completed its investigation and did not intend to recommend any
enforcement action by the Commission or impose any fines or penalties against the Company. We have not
received formal notification from the DOJ, however in July 2011, the staff of the DOJ informed us that it was
likely that the staff would not recommend taking any further action or imposing any fines or penalties against the
Company.
Since the commencement of the investigation in 2009, we have expended an aggregate of approximately
$3.2 million on legal and other professional services related to this investigation. While our and the government’s
investigations have concluded, we continue to remain committed to and focused on conducting our operations in
compliance with the FCPA.
Intellectual Property
While we are the holder of various patents, trademarks, trade secrets and licenses, we have not historically
considered any single intellectual property to be material to our consolidated business operations. On
November 3, 2011 we purchased Quest Integrity. As a result of independent valuation, a significant portion of
the purchase price was determined to be attributable to amortizable intangible assets. Please see Note 2 to the
audited consolidated financial statements.
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, Acuren Group, Inc., Furmanite Corporation, Guardian
Compliance, Mistras Group, Inc. and T.D. Williamson, Inc.
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.
5
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
ethical conduct, our governance principles, our social responsibility policy 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
Past financial performance is not necessarily a reliable indicator of future performance, and investors in our
common stock should not use historical performance to anticipate results or future period trends. Investing in our
common stock involves a high degree of risk. 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 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. 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 cannot 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.
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
6
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.
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, 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. 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. Environmental 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. Due to the high cost of general liability coverage, we maintain insurance with a
self-insured retention of $5 million per occurrence. 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 that our insurance will be adequate in risk coverage or policy limits to cover all 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
7
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 effect on our business, results of
operations, financial position 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, difficulty in repatriating cash
proceeds, 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. and foreign anti-corruption regulations applicable to us such as the FCPA and the United
Kingdom Bribery Act. 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 representing us in countries where practices which violate such anti-corruption 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, or
complementary to, 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. 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 share price or future
financial results depending on the structure of such consideration. 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.
The price of our outstanding securities may be volatile.
It is possible that in some future quarter or
quarters our revenues, operating results or other measures of financial performance 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. 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 may affect our sales and operating results: 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.
8
Our business may be adversely impacted by work stoppages, staffing shortages and other labor
matters. At May 31, 2011, we had approximately 3,500 employees and contractors, approximately 500 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.
Climate change legislation or regulations restricting emissions of “greenhouse gases” could result in
reduced demand for our services and products. Recent scientific studies have suggested that emissions of
certain gases, commonly referred to as “greenhouse gases” may be contributing to warming of the earth’s
atmosphere. As a result, there have been a variety of regulatory developments, proposals or requirements and
legislative initiatives that have been introduced in the United States (and other parts of the world) that are
focused on restricting the emission of carbon dioxide, methane and other greenhouse gases. The adoption and
implementation of any regulations which impose limiting emissions of carbon dioxide and other greenhouse
gases from customers for whom we provide repair and maintenance services could affect demand for our
products and services.
Other risk factors. Other risk factors 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, financial position or cash flows 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 $6.8 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 2008 economic recession, we
postponed construction of the future facilities until such time as economic conditions and our growth necessitate
the addition of the new facilities. Starting in the third quarter of fiscal year 2009, we ceased to further capitalize
interest until the project resumes.
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. As of May 31,
2011, one hundred and six lawsuits have been filed against Con Ed, the City of New York and Team 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 are vigorously defending 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. We have not accrued any liability in excess of the
deductible limit for the lawsuits. 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 other lawsuits and are subject to various claims and proceedings encountered in
the normal conduct of business. In our opinion, any uninsured losses that might arise from these lawsuits and
proceedings will not have a materially adverse effect on our consolidated financial statements.
ITEM 4.
(REMOVED AND RESERVED)
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 Global Select Market under the ticker symbol “TISI”. The
table below reflects the high and low sales prices of our common stock on the NASDAQ Global Select Market
by quarter for the fiscal years ended May 31, 2011 and 2010, respectively.
Sales Price
High
Low
2011
Quarter Ended:
August 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 28, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16.26
$21.88
$28.71
$28.42
$12.64
$14.70
$20.36
$21.31
2010
Quarter Ended:
August 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 28, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18.25
$19.69
$20.75
$18.97
$13.75
$15.68
$15.58
$14.70
11
Performance Graph
The following performance graph compares the performance of our common stock to the NASDAQ
Composite Index, a historical Peer Group Index and the New Peer Group Index. The comparison assumes $100
was invested on May 31, 2006 in our common stock, the NASDAQ Composite Index, Historical Peer Group
Index and the New 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 Old Peer Group
Index used in the graph: Furmanite Corporation, Matrix Service Company and Versar, Inc. The following
companies are included in our new peer group index used in the graph: Furmanite Corporation, Matrix Service
Company, Englobal Corporation and Mistras Group, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Team, Inc., the NASDAQ Composite Index,
an Old Peer Group and a New Peer Group
$250
$200
$150
$100
$50
$0
5/06
5/07
5/08
5/09
5/10
5/11
Team, Inc.
NASDAQ Composite
Old Peer Group
New Peer Group
*$100 invested on 5/31/06 in stock or index, including reinvestment of dividends.
Fiscal year ending May 31.
Team, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Old Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
100.00
124.61
121.55
194.88
180.00
203.75
118.74
195.00
182.69
89.98
83.47
93.45
85.27
95.64
106.84
90.00
63.67
146.26
135.48
126.95
100.63
5/06
5/07
5/08
5/09
5/10
5/11
Notes: The above information was provided by Research Data Group, Inc.
Holders
There were 220 holders of record of our common stock as of July 28, 2011 excluding beneficial owners of
stock held in street name.
12
Dividends
No cash dividends were declared or paid during the fiscal years ended May 31, 2011, 2010 and 2009. 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.
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, 2011.
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, 2011
(amounts in thousands, except per share data):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to Team shareholders . . . . . . . .
Net income per share
2011
2010
2009
2008
2007
$508,020
$ 42,475
$ 26,585
$453,869
$ 24,777
$ 12,275
$497,559
$ 41,271
$ 22,911
$478,475
$ 45,873
$ 23,623
$318,348
$ 30,337
$ 15,515
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.38
1.32
$
$
0.65
0.63
$
$
1.22
1.16
$
$
1.30
1.20
$
$
0.88
0.82
Weighted-average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,206
20,083
18,923
19,510
18,793
19,725
18,226
19,676
17,540
18,866
Cash dividend declared, per common share . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.00
$ 14,584
$
4,993
$ 13,158
$
0.00
$ 12,509
5,009
$
7,711
$
$
0.00
$ 12,116
$
4,761
$ 16,383
$
0.00
$ 11,285
$
3,329
$ 25,612
0.00
$
7,777
$
$
1,425
$ 16,497
Balance Sheet data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and other long-term liabilities . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital
Non-controlling interest . . . . . . . . . . . . . . . . . . . .
$355,486
$ 86,299
$209,446
$130,533
4,983
$
$264,989
$ 56,795
$165,192
$107,343
0
$
$275,921
$ 82,628
$146,501
$109,845
0
$
$280,461
$102,955
$120,762
$100,470
0
$
$171,054
$ 49,260
$ 84,203
$ 70,229
0
$
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. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor
can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a
number of risks and uncertainties that could cause actual results to differ materially from those projected in the
statements, including, but not limited to the statements under “Risk Factors.” 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 complementary services including:
•
•
Inspection and Assessment,
Field Heat Treating,
• Leak Repair,
•
Fugitive Emissions Control,
• Hot Tapping,
15
•
Field Machining,
• Technical Bolting, and
•
Field Valve Repair.
We offer these services in over 100 locations throughout the world. 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, steel, pulp and paper industries, as well as
municipalities, shipbuilding, OEMs, distributors, and some of the world’s largest engineering and construction
firms. Our services are also provided across a broad geographic reach.
Year Ended May 31, 2011 Compared to Year Ended May 31, 2010
The following table sets forth the components of revenue and operating income from our operations for
fiscal year 2011 and 2010 (in thousands):
Year Ended
May 31, 2011
Year Ended
May 31, 2010
Increase
(Decrease)
$
%
Revenues:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$284,616
223,404
$259,227
194,642
$25,389
28,762
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
508,020
453,869
54,151
Gross margin:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,552
69,591
76,322
59,683
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157,143
136,005
SG&A expenses:
Field operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-routine acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . .
Severance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-routine investigation costs . . . . . . . . . . . . . . . . . . . . . . . .
95,806
19,260
632
—
—
Total SG&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . .
115,698
1,030
89,104
18,944
—
662
3,153
111,863
635
11,230
9,908
21,138
6,702
316
632
(662)
(3,153)
3,835
395
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,475
$ 24,777
$17,698
10%
15%
12%
15%
17%
16%
8%
2%
100%
(100)%
(100)%
3%
62%
71%
Revenues. Our revenues for the year ended May 31, 2011 were $508.0 million compared to $453.9
million for the year ended May 31, 2010, an increase of $54.2 million or 12%. Revenues for our TCM division
(inclusive of Quest Integrity) for the year ended May 31, 2011 were $284.6 million compared to $259.2 million
for the year ended May 31, 2010, an increase of $25.4 million or 10%. Team’s recent acquisition, Quest
Integrity, contributed $15.8 million during the year ended May 31, 2011 (Quest Integrity was acquired on
November 3, 2010). Organic revenue growth for the TCM division, excluding Quest Integrity, was $9.6 million
or 4%. Revenues for our TMS division for the year ended May 31, 2011 were $223.4 million compared to $194.6
million for the year ended May 31, 2010, an increase of $28.8 million or 15%. Overall, organic revenue growth
was geographically broad based as most regions benefitted from a return of previously deferred maintenance
activities.
