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:
Celebrating
40 years of service
excellence
TEAM, INC. 2013 ANNUAL REPORT
Dear Fellow Shareholders,
This year, we celebrate the founding of our
company 40 years ago. While many aspects of
our business have changed and evolved over
the years, some fundamental requirements for
our success have not. Customers choose us,
not vice versa. We must earn and affirm our cus-
tomers’ trust and confidence in Team with each
of our more than 150,000 service opportunities
each year by delivering safe, responsive, effec-
tive, and efficient solutions. In short, we need to
demonstrate that we are an outstanding service
company! And, we are.
We continued to expand and extend our
business during fiscal year 2013. Once again,
we achieved double digit total and organic
revenue growth of 15% and 11%, respectively,
and for the first time in our history total revenues
exceeded $700 million. This continued business
growth and expansion is consistent with our
performance over the past decade. And, as I
will discuss in more detail below, we continue to
have exciting opportunities across service lines,
industries, and geographies to sustain these at-
tractive business growth rates for years to come!
Business Review and Outlook
Total fiscal year 2013 revenues were $714 mil-
lion, up $90 million or 15% from the prior year
level. Over the past decade, we have enjoyed
attractive double digit growth rates in all of our
service line categories. This year, our inspec-
tion and inspection related services were the
primary growth engines for Team with an overall
growth rate of 29%.
Our very strong growth in inspection related
service activity is due both to Quest Integrity
Group’s continued service portfolio development
and market penetration, as well as the strong
growth in Team’s mechanical integrity, tank
inspection, and advanced inspection services.
Looking forward, we have exciting growth op-
portunities in all of our major service lines and
geographic regions in which we operate. While
we are a market leader or near leader in each
of our major service lines, our collective market
share is still well below 20% in our highly frag-
mented markets. The advantages of our service
line breadth and the most extensive branch
network in North America, combined with our
outstanding service capabilities and perfor-
mance, position Team well to capitalize upon
our customers’ continuing trend to consolidate
their services procurement with larger, more
professional service providers, like Team.
In addition to these organic growth opportuni-
ties, we expect to continue selectively acquiring
companies that add new service capabilities
and/or extend Team’s geographic and key cus-
tomer coverage. In this regard, in the past year,
Team purchased three small companies: a North
American tank inspection and repair company,
a remote digital video inspection company in
the Asia Pacific region, and a small valve repair
company in Europe. We expect these new capa-
bilities to create additional growth opportunities
for Team in FY14 and beyond.
Fiscal Year 2013 Financial
Performance
Team’s adjusted earnings in fiscal year 2013
ending May 31, 2013 were $1.55 per fully dilut-
ed share. This profit performance was the sec-
ond best in Team’s history, but about 5% less
than last year’s record level. Operating income
before interest and taxes was $55.6 Million,
3% less than the prior year. Operating income
margin was 7.8% vs. 9.2% in the prior year.
Adjusted EBITDA was $79 million, unchanged
from the prior year. Reflecting the strong cash
flow generated by the business, net debt (bank
debt less cash) decreased by $25 million during
the year to about $39 million despite capital
expenditures of $26 million and business acqui-
sitions totaling nearly $19 million.
We were disappointed that our net income did
not increase with the increase in our overall
business revenue growth this year. The cause
of this income shortfall was a decline in our
overall gross margin due to operational execu-
tion issues and imbalances in our resources
and activity levels in specific regions as we
adjusted to shifts in the timing and location of
major project and turnaround work. We expect
Reconciliation of GAAP net income to adjusted net income
Twelve Months Ended May 31,
Net income available to shareholders
Adjustments for non-routine items:
2013
$32,436
2012
$32,911
Fixed asset writedown
Legal settlement
Venezuelan currency devaluation
Total pre-tax adjustments
Tax impact of non-routine items
Adjusted net income available to common shareholders
Adjusted diluted earnings per common share
-
-
597
597
(221)
$32,812
$1.55
1,658
800
-
2,458
(913)
$34,456
$1.67
to address these improvement opportunities
and return to our historical operating profit
margins in the current fiscal year.
New Business Group Alignment
In July 2013, we aligned our organization into
three primary business groups each led by a
Business Group President – Inspection and
Heat Treating, Mechanical Services, and Quest
Integrity Group. In addition to the field service
branches and personnel, each business group
will also be responsible for its supporting techni-
cal, operational, commercial, and manufacturing
activities related to their respective service lines.
The primary objective behind our decision to
move to this new business group structure is to
ensure that Team is best positioned to sustain
for the long term our very attractive growth
opportunities in each of our business areas. By
having a full complement of both field service
and key technical, commercial, and operational
support resources, each group will be well po-
sitioned to prioritize, focus on and fully realize its
most attractive commercial opportunities. Each
business group will be more agile in identifying,
pursuing and capturing new opportunities and
addressing new threats that may emerge from
time to time. The new organizational alignment
will inherently link our business resources more
closely to our customers’ needs and trends.
A second objective of the new alignment is to
increase our focus and commitment to the devel-
opment of innovative new and improved service
capabilities to provide better solutions to current
and evolving customer needs. We will be pur-
suing new technologies and other