Gross Margin. Our gross margin for the year ended May 31, 2011 was $157.1 million compared to $136.0
million for the year ended May 31, 2010, an increase of $21.1 million or 16%. Gross margin as a percentage of
revenue was 31% for the year ended May 31, 2011 compared to 30% for the year ended May 31, 2010. Gross
margin for our TCM division for the year ended May 31, 2011 was $87.6 million compared to $76.3 million for
16
the year ended May 31, 2010, an increase of $11.2 million or 15%. TCM division gross margin as a percentage
of revenue was 31% for the year ended May 31, 2011 and 29% for the year ended May 31, 2010. Gross margin
for our TMS division was $69.6 million for the year ended May 31, 2011 compared to $59.7 million for the year
ended May 31, 2010, an increase of $9.9 million or 17%. TMS division gross margin as a percentage of revenue
was 31% for the year ended May 31, 2011 and 31% for the year ended May 31, 2010. Pricing pressures that
negatively impact gross margin as a percentage of revenues were mitigated by demand for value-add technology
solutions in our inspection business (part of the TCM division), and volume related leverage in our TMS division
where most regions saw a return of previously deferred maintenance activities.
Selling, General and Administrative Expenses. Our SG&A expenses for the year ended May 31, 2011
were $115.7 million compared to $111.9 million for the year ended May 31, 2010, an increase of $3.8 million or
3%. SG&A expenses for the current year ended May 31, 2011 include $0.6 million of non-routine acquisition
costs related to our recent acquisition of Quest Integrity. SG&A expenses for the prior year ended May 31, 2010
included $0.7 million of severance charges related to staff reductions and $3.2 million of professional fees related
to investigation costs (see Note 16 to our consolidated financial statements). Excluding these non-routine
charges, SG&A expenses for the year ended May 31, 2011 were $115.1 million, an increase of $7.0 million or
6%. Substantially all of the increase is related to field operations and associated with support of increased
revenues. SG&A expenses as a percentage of revenue, adjusted to exclude the non-routine charges, was 23% for
the year ended May 31, 2011 compared to 24% for the year ended May 31, 2010.
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. Revenues of the joint venture not reflected in our consolidated revenues for the year ended
May 31, 2011 and 2010 were $9.9 million and $7.5 million, respectively. As a result of the higher revenue levels
in the joint venture, and leverage of fixed cost of the joint venture, our share of the earnings from the joint
venture were $1.0 million, an increase of $0.4 million or 62%.
Interest.
Interest expense was $2.2 million for the year ended May 31, 2011 compared to $2.8 million for
the year ended May 31, 2010. This decrease is the result of lower interest rates applied to outstanding
borrowings.
Foreign Currency (Gain) Loss. There were no significant currency transaction gains or losses for the
twelve months ended May 31, 2011. Foreign currency transaction losses were $1.6 million for the twelve months
ended May 31, 2010. Currency transaction losses were primarily due to fluctuations between the Venezuelan
Bolivar and the U.S. Dollar. Team operates a small service location in Punta Fijo, Venezuela, whose annual
revenues have historically been less than one percent of Team’s consolidated revenues for all periods presented.
Venezuela is accounted for as a hyperinflationary economy (see Note 17 to our consolidated financial
statements).
Taxes. The provision for income tax for fiscal year 2011 was $13.5 million on pre-tax income of $40.2
million, compared to the provision for income tax for fiscal year 2010 which was $8.2 million on pre-tax income
of $20.4 million. During the third quarter of fiscal year 2011, we identified and corrected accounting errors
relating to the effect of share-based compensation on tax provisions for fiscal years 2007-2010. During those
periods, reported earnings were understated because effective tax rates were overstated as a result of the
previously undetected errors in the tax provision calculation. No restatement of previously issued financial
statements was required because the effect on those statements was immaterial. The cumulative effect of the
errors in the tax provision calculation was a tax benefit consisting of $1.8 million associated with the prior years.
Excluding the effect of the $1.8 million portion of the cumulative adjustments related to prior years, our effective
tax rate for the fiscal year 2011 was 38% (see Note 7 to our audited consolidated financial statements).
17
Year Ended May 31, 2010 Compared to Year Ended May 31, 2009
The following table sets forth the components of revenue and operating income from our operations for
fiscal year 2010 and 2009 (in thousands):
Year Ended
May 31, 2010
Year Ended
May 31, 2009
Increase
(Decrease)
$
%
Revenues:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$259,227
194,642
$270,420
227,139
$(11,193)
(32,497)
(4)%
(14)%
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
453,869
497,559
(43,690)
(9)%
Gross margin:
TCM Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMS Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,322
59,683
81,654
75,405
(5,332)
(15,722)
(7)%
(21)%
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136,005
157,059
(21,054)
(13)%
SG&A expenses:
Field operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-routine investigation costs . . . . . . . . . . . . . . . . . . . . . . . .
Total SG&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . .
89,104
18,944
662
3,153
111,863
635
96,571
20,190
—
—
116,761
973
(7,467)
(1,246)
662
3,153
(4,898)
(338)
(8)%
(6)%
100%
100%
(4)%
(35)%
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 24,777
$ 41,271
$(16,494)
(40)%
Revenues. Our revenues for the year ended May 31, 2010 were $453.9 million compared to $497.6
million for the year ended May 31, 2009, a decrease of $43.7 million or 9%. Revenues for our TCM division for
the year ended May 31, 2010 were $259.2 million compared to $270.4 million for the year ended May 31, 2009,
a decrease of $11.2 million or 4%. Revenues for our TMS division for the year ended May 31, 2010 were $194.6
million compared to $227.1 million for the year ended May 31, 2009, a decrease of $32.5 million or 14%. Fiscal
year 2009 benefitted from the best first half financial results in Team history, as the effects of the recession did
not begin to affect Team until the third quarter of fiscal 2009. Specifically, revenues in the first half of fiscal year
2010 were $224.2 million, sequentially down $47.9 million or 18% from the record first half in the prior year.
The decline from the record-setting first half of fiscal year 2009 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. The decline was particularly significant in Canadian Oil Sands, which accounted for
one-half of the first half decline in revenues due to the cessation of new projects. While several industrial sectors
which we serve are more economically distressed than others, nearly all our customers have adopted more
conservative near-term spending postures. As a result, during the recession we have seen more frequent deferrals
and downsizing of turnarounds, a shift to reduced spending by many customers, and more discussions with our
customers about pricing adjustments. In spite of the difficult end market environment, we experienced overall
revenue growth of 4% in the fourth quarter of the year ended May 31, 2010.
Gross Margin. Our gross margin for the year ended May 31, 2010 was $136.0 million compared to $157.1
million for the year ended May 31, 2009, a decrease of $21.1 million or 13%. Gross margin as a percentage of
revenue was 30% for the year ended May 31, 2010 compared to 32% for the year ended May 31, 2009. Gross
margin for our TCM division for the year ended May 31, 2010 was $76.3 million compared to $81.7 million for
the year ended May 31, 2009, a decrease of $5.3 million or 7%. TCM division gross margin as a percentage of
revenue was 29% for the year ended May 31, 2010 and 30% for the year ended May 31, 2009. Gross margin for
our TMS division was $59.7 million for the year ended May 31, 2010 compared to $75.4 million for the year
ended May 31, 2009, a decrease of $15.7 million or 21%. TMS division gross margin as a percentage of revenue
18
was 31% for the year ended May 31, 2010 and 33% for the year ended May 31, 2009. The decline in gross
margin percentage is attributable to pricing pressures related to recently quoted work and less absorption of
indirect costs resulting from lower activity levels.
Selling, General and Administrative Expenses. Our SG&A expenses for the year ended May 31, 2010
were $111.9 million compared to $116.8 million for the year ended May 31, 2009, a decrease of $4.9 million or
4%. SG&A expenses for the year ended May 31, 2010 include $0.7 million of severance charges related to staff
reductions and $3.2 million of professional fees related to investigation costs (see Note 16 to our consolidated
financial statements). Excluding these non-routine severance charges and investigation costs, SG&A expenses
for the year ended May 31, 2010 were $108.0 million, a decrease of $8.7 million or 7%. SG&A expenses as a
percentage of revenue, adjusted to exclude non-routine severance charges and investigation costs, were 24% for
the year ended May 31, 2010 roughly comparable with 23% for the year ended May 31, 2009.
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. Revenues of the joint venture
not reflected in our consolidated revenues for the year ended May 31, 2010 and 2009 were $7.5 million and
$12.6 million, respectively.
Interest.
Interest expense was $2.8 million for the year ended May 31, 2010 compared to $4.9 million for
the year ended May 31, 2009. This decrease is the result of lower levels of outstanding borrowings during the
year and lower interest rates applied to those borrowings.
Foreign Currency (Gain) Loss. Foreign currency transaction losses were $1.6 million for the twelve
months ended May 31, 2010. Currency transaction losses were primarily due to fluctuations between the
Venezuelan Bolivar and the U.S. Dollar. Team operates a small service location in Punta Fijo, Venezuela, whose
annual revenues have historically been less than one percent of Team’s consolidated revenues for all periods
presented. Venezuela is accounted for as a hyperinflationary economy (see Note 17 to our consolidated financial
statements).
Taxes. The provision for income taxes was $8.2 million on pre-tax income of $20.4 million for the year
ended May 31, 2010. The provision for income taxes was $13.5 million on pre-tax income of $36.4 million for
the year ended May 31, 2009. The effective tax rate for fiscal year 2010 was 40% compared to 37% for fiscal
year 2009. The higher effective tax rate for fiscal year 2010 is primarily due to the recognition of employment
tax credits in the prior year, lower overall pre-tax 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, our bank
facility and cash flows attributable to our operations, which we believe are sufficient to fund our business needs.
At May 31, 2011, we had $14.1 million of cash on hand and approximately $65 million of available borrowing
capacity through our banking syndicate.
Vendor Financing. Vendor financing primarily consists of an 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, $0.9 million 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, 2011, the
outstanding principal balance of the Software Licensing Note was $0.2 million.
19
Leasing Arrangements. We enter into operating leases to rent facilities and obtain vehicles and equipment
for our field operations. Our contractual obligations under non-cancellable operating leases, primarily consisting
of facility and auto leases, were approximately $27.7 million at May 31, 2011 and are as follows (in thousands):
Twelve Months Ended May 31,
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating
Leases
$10,410
5,818
4,274
2,712
2,147
2,323
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,684
Total rent expense resulting from operating leases for the twelve months ended May 31, 2011, 2010 and
2009 was $18.8 million, $19.4 million and $19.9 million, respectively.
Bank Facility. Our debt with our banking syndicate (our “Credit Facility”) provides us with a $145
million revolving line of credit and allows us to borrow in Euros or U.S. Dollars. Our Credit Facility bears
interest based on a variable Eurodollar rate option (LIBOR plus 1.25% at May 31, 2011) 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 0.25% that are applied to unused borrowing capacity. It also contains financial covenants
and restrictions on the creation of liens on assets, the sale of subsidiaries and the incurrence of certain liabilities.
At May 31, 2011, we were in compliance with all financial covenants of the Credit Facility. Subsequent to year
end, we renewed our Credit Facility (the “New Credit Facility”). The New Credit Facility has borrowing capacity
of up to $150 million in multiple currencies, similar or less restrictive covenants than our Credit Facility and
matures in July of 2016. The New Credit Facility bears interest at LIBOR plus 1.25%.
Future maturities of long-term debt, reflecting the maturities under the New Credit Facility, are as follows
(in thousands):
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
212
—
—
—
75,868
—
$76,080
Our Canadian subsidiary also has a line of credit with a bank in our banking syndicate (the “Canadian Line of
Credit”). The Canadian Line of Credit allows our subsidiary to borrow up to $7.5 million Canadian (approximately
$7.7 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 the prime interest rate (3.00% at
May 31, 2011) and mature in May 2012. In conjunction with the renewal of our Credit Facility subsequent to year
end, the Canadian Line of Credit was repaid and eliminated under terms of the New 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 began with a notional value of $30.0 million effective
20
June 1, 2007 and decreased to $16.3 million by March 1, 2010. On June 1, 2010, the interest rate swap expired.
Changes in the cash flows of the interest rate swap were 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 was designated as a cash flow hedge, with the changes in fair value, to
the extent the swap agreement was effective, recognized in other comprehensive income until the hedged interest
expense was 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 offset translation gains or losses attributable to our investment in our European
operations. At May 31, 2011, the €12.3 million borrowing had a U.S. dollar value of $17.7 million.
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,
2011 and May 31, 2010, we were contingently liable for outstanding stand-by letters of credit totaling $8.8 million
and $8.8 million, respectively. 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.
A summary of long-term debt and other contractual obligations as of May 31, 2011 and May 31, 2010 is as
follows (in thousands):
May 31,
2011
2010
Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canadian Line of Credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vendor financing and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,687
5,161
232
$47,636
—
525
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,080
(212)
48,161
(313)
Long-term debt, excluding current maturities . . . . . . . . . . . . . . . . . . . . . . . .
$75,868
$47,848
Outstanding letters of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,793
$ 8,793
Leasing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,684
$25,407
Stock Repurchase Plan. On July 29, 2010, our Board authorized a stock repurchase program, targeting
repurchases of up to $15 million of our outstanding common stock from time to time in open market transactions
at prevailing market prices. Through May 31, 2011, we repurchased a total of 89,569 shares under this program
for an aggregate cost of $1.3 million, or an average price of $15.01 per share.
Restrictions On Cash.
Included in our cash and cash equivalents at May 31, 2011, is $6.8 million of cash
in Europe and $1.1 million of cash in Venezuela. 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
indefinitely reinvested and access to cash in Europe to be limited. Similarly, the uncertain economic and political
environment in Venezuela makes it very difficult to repatriate cash flows of our Venezuelan subsidiary.
Cash Flows Attributable to Our Operating Activities. For year ended May 31, 2011, cash provided by
operating activities was $28.5 million. Positive operating cash flow was primarily attributable to net income of
$26.6 million, depreciation and amortization of $14.6 million, and non-cash compensation cost of $5.0 million
offset by a $16.2 million increase in working capital.
21
Cash Flows Attributable to Our Investing Activities. For the year ended May 31, 2011, cash used in
investing activities was $53.9 million, consisting primarily of $13.2 million of capital expenditures and $41.4
million related to the acquisition of Quest Integrity. Capital expenditures can vary depending upon specific
customer needs that may arise unexpectedly.
Cash Flows Attributable to Our Financing Activities. For the year ended May 31, 2011, cash provided by
financing activities was $26.1 million consisting primarily of $25.4 million of cash provided by our Credit
Facility offset by a $1.3 million treasury stock repurchase.
Effect of Exchange Rate Changes On Cash. For the year ended May 31, 2011, the effect of exchange rate
changes on cash was a positive impact of $0.8 million. We have significant operations in Europe and Canada, as
well as operations in Venezuela which is considered a hyperinflationary economy. The positive impact in the
current year is primarily attributable to changes in U.S. Dollar exchange rates with Canada and Europe.
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,
• Goodwill, Intangible Assets, and Non-controlling Interest,
•
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 May 31, 2011 and May 31, 2010, the amount of earned but unbilled revenue included in accounts receivable
was $12.4 million and $8.6 million, respectively.
Goodwill, Intangible Assets and Non-controlling Interest. 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 FASB Accounting Standards Codification
(“ASC”) 350, Intangibles—Goodwill and Other (“ASC 350”). 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 ASC 350.
22
We operate in only one segment—industrial services (see Note 14 to our consolidated financial statements).
Within the industrial services segment, we are organized as two divisions. Our TCM division provides the
services of inspection and assessment and field heat treating. Our TMS division provides the services of leak
repair, fugitive emissions hot tapping, field machining, technical bolting and field valve repair. Each division has
goodwill relating to past acquisitions and we assess goodwill for impairment at the lower TCM and TMS
divisional level.
Our annual goodwill impairment test is conducted as of May 31 of each year, which is our fiscal year end.
Conducting the impairment test as of May 31 of each fiscal year aligns with our annual budget process which is
typically completed during the fourth quarter of each year. In addition, performing our annual goodwill impairment
test as of this date allows for a thorough consideration of the valuations of our business units subsequent to the
completion of our annual budget process but prior to our financial year end reporting date. The annual impairment
test for goodwill is a two-step process that involves comparing the estimated fair value of each business unit to the
unit’s carrying value, including goodwill. If the fair value of a business unit exceeds its carrying amount, the
goodwill of the business unit is not considered impaired; therefore, the second step of the impairment test is
unnecessary. If the carrying amount of a business unit exceeds its fair value, we would then perform a second step
to the goodwill impairment test to measure the amount of goodwill impairment loss to be recorded. Consistent with
prior years, the fair values of reporting units in fiscal years 2010 and 2009 were determined using a method based
on discounted cash flow models with estimated cash flows based on internal forecasts of revenues and expenses
over a four year period plus a terminal value period (the income approach). The income approach estimates fair
value by discounting each reporting unit’s estimated future cash flows using a discount rate that approximates both
our weighted-average cost of capital and reflects current market conditions.
The fair value derived from the income approach in our most recent test for impairment, in the aggregate,
approximated our market capitalization. At May 31, 2011, our market capitalization exceeded the carrying value
of our consolidated net assets by approximately $250 million, or 117%, and the fair value of both our individual
reporting units significantly exceeded their respective carrying amounts as of that date. Projected growth rates
and other market inputs to our impairment test models, such as the discount rate, are sensitive to the risk of future
variances due to market conditions as well as business unit execution risks. Consequently, if future results fall
below our forward-looking projections for an extended period of time, the results of future impairment tests
could indicate an impairment. Although we believe the cash flow projections in our income approach make
reasonable assumptions about our business, a significant increase in competition or reduction in our competitive
capabilities could have a significant adverse impact on our ability to retain market share and thus on the projected
margins included in the income approach used to value our reporting units. We periodically review our projected
growth rates and other market inputs used in our impairment test models as well as changes in our business and
other factors that could represent indicators of impairment. Subsequent to our May 31, 2011 annual impairment
test, no such indicators of impairment were identified.
There was $89.5 million and $55.7 million of goodwill at May 31, 2011 and May 31, 2010, respectively.
For the year ended May 31, 2011, the primary change in goodwill is attributable to the acquisition of Quest
Integrity which added $29.9 million to goodwill, and to a lesser extent, foreign currency exchange rates and their
effect on goodwill in foreign subsidiaries of both our divisions. A summary of goodwill is as follows (in
thousands):
Balance at beginning of year . . . . . . . . .
Acquisition and purchase price
adjustments . . . . . . . . . . . . . . . . . . . . .
Foreign currency adjustments . . . . . . . .
Twelve Months Ended
May 31, 2011
Twelve Months Ended
May 31, 2010
TCM Division TMS Division
Total
TCM Division TMS Division
Total
$44,939
$10,800
$55,739
$44,025
$12,428
$56,453
29,890
2,043
—
1,848
29,890
3,891
—
914
—
(1,628)
—
(714)
Balance at end of year . . . . . . . . . . . . . .
$76,872
$12,648
$89,520
$44,939
$10,800
$55,739
23
Income Taxes. We follow the guidance of ASC 740, Income Taxes (“ASC 740”) 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 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, share-based
compensation 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, 2011, 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 except for certain net
operating loss carry forwards acquired as part of the Quest Integrity acquisition. 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. As of May 31, 2011, our deferred tax assets were $10.4 million, less a
valuation allowance of $0.5 million. As of May 31, 2011, our deferred tax liabilities was $16.4 million and our
unrecognized tax benefits totalled $0.4 million.
Workers’ Compensation, Auto, Medical and General Liability Accruals.
In accordance with ASC 450,
Contingencies (“ASC 450”) we record a loss contingency when it is probable that a liability has been incurred
and the amount of the loss can be reasonably estimated. We review our loss contingencies on an ongoing basis to
ensure that we have appropriate reserves recorded on our balance sheet. These reserves are based on historical
experience with claims incurred but not received, estimates and judgments made by management, applicable
insurance coverage for litigation matters, and are adjusted as circumstances warrant. For workers’ compensation
and automobile liability claims, our self-insured retention is currently $500,000 per occurrence. For general
liability claims we have an effective self-insured retention of $5 million per occurrence. Our historical claims
occurring before June 1, 2009 had a lower self-insured retention, typically $250,000. 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. We establish an allowance to account for those accounts receivable that
will eventually be deemed uncollectible. 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 $4.2 million and $4.9 million at May 31, 2011 and 2010, respectively.
24
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.
Newly Adopted Accounting Principles
ASC 810.
In June 2009, the FASB issued an update to ASC 810, Consolidations (“ASC 810”) which
amends the guidance applicable to variable interest entities. The amendments will significantly affect the overall
consolidation analysis under ASC 810. The guidance is effective as of the beginning of the first fiscal year that
begins after November 15, 2009. The adoption of this pronouncement did not have any impact on our results of
operations, financial position or cash flows.
ASC 105.
In June 2009, the FASB issued ASC 105, Generally Accepted Accounting Principles
(“ASC 105”). ASC 105 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. ASC 105 supersedes all previously existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will
become non-authoritative. ASC 105 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The adoption of this pronouncement did not have any impact 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, 2011, the exchange rate with the Euro increased from $1.23 per Euro to $1.44 per Euro, an increase of
17%. During the same period, the exchange rate with the Canadian Dollar increased from $0.96 per Canadian
Dollar to $1.03 per Canadian Dollar, an increase of 7%. 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. Foreign currency translation
gains in other comprehensive income were $8.3 million for the year ended May 31, 2011.
We carry Euro-based debt to serve as a 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.
At May 31, 2011, our Venezuelan subsidiary had $1.2 million of net assets denominated in Venezuelan
Bolivars and translated into U.S. Dollars. Because of the uncertain political environment in Venezuela, starting in
the third quarter of fiscal year 2010, we began to account for Venezuelan operations pursuant to accounting
guidance for hyperinflationary economies. We initially used the parallel exchange rate for Bolivar denominated
bonds (6.70 Bolivars per U.S. Dollar) to translate our Venezuelan operations into U.S. Dollars. In May 2010, the
Venezuelan government closed the parallel exchange rate system, precluding its continued use and we
25
subsequently returned to using the Venezuelan central bank’s official published rate (5.30 Bolivars per
U.S. Dollar) to translate Venezuelan assets into dollars as no other legal rate was readily available. A 10%
change in the exchange rate used to value the net assets of our Venezuelan subsidiary would have an effect on
pretax earnings of $0.1 million.
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 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. On
June 1, 2010 the interest rate swap expired. The interest rate swap agreement was designated as a cash flow
hedge, with the changes in fair value, to the extent the swap agreement was effective, recognized in other
comprehensive income until the hedged interest expense was recognized in earnings.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and financial statement schedules, found at the end of this annual report on
Form 10-K, 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
officer, 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
26
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
Securities Exchange Act). This evaluation included consideration of the various processes carried out under the
direction of our disclosure committee in an effort to ensure that information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods specified by the SEC. This
evaluation also considered the work completed relating to our compliance with Section 404 of the Sarbanes-
Oxley Act of 2002, which is further described below.
Based on this evaluation, our CEO and CFO concluded that, as of May 31, 2011, 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 Securities Exchange Act) that have
materially affected or are reasonably likely to materially affect our internal control over financial reporting
during the fourth quarter of our fiscal year ending May 31, 2011.
27
ITEM 9B. OTHER INFORMATION
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, 2011.
/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
28
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, 2011, 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
29
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, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Years Ended May 31, 2011, 2010 and 2009 . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended May 31, 2011, 2010 and 2009 . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2011, 2010 and 2009 . . . . . .
Consolidated Statements of Cash Flows for the Years Ended May 31, 2011, 2010 and 2009 . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
33
34
35
36
37
38
30
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Team, Inc. and Subsidiaries:
We have audited Team, Inc. and Subsidiaries’ (the Company) internal control over financial reporting as of
May 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, 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, 2011, based on criteria established in Internal Control—Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Team, Inc. and Subsidiaries as of May 31, 2011 and 2010, and
the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for
each of the years in the three-year period ended May 31, 2011, and our report dated August 1, 2011 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Houston, Texas
August 1, 2011
31
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 (the
Company) as of May 31, 2011 and 2010, and the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2011.
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, 2011 and 2010, and the results of their
operations and their cash flows for each of the years in the three-year period ended May 31, 2011, 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, 2011, 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 1, 2011 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Houston, Texas
August 1, 2011
32
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 $4,222 and $4,934 . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $3,218 and $2,010 . . . . . . . . . . . . . .
Goodwill (see Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31
2011
2010
$ 14,078
143,120
21,335
3,795
7,946
190,274
58,567
14,819
89,520
2,189
117
$ 12,610
109,368
19,733
2,646
5,988
150,345
55,229
1,498
55,739
2,081
97
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$355,486
$264,989
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
212
24,371
32,511
2,641
6
59,741
10,431
75,868
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146,040
$
313
19,010
21,781
1,877
21
43,002
8,947
47,848
99,797
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock, 500,000 shares authorized, none issued . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.30 per share, 30,000,000 shares authorized; 19,571,138
and 18,988,250 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss)
Treasury stock at cost, 89,569 and 0 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
5,871
4,983
77,867
119,138
2,931
(1,344)
5,696
—
69,380
92,553
(2,437)
—
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
209,446
165,192
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$355,486
$264,989
See notes to consolidated financial statements.
33
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Twelve Months Ended May 31,
2009
2010
2011
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$508,020
350,877
$453,869
317,864
$497,559
340,500
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157,143
115,698
1,030
136,005
111,863
635
157,059
116,761
973
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes (see Note 7)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Less: Income attributable to non-controlling interest
42,475
2,156
147
40,172
13,548
26,624
39
24,777
2,764
1,580
20,433
8,158
12,275
—
41,271
4,923
(51)
36,399
13,488
22,911
—
Net income available to Team shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 26,585
$ 12,275
$ 22,911
Net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.38
1.32
$
$
0.65
0.63
$
$
1.22
1.16
See notes to consolidated financial statements.
34
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Twelve Months Ended May 31,
2011
2010
2009
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax provision attributable to other comprehensive income (loss) . . . . . . . . . . . . . .
$26,624
8,349
—
(2,587)
(367)
$12,275
(967)
816
2,276
(2,009)
$22,911
(9,541)
(151)
1,767
2,801
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Other comprehensive income attributable to non-controlling interest . . . . . .
32,019
66
12,391
—
17,787
—
Other comprehensive income available to Team shareholders . . . . . . . . . . . . . . . .
$31,953
$12,391
$17,787
See notes to consolidated financial statements.
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36
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Twelve Months Ended May 31,
2009
2010
2011
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
$ 26,585
$ 12,275
$ 22,911
activities:
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to non-controlling interest
. . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on asset disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash compensation cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease:
(1,030)
39
14,584
437
303
147
(1,405)
4,993
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . .
(25,048)
(1,231)
(1,320)
Increase (decrease):
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,578
8,070
(222)
(635)
—
12,509
85
311
1,580
(782)
5,009
4,382
(311)
1,616
4,324
35
3,399
(973)
—
12,116
—
189
(51)
2,350
4,761
7,396
(3,461)
(300)
(6,545)
(1,158)
1,727
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .
28,480
43,797
38,962
Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in other assets, net
(13,158)
(41,376)
750
(158)
(7,711)
—
600
(843)
(16,383)
—
—
1,636
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
(53,942)
(7,954)
(14,747)
Cash Flows From Financing Activities:
Borrowings (payments) under revolving credit agreement, net . . . . . . . . . .
Repayments related to term and auto notes . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect from share-based payment arrangements . . . . . . . . . . . . . . . . . .
Insurance note payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock from share-based payment arrangements . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . .
Effect Of Exchange Rate Changes On Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Increase (Decrease) In Cash And Cash Equivalents . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Cash And Cash Equivalents At Beginning Of Year
25,437
(343)
551
—
1,797
(1,344)
26,098
832
1,468
12,610
(26,250)
(4,813)
575
(3,949)
716
—
(33,721)
(2,144)
(22)
12,632
(13,428)
(6,000)
1,570
—
1,621
—
(16,237)
(1,946)
6,032
6,600
Cash And Cash Equivalents At End Of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,078
$ 12,610
$ 12,632
Supplemental Disclosure Of Cash Flow Information:
Cash paid during the year for:
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,100
$ 2,678 $ 5,336
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,034
$ 4,666
$ 7,909
See notes to consolidated financial statements.
37
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Consolidation. The consolidated financial statements include the accounts of Team, Inc. and our majority-
owned subsidiaries where we have control over operating and financial policies. Investments in affiliates in
which we have the ability to exert significant influence over operating and financial policies, but where we do not
control the operating and financial policies, are accounted for using the equity method. All material
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates. Our accounting policies conform to GAAP. Our most significant accounting policies are
described below. The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and judgments that affect our reported financial position and results of
operations. We review significant estimates and judgments affecting our consolidated financial statements on a
recurring basis and record the effect of any necessary adjustments prior to their publication. Estimates and
judgments are based on information available at the time such estimates and judgments are made. Adjustments
made with respect to the use of these estimates and judgments often relate to information not previously
available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial
statements. Estimates and judgments are used in, among other things, (1) aspects of revenue recognition,
(2) valuation of goodwill, intangible assets and non-controlling interest in subsidiaries that are not wholly-owned,
(3) assessing future tax exposure and 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 banking 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 banking 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.
Inventory.
Inventory is stated at the lower of cost (first-in, first-out method) or market. Inventory includes
material, labor and certain fixed overhead costs.
Property, Plant and Equipment. Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Leasehold improvements are amortized over the shorter of their respective useful
life or the lease term. 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
2-12 years
2-10 years
2-5 years
2-5 years
38
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, 2011 and May 31, 2010, the
amount of earned but unbilled revenue included in accounts receivable was $12.4 million and $8.6 million,
respectively.
Goodwill, Intangible Assets, and Non-controlling Interest. 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 ASC 350. 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 ASC 350.
We operate in only one segment—industrial services (see Note 14). Within the industrial services segment,
we are organized as two divisions. Our TCM division provides the services of inspection and assessment and
field heat treating. Our TMS division provides the services of leak repair, fugitive emissions control, hot tapping,
field machining, technical bolting and field valve repair. Each division has goodwill relating to past acquisitions
and we assess goodwill for impairment at the lower TCM and TMS divisional level.
Our annual goodwill impairment test is conducted as of May 31 of each year, which is our fiscal year end.
Conducting the impairment test as of May 31 of each fiscal year aligns with our annual budget process which is
typically completed during the fourth quarter of each year. In addition, performing our annual goodwill
impairment test as of this date allows for a thorough consideration of the valuations of our business units
subsequent to the completion of our annual budget process but prior to our financial year end reporting date. The
annual impairment test for goodwill is a two-step process that involves comparing the estimated fair value of
each business unit to the unit’s carrying value, including goodwill. If the fair value of a business unit exceeds its
carrying amount, the goodwill of the business unit is not considered impaired; therefore, the second step of the
impairment test is unnecessary. If the carrying amount of a business unit exceeds its fair value, we would then
perform a second step to the goodwill impairment test to measure the amount of goodwill impairment loss to be
recorded. Consistent with prior years, the fair values of reporting units in fiscal years 2010 and 2009 were
determined using a method based on discounted cash flow models with estimated cash flows based on internal
forecasts of revenues and expenses over a four year period plus a terminal value period (the income approach).
The income approach estimates fair value by discounting each reporting unit’s estimated future cash flows using
a discount rate that approximates both our weighted-average cost of capital and reflects current market
conditions.
The fair value derived from the income approach in our most recent test for impairment, in the aggregate,
approximated our market capitalization. At May 31, 2011, our market capitalization exceeded the carrying value
of our consolidated net assets by approximately $250 million, or 117%, and the fair value of both our individual
reporting units significantly exceeded their respective carrying amounts as of that date. Projected growth rates
and other market inputs to our impairment test models, such as the discount rate, are sensitive to the risk of future
variances due to market conditions as well as business unit execution risks. Consequently, if future results fall
below our forward-looking projections for an extended period of time, the results of future impairment tests
could indicate an impairment. Although we believe the cash flow projections in our income approach make
reasonable assumptions about our business, a significant increase in competition or reduction in our competitive
capabilities could have a significant adverse impact on our ability to retain market share and thus on the projected
margins included in the income approach used to value our reporting units. We periodically review our projected
growth rates and other market inputs used in our impairment test models as well as changes in our business and
other factors that could represent indicators of impairment. Subsequent to our May 31, 2011 annual impairment
test, no such indicators of impairment were identified.
39
There was $89.5 million and $55.7 million of goodwill at May 31, 2011 and May 31, 2010, respectively.
For the year ended May 31, 2011, the primary change in goodwill is attributable to the acquisition of Quest
Integrity, which added $29.9 million to goodwill, and to a lesser extent, foreign currency exchange rates and their
effect on goodwill in foreign subsidiaries of both our divisions. A summary of goodwill is as follows (in
thousands):
Balance at beginning of year . . . .
Acquisition and purchase price
adjustments . . . . . . . . . . . . . . . .
Foreign currency adjustments . . . .
Twelve Months Ended
May 31, 2011
Twelve Months Ended
May 31, 2010
TCM Division TMS Division
Total
TCM Division TMS Division
Total
$44,939
$10,800
$55,739
$44,025
$12,428
$56,453
29,890
2,043
—
1,848
29,890
3,891
—
914
—
(1,628)
—
(714)
Balance at end of year
. . . . . . . . .
$76,872
$12,648
$89,520
$44,939
$10,800
$55,739
Income Taxes. We follow the guidance of ASC 740, 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 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, share-based compensation and tax planning strategies.
Workers’ Compensation, Auto, Medical and General Liability Accruals.
In accordance with ASC 450,
we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can
be reasonably estimated. We review our loss contingencies on an ongoing basis to ensure that we have
appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims
incurred but not received, estimates and judgments made by management, applicable insurance coverage for
litigation matters, and are adjusted as circumstances warrant. For workers’ compensation and automobile liability
our self-insured retention is currently $500,000 per occurrence. For general liability claims we have an effective
self-insured retention of $5 million per occurrence. Our historical claims occurring before June 1, 2009 had a
lower self-insured retention, typically $250,000. 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. We establish an allowance to account for those accounts receivable that
will eventually be deemed uncollectible. The allowance for doubtful accounts is based on a combination of our
historical experience and management’s review of long outstanding accounts receivable.
40
Concentration of Credit Risk. No single customer accounts for more than 10% of consolidated revenues.
Earnings Per Share. Basic earnings per share is computed by dividing net income available to Team
shareholders by the weighted-average number of shares of common stock outstanding during the year. Diluted
earnings per share is computed by dividing net income available to Team shareholders, less income or loss for
the period attributable to the non-controlling interest, by the sum of, (1) the weighted-average number of shares
of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of share-based
compensation using the treasury stock method and (3) the dilutive effect of the assumed conversion of our
non-controlling interest to our common stock (see Note 2).
Amounts used in basic and diluted earnings per share, for all periods presented, are as follows (in
thousands):
Weighted-average number of basic shares outstanding . . . . . . . . . . .
Stock options, stock units and performance awards . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Assumed conversion of non-controlling interest
Total shares and dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve Months Ended
May 31,
2011
2010
2009
19,206
728
149
20,083
18,923
587
—
19,510
18,793
932
—
19,725
There were 743,000, 796,000 and 695,000 options to purchase shares of common stock outstanding during
the twelve month periods ended May 31, 2011, 2010 and 2009 excluded from the computation of diluted
earnings per share because the options’ exercise prices were greater than the average market price of common
shares during the periods.
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. Foreign currency transaction gains and
losses are included in our statement of income. Effective December 1, 2009, we began to account for Venezuela
as a highly-inflationary economy and the effect of all subsequent currency fluctuations between the Bolivar and
the U.S. Dollar are recorded in our statement of income (see Note 17).
Newly Adopted Accounting Principles
ASC 810.
In June 2009, the FASB issued an update to ASC 810, which amends the guidance applicable to
variable interest entities. The amendments will significantly affect the overall consolidation analysis under ASC
810. The guidance is effective as of the beginning of the first fiscal year that begins after November 15, 2009.
The adoption of this pronouncement did not have any impact on our results of operations, financial position or
cash flows.
41
ASC 105.
In June 2009, the FASB issued ASC 105. ASC 105 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. ASC 105 supersedes all previously
existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature
not included in the Codification will become non-authoritative. ASC 105 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did
not have any impact on our results of operations, financial position or cash flows.
2. ACQUISITIONS
On November 3, 2010, we purchased Quest Integrity, a privately held advanced inspection services and
engineering assessment company. We effectively purchased 95% of Quest Integrity for a total consideration paid
to Quest Integrity shareholders of $41.7 million, consisting of a cash payment of $39.1 million and the issuance
of our restricted common stock with a fair value of $2.6 million (approximately 186,000 shares). Additionally,
we also assumed debt, net of cash on hand, with a value of $2.3 million. We repaid the debt upon consummation
of the purchase. In connection with this transaction, we borrowed $41.4 million under our Credit Facility which
was used to fund the cash portion of the purchase price, including the retirement of Quest Integrity debt. We
expect to purchase the remaining 5% in fiscal year 2015 for a purchase consideration based upon the future
financial performance of Quest Integrity as defined in the purchase agreement. Future consideration would be
payable in unregistered shares of our common stock for an aggregate value of no less than $2.4 million, provided
the aggregate value of the consideration does not exceed 20% of our outstanding common stock. Our valuation of
the remaining 5% equity of Quest Integrity at the date of acquisition was $4.9 million, which is reflected in the
shareholders’ equity section of the Consolidated Balance Sheet as “Non-controlling interest”.
Headquartered near Seattle, Washington, Quest Integrity has leading technical capabilities related to the
measurement and assessment of facility and pipeline mechanical integrity. Quest Integrity has developed several
proprietary tools for advanced tube and pipeline inspection and measurement. Supporting and augmenting these
proprietary inspection tools, Quest Integrity has an advanced technical team that provides specialized engineering
assessments of facility conditions and serviceability. Quest Integrity maintains operations in Seattle, Boulder, and
New Zealand, and has service locations in Houston, Calgary, Australia, The Netherlands, and the Middle East.
The results of Quest Integrity will be reflected in our TCM division.
42
We obtained independent valuations of the tangible and intangible asset values of Quest Integrity, and the
resulting residual goodwill. As a result of the independent valuations, a significant portion of the purchase price
was determined to be attributable to amortizable intangible assets. Intangible assets are amortized over their
useful lives which range from 5 to 20 years. Accordingly, we have included $0.7 million of amortization expense
for the year ended May 31, 2011 in our results of operations to reflect accumulated amortization of intangible
assets. Information regarding the allocation of the purchase price is set forth below (in thousands):
Fair value allocation:
Bank debt assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid to Quest Integrity shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock issued to Quest Integrity shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,276
39,100
2,635
44,011
4,917
$48,928
$ 5,687
505
2,966
78
9,236
1,291
3,136
4,427
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,809
Intangible assets:
Customer relationships (6 year life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements (5 year life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name (20 year life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology (10 year life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,623
394
2,962
5,250
29,890
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$44,119
Information regarding the change in carrying value of the non-controlling interest is set forth below (in
thousands):
Fair value of non-controlling interest at November 3, 2010 . . . . . . . . . . . . . . . . . . .
Income attributable to non-controlling interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income attributable to non-controlling interest . . . . . . . . . . . .
Fair value of non-controlling interest at May 31, 2011 . . . . . . . . . . . . . . . . . . . . . . .
$4,917
39
27
$4,983
3. RECEIVABLES
A summary of accounts receivable as of May 31, 2011 and 2010 is as follows (in thousands):
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$134,955
12,387
(4,222)
$105,714
8,588
(4,934)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$143,120
$109,368
May 31,
2011
2010
43
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, 2011 and 2010 (in thousands):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at beginning of year
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,934
1,048
(1,760)
$ 3,662
2,522
(1,250)
Balance at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,222
$ 4,934
Twelve Months Ended
May 31,
2011
2010
4. INVENTORY
A summary of inventory as of May 31, 2011 and 2010 is as follows (in thousands):
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,165
722
17,448
$ 2,988
528
16,217
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,335
$19,733
May 31,
2011
2010
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of May 31, 2011 and 2010 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,
$
2011
998
9,386
105,997
1,849
7,223
2,719
8,610
$
2010
964
8,263
91,091
1,357
5,987
2,404
8,085
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
136,782
(78,215)
118,151
(62,922)
Property, plant, and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 58,567
$ 55,229
At May 31, 2011, there was $0.4 million of capitalized interest included in property, plant and equipment
attributable to 50 acres purchased in October 2007 to construct future facilities in Houston, Texas. At May 31,
2011, total capitalized cost of the project, inclusive of the capitalized interest, property purchase and related
development cost was $6.8 million. Due to the 2008 economic recession, we postponed construction of the future
facilities until such time as economic conditions and our growth necessitate the addition of the new facilities.
Starting in the third quarter of fiscal year 2009, we ceased to further capitalize interest until the project resumes.
44
6. OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities as of May 31, 2011 and 2010 is as follows (in thousands):
Payroll and other compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, sales and other non-income related taxes . . . . . . . . . . . . . . . . . . . . . . .
Auto lease rebate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,600
5,394
2,024
15
2,478
$13,521
5,253
841
108
2,058
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32,511
$21,781
May 31,
2011
2010
7. INCOME TAXES
During the third quarter of fiscal year 2011, the Company identified and corrected accounting errors relating
to the effect of share-based compensation on tax provisions for fiscal years 2007 through 2010 and the first two
quarters of fiscal year 2011. During those periods, reported earnings were understated because effective tax rates
were overstated as a result of the previously undetected errors in the tax provision calculation. No restatement of
previously issued financial statements was required because the effect on those statements was immaterial. The
cumulative effect of the errors in the tax provision calculation was a tax benefit, which was recorded in the
current fiscal year consisting of $1.8 million associated with the prior years and $0.5 million associated with the
first two quarters of the current fiscal year.
The impact of the adjustment was determined not to be material to our results of operations, financial
position or cash flows for the twelve months ended May 31, 2011, nor to any of our previously issued financial
statements for prior periods. This determination involved both quantitative assessments and qualitative
assessments that considered, among many things;
•
•
•
•
•
the adjustment had no impact on key operational GAAP measures such as revenues, gross margin or
operating income,
the non-cash nature of the adjustment,
the adjustment had no impact on any banking covenants or key non-GAAP measures such as EBITDA,
the adjustment had no impact on executive compensation in any period, and
the adjustment had no quantitative material impact to any prior period.
Excluding the effect of the $1.8 million portion of the cumulative adjustments related to prior years, the
Company’s effective tax rate for fiscal year 2011 was 38%.
For the years ended May 31, 2011, 2010 and 2009, we were taxed on income from continuing operations at
an effective tax rate of 38%, 40% and 37%, respectively. Our income tax provision for May 31, 2011, 2010 and
2009 was $13,548, $8,158 and $13,488 respectively, and include federal, state and foreign taxes. The
components of our tax provision are as follows (in thousands):
Year ended May 31, 2011:
U.S. Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$ 8,546
1,676
4,872
$ (984) $ 7,562
1,700
4,286
24
(586)
$15,094
$(1,546) $13,548
45
Year ended May 31, 2010:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended May 31, 2009:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$ 5,120
875
2,945
$ (514) $ 4,606
841
2,711
(34)
(234)
$ 8,940
$ (782) $ 8,158
$ 4,383
911
5,844
$2,226
235
(111)
$ 6,609
1,146
5,733
$11,138
$2,350
$13,488
The components of pre-tax income for the years ended May 31, 2011, 2010 and 2009 were as follows (in
thousands):
Twelve Months Ended May 31,
2011
2010
2009
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,641
12,531
$12,234
8,199
$19,524
16,875
$40,172
$20,433
$36,399
Income tax expense attributable to income differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to pre-tax income from continuing operations as a result of the following (in
thousands):
Twelve Months Ended May 31,
2011
2010
2009
Pre-tax Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40,172
$20,433
$36,399
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,060
1,135
(326)
(178)
350
(197)
(1,682)
386
$ 7,152
556
(205)
(358)
305
(381)
690
399
$12,740
816
(192)
(75)
339
(1,081)
803
138
Total provision for income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,548
$ 8,158
$13,488
46
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,
2011
2010
Deferred tax assets:
Accrued compensation & benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vendor rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,705
721
509
6
4,457
519
487
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,404
(519)
9,885
(8,470)
(3,649)
(987)
(420)
(1,545)
(1,339)
$ 1,052
1,090
582
42
2,610
—
250
5,626
—
5,626
(6,549)
(2,493)
(621)
(420)
(1,512)
(256)
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16,410)
(11,851)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (6,525)
$ (6,225)
As of May 31, 2011, we had a valuation allowance of $0.5 million to reduce our deferred tax assets to an
amount more likely than not to be recovered. This valuation allowance relates to losses acquired as part of the
Quest Integrity acquisition. 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.
At May 31, 2011, undistributed earnings of foreign operations totaling $8.7 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 ASC 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740-10”) on
June 1, 2007. The adoption of ASC 740-10 did not have a material impact on our consolidated financial
condition, results of operations or cash flows. At May 31, 2011, we have established liabilities for tax
uncertainties of $0.4 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. In
accordance with ASC 740-10 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 2006. 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
47
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 cash flows.
Set forth below is a reconciliation of the changes in our unrecognized tax benefits associated with
ASC 740-10 (in thousands):
Balance at June 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . .
$321
112
—
(12)
Balance at May 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$421
We believe that in the next 12 months it is reasonably possible $0.1 million of liabilities recorded for tax
uncertainties will be effectively settled.
8. LONG-TERM DEBT, DERIVATIVES AND LETTERS OF CREDIT
Our debt with our Credit Facility provides us with a $145 million revolving line of credit and allows us to
borrow in Euros or U.S. Dollars. Our Credit Facility bears interest based on a variable Eurodollar rate option
(LIBOR plus 1.25% at May 31, 2011) 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 0.25% that are applied to
unused borrowing capacity. It also contains financial covenants and restrictions on the creation of liens on assets,
the sale of subsidiaries and the incurrence of certain liabilities. At May 31, 2011, we were in compliance with all
covenants of the Credit Facility. Subsequent to year end, we renewed our Credit Facility. The New Credit
Facility has borrowing capacity of up to $150 million in multiple currencies, similar or less restrictive covenants
than our Credit Facility and matures in July of 2016. The New Credit Facility bears interest at LIBOR plus
1.25%.
Our Canadian subsidiary also has a line of credit with a bank in our banking syndicate. The Canadian Line
of Credit allows our subsidiary to borrow up to $7.5 million Canadian (approximately $7.7 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 the prime interest rate (3.00% at May 31, 2011) and
mature in May 2012. In conjunction with the renewal of our Credit Facility subsequent to year end, the Canadian
Line of Credit was repaid and eliminated under terms of the New Credit Facility.
A summary of long-term debt as of May 31, 2011 and May 31, 2010 is as follows (in thousands):
Revolving loan portion of the Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canadian Line of Credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vendor financing and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,687
5,161
232
$47,636
—
525
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,080
(212)
48,161
(313)
Long-term debt, excluding current maturities . . . . . . . . . . . . . . . . . . . . . . . .
$75,868
$47,848
May 31,
2011
2010
48
Future maturities of long-term debt, reflecting the New Credit Facility are as follows (in thousands):
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
212
—
—
—
75,868
—
$76,080
ASC 815, Derivatives and Hedging (“ASC 815”) established accounting and reporting standards requiring
that derivative instruments be recorded at fair value and included in the balance sheet as assets or liabilities. The
accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative
and the resulting designation, which is established at the inception date of a derivative. Special accounting for
derivatives qualifying as fair value hedges allows a derivative’s gains and losses to offset related results on the
hedged item in the statement of income. 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 counterparty will not fulfill the terms of the contract. We
considered counterparty credit risk to our derivative contracts when valuing our derivative instruments.
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 began with a notional value of $30.0 million effective
June 1, 2007 and decreased to $16.3 million by March 1, 2010. On June 1, 2010, the interest rate swap expired.
Changes in the cash flows of the interest rate swap were 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 was designated as a cash flow hedge, with the changes in fair value, to
the extent the swap agreement was effective, recognized in other comprehensive income until the hedged interest
expense was recognized in earnings.
The amounts recognized in other comprehensive income, and reclassified into income, for the twelve
months ended May 31, 2011 and 2010, 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,
2011
2010
2011
2010
Economic hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(2,587) $2,276
$— $ —
—
(49) —
(865)
$(2,587) $2,227
$— $(865)
Our borrowing of €12.3 million under the Credit Facility serves 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. At
May 31, 2011, the €12.3 million borrowing had a U.S. dollar value of $17.7 million.
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
49
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 ASC 815 (in thousands):
May 31, 2011
May 31, 2010
Classification
Balance Sheet
Location
Fair
Value Classification
Balance Sheet
Location
Economic hedge . . . . . . . . . . . . Liability
Interest rate swap . . . . . . . . . . . Liability
Long-term debt
$293 Liability
Other liabilities — Liability
Long-term debt
Other liabilities
Total Derivatives . . . . . . . . . . .
$293
Fair
Value
$2,880
—
$2,880
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. We were contingently liable for outstanding stand-by letters of credit totaling $8.8 million at May 31,
2011 and 2010. 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.
We enter 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 $27.7 million at May 31, 2011 and are as follows (in thousands):
Twelve Months Ended May 31,
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating
Leases
$10,410
5,818
4,274
2,712
2,147
2,323
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,684
Total rent expense resulting from operating leases for the twelve months ended May 31, 2011, 2010 and
2009 was $18.8 million, $19.4 million and $19.9 million, respectively.
9. FAIR VALUE MEASUREMENTS
Effective June 1, 2008, we adopted the provisions of ASC 820, Fair Value Measurements and Disclosures
(“ASC 820”), which among other things, requires enhanced disclosures about assets and liabilities carried at fair
value.
As defined in ASC 820, 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
50
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. ASC 820 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, 2011 and May 31, 2010, respectively. As
required by ASC 820, 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):
May 31, 2011
Quoted Prices in
Active Markets for
Identical Items (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Liabilities:
Euro denominated long-term debt . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . .
Net Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
—
$—
$293
—
$293
$—
—
$—
May 31, 2010
Quoted Prices in
Active Markets for
Identical Items (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Liabilities:
Euro denominated long-term debt . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . .
Net Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
—
$—
$2,880
—
$2,880
$—
—
$—
Total
$293
—
$293
Total
$2,880
—
$2,880
10. SHARE-BASED COMPENSATION
We have adopted stock incentive plans and other arrangements pursuant to which our Board 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, 2011, there were approximately 2.2 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 at the time of grant and may vary.
Our share-based payments consist primarily of stock options, stock units, common stock and performance
awards. The governance of our share-based compensation does not directly limit the number of future awards.
However, the total number of shares ultimately issued may not exceed the total number of shares cumulatively
authorized, which is 6,620,000 at May 31, 2011. 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 $5.0 million, $5.0 million and $4.7 million for the years ended May 31, 2011, 2010 and
2009, respectively. The tax benefit related to share-based compensation was $0.6 million, $0.6 million and $1.6
51
million for the years ended May 31, 2011, 2010 and 2009, respectively. At May 31, 2011, $6.7 million of
unrecognized compensation expense related to share-based compensation is expected to be recognized over a
remaining weighted-average period of 2.4 years.
We determine the fair value of each stock option at the grant date using a Black-Scholes model and
recognize the resulting expense 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. Compensation expense related to stock
options totaled $2.4 million, $3.2 million and $4.0 million in 2011, 2010 and 2009. 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 specified vesting period for those options. Stock options generally have a ten year
term. Transactions involving our stock options during the years ended May 31, 2011, 2010 and 2009 are
summarized below:
Shares under option, beginning of year . .
Changes during the year:
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . .
Shares under option, end of year . . . . . . .
Exercisable at end of year . . . . . . . . . . . . .
Year Ended May 31, 2011 Year Ended May 31, 2010 Year Ended May 31, 2009
No. of
Options
(in thousands)
2,213
—
(329)
(13)
(15)
1,856
1,711
Weighted
Average
Exercise
Price
$16.50
$ —
$ 8.08
$30.33
$26.56
$17.81
$16.75
No. of
Options
(in thousands)
2,354
—
(107)
(30)
(4)
2,213
1,807
Weighted
Average
Exercise
Price
$16.24
$ —
$ 8.35
$23.56
$16.56
$16.50
$14.22
No. of
Options
(in thousands)
2,627
—
(253)
(20)
—
2,354
1,505
Weighted
Average
Exercise
Price
$15.37
$ —
$ 6.41
$26.96
$ —
$16.24
$12.19
Options exercisable at May 31, 2011 had a weighted-average remaining contractual life of 4.8 years. For
total options outstanding at May 31, 2011, the range of exercise prices and remaining contractual lives are as
follows:
Range of Prices
$0.00 to $3.21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3.22 to $6.41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6.42 to $9.62 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9.63 to $12.82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12.83 to $16.03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16.04 to $32.05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
(in years)
No. of
Options
(in thousands)
30
83
408
169
516
650
1,856
$ 2.58
$ 4.17
$ 8.53
$11.18
$14.86
$30.17
$17.81
0.3
1.7
3.7
4.7
5.1
6.3
5.0
52
Performance awards are settled with common stock upon vesting unless it is not legally feasible to issue
shares, in which case the value of the award is settled in cash. We determine the fair value of each performance
award based on the market price on the date of grant. Performance awards granted to our Chairman of our Board
vest over the longer of four years or the achievement of performance goals based upon our future results of
operations. Transactions involving our performance awards during the year ended May 31, 2011 and 2010 are
summarized below:
Performance awards, beginning of year . . . . . . . . .
Changes during the year:
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and settled . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Awards, end of year . . . . . . . . . . . . . .
Year Ended
May 31, 2011
Year Ended
May 31, 2010
No. of Performance
Awards
(in thousands)
51
25
(15)
—
61
Weighted
Average
Fair Value
$20.84
$20.04
$21.61
$ —
$20.33
No. of Performance
Awards
(in thousands)
28
30
(7)
—
51
Weighted
Average
Fair Value
$27.39
$16.42
$27.39
$ —
$20.84
Stock units are settled with common stock upon vesting unless it is not legally feasible to issue shares, in
which case the value of the award is settled in cash. We determine the fair value of each stock unit based on the
market price on the date of grant. Stock units generally vest in annual installments over four years and the
expense associated with the units is recognized over the same resting period. We also grant common stock to our
directors which typically vest immediately. Transactions involving our stock units and director stock grants
during the year ended May 31, 2011 and 2010 are summarized below:
Year Ended
May 31, 2011
Year Ended
May 31, 2010
No. of Stock
Units
(in thousands)
247
167
(93)
(11)
310
Weighted
Average
Fair Value
$20.53
$18.99
$20.20
$20.50
$19.80
No. of Stock
Units
(in thousands)
127
170
(45)
(5)
247
Weighted
Average
Fair Value
$27.39
$16.55
$24.56
$23.76
$20.53
Stock and stock units, beginning of year . . . . . . . . . . . . . . . .
Changes during the year:
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock and stock units, end of year . . . . . . . . . . . . . . . . . . . . .
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 2011, 2010 and 2009, were approximately $1.7 million, $1.8 million and
$2.6 million, respectively, and are included in selling, general and administrative expenses.
53
13. LEGAL PROCEEDINGS
We have, from time to time, provided temporary leak repair services for the steam operations of 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. As of May 31, 2011, one hundred and six lawsuits have been
filed against Con Ed, the City of New York and Team 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 are
vigorously defending 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. We have not
accrued any liability in excess of the deductible limit for the lawsuits. We do not believe the final resolution of
these matters will have a material adverse effect on our business financial position, results of operations or cash
flows.
We are involved in various other lawsuits and are subject to various claims and proceedings encountered in
the normal conduct of business. In our opinion, any uninsured losses that might arise from these lawsuits and
proceedings will not have a materially adverse effect on our consolidated financial statements.
14. ENTITY WIDE DISCLOSURES
ASC 280, Segment Reporting (“ASC 280”) 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 TCM division (inclusive of Quest Integrity)
provides the services of inspection and assessment and field heat treating. Our TMS division provides the
services of leak repair, fugitive emissions control, hot tapping, field machining, technical bolting and field valve
repair. Each division has goodwill relating to past acquisitions and we assess goodwill for impairment at the
lower TCM and TMS divisional level. Both divisions derive substantially all 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 TCM and
TMS divisions are predominantly 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. Both the TCM and TMS division field locations share the same chief operating decision maker and
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.
54
Revenues and total assets in the United States and other countries are as follows for the fiscal years ended
May 31, 2011, 2010 and 2009 (in thousands):
FY 2011
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FY 2010
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Revenues
Total
Assets
$361,996
99,888
28,059
18,077
$243,046
64,023
31,469
16,948
$508,020
$355,486
$323,036
91,482
23,218
16,133
$188,280
44,015
24,142
8,552
$453,869
$264,989
FY 2009
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$350,001
112,930
23,443
11,185
$180,889
62,678
25,353
7,001
$497,559
$275,921
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. Our investment in the net assets of the joint venture, accounted for using the
equity method of accounting, was $1.4 million at May 31, 2011 and $1.1 million at May 31, 2010. Revenues
from the joint venture not reflected in our consolidated revenues were $9.9 million and $7.5 million as of
May 31, 2011 and 2010, respectively.
16. INTERNAL INVESTIGATION
During an internal management review of our TMS branch operations in Trinidad in the spring of 2009,
employees informed us of allegations of improper payments made by local employees of our wholly-owned
Trinidad subsidiary to employees of certain customers, including foreign government owned enterprises. In
June 2009, the Audit Committee of our Board of Directors commenced an internal investigation of our Trinidad
operations, focusing on the legality, under the FCPA and other laws. In May 2010, we voluntarily disclosed
information relating to the initial allegations and the findings of the independent investigation to the DOJ and to
the SEC.
In a letter to us dated July 12, 2011, the staff of the SEC informed us that it had completed its investigation
and did not intend to recommend any enforcement action by the Commission or impose any fines or penalties
against the Company. We have not received formal notification from the DOJ, however, in July, 2011, the staff
of the DOJ informed us that it was likely that the staff would not recommend taking any further action or
imposing any fines or penalties against the Company.
55
Since the commencement of the investigation in 2009, we have expended an aggregate of approximately
$3.2 million on legal and other professional services related to this investigation. While our and the government’s
investigations have concluded, we continue to remain committed to and focused on conducting our operations in
compliance with the FCPA.
17. VENEZUELA’S HIGHLY INFLATIONARY ECONOMY
We operate a small service location in Punta Fijo, Venezuela, whose annual revenues have historically been
less than one percent of our consolidated revenues for all periods presented. Because of the uncertain political
environment in Venezuela, starting in the third quarter of fiscal year 2010, we began to account for Venezuelan
operations pursuant to accounting guidance for hyperinflationary economies. We initially used the parallel
exchange rate for Bolivar denominated bonds to translate our Venezuelan operations into U.S. Dollars. This
resulted in currency related losses in the third quarter of fiscal year 2010 of $2.1 million. In May 2010, the
Venezuelan government took action to close the parallel exchange rate system, precluding its continued use and
we subsequently returned to using the Venezuelan central bank’s official published rate (5.30 Bolivars per
U.S. Dollar) to translate Venezuelan assets into dollars as no other legal rate was readily available. The exchange
rate has remained constant since May 2010. Consequently, we recognized no gains or losses in 2011 related to
the Venezuelan currency. Due to the uncertain economic and political environment in Venezuela, it is very
difficult to repatriate cash flows of these operations. At May 31, 2011, our Venezuelan subsidiary had $1.2
million of net assets, consisting primarily of Bolivar denominated cash equal to $1.1 million.
18. SELECTED QUARTERLY FINANCIAL DATA
The following is a summary of selected unaudited quarterly financial data for the years ended May 31, 2011
and 2010 (in thousands, except per share data):
Year Ended May 31, 2011
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to Team shareholders . . . . . . . .
Net income per share: Basic . . . . . . . . . . . . . . . . .
Net income per share: Diluted . . . . . . . . . . . . . . .
$104,511
6,741
$
3,806
$
0.20
$
0.20
$
$133,131
$ 13,831
8,061
$
0.42
$
0.41
$
$108,820
3,241
$
3,897
$
0.20
$
0.19
$
$161,558
$ 18,662
$ 10,821
0.55
$
0.53
$
$508,020
$ 42,475
$ 26,585
1.38
$
1.32
$
Year Ended May 31, 2010
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share: Basic . . . . . . . . . . . .
Net income (loss) per share: Diluted . . . . . . . . . .
$100,937
2,664
$
1,125
$
0.06
$
0.06
$
$123,292
$ 10,277
5,841
$
0.31
$
0.30
$
$125,528
$104,112
9,744
2,092
$
$
5,736
(427) $
$
0.30
(0.02) $
$
0.29
(0.02) $
$
$453,869
$ 24,777
$ 12,275
0.65
$
0.63
$
56
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 and restated August 1,
2009 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 30,
2009).
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).
57
Exhibit
Number
10.14†
10.16
10.19†
10.20†
10.21†
10.22†
10.23
10.24
10.25
10.26
10.27
10.28
10.29
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, 2009) (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 30, 2009).
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).
Second Amendment to Amended and Restated Credit Agreement dated July 16, 2010 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 10.27 to the Company’s Annual Report on
Form 10-K for the year ended May 31, 2010).
Membership Interest Purchase Agreement dated November 2, 2010, by and among Team, Inc., TQ
Acquisition, Inc., Quest Integrity Group, LLC, and John Zink Holdings, Inc., Ring Mountain Capital,
LLC, Quest Integrated, Inc., Alexius Group II, LLC, Milton J. Altenberg and Todd Katz (filed as
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 3, 2010).
Form of Membership Interest Purchase Agreement dated November 2, 2010, by and among Team,
Inc., TQ Acquisition, Inc. and each of the other members of Quest Integrity Group, LLC listed on
Exhibit A to the Membership Interest Purchase Agreement dated November 2, 2010, by and among
Team, Inc., TQ Acquisition, Inc., Quest Integrity Group, LLC, and John Zink Holdings, Inc., Ring
Mountain Capital, LLC, Quest Integrated, Inc., Alexius Group II, LLC, Milton J. Altenberg and
Todd Katz (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on November 3,
2010).
10.30
Form of Put-Call Option Agreement dated November 2, 2010 (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on November 3, 2010).
58
Exhibit
Number
10.31
10.32
10.33
10.34
14.1
21
23.1
31.1
31.2
32.1
32.2
Guaranty, dated as of November 2, 2010, made by KG Holding, LLC for the benefit of Team, Inc.
(filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 3, 2010).
Guaranty, dated as of November 2, 2010, made by Milton J. Altenberg for the benefit of Team, Inc.
(filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 3, 2010).
Guaranty, dated as of November 2, 2010, made by Jeffrey L. Ott for the benefit of Team, Inc. (filed
as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 3, 2010).
Second Amended and Restated Credit Agreement dated July 22, 2011 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.
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.
59
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 1,
2011.
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)
Chairman, Chief Executive Officer
and Director
August 1, 2011
/S/ VINCENT D. FOSTER
Director
August 1, 2011
(Vincent D. Foster)
/S/
JACK M. JOHNSON, JR.
(Jack M. Johnson, Jr.)
Director
August 1, 2011
/S/ EMMETT J. LESCROART
Director
August 1, 2011
(Emmett J. Lescroart)
/S/ ROBERT A. PEISER
(Robert A. Peiser)
/S/ LOUIS A. WATERS
(Louis A. Waters)
Director
Director
August 1, 2011
August 1, 2011
/S/ SIDNEY B. WILLIAMS
Director
August 1, 2011
(Sidney B. Williams)
/S/ TED W. OWEN
(Ted W. Owen)
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
August 1, 2011
60
Corpor ate Information
Operating Locations*
Canada
Directors
North American
Locations
United States
Daphne, Alabama
Decatur, Alabama
Mobile, Alabama
Anchorage, Alaska
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
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
Nashville, Tennessee
Alvin, Texas
Angleton, Texas
Beaumont, Texas
Borger, Texas
Corpus Christi, Texas
Houston, Texas
Longview, Texas
Odessa, Texas
Salt Lake, Utah
Richmond, Virginia
Seattle, Washington
Charleston, West Virginia
Milwaukee, Wisconsin
Christiansted, St. Croix,
U.S. Virgin Islands
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
Oakville, Ontario
Sarnia, Ontario
Thunder Bay, Ontario
Regina, Saskatchewan
Weyburn, Saskatchewan
International
Locations
Angola
Australia
Belgium
Colombia
Netherlands
New Zealand
Singapore
Suriname
Trinidad
United Kingdom
Venezuela
*As of August 1, 2011
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
Retired CEO
Imperial Sugar Company
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
Executive Vice President,
Chief Financial Offi cer and
Treasurer
Peter W. Wallace, Jr.
Executive Vice President and
Chief Operating Offi cer
André C. Bouchard
Senior Vice President
Administration, General Counsel
and Secretary
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
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
Executive Vice President,
Chief Financial Offi cer and
Treasurer
Team, Inc.
Phone: 281/388-5525
E-mail:
ir@teamindustrialservices.com
Independent Auditors
KPMG LLP
811 Main St.
Houston, TX 77002
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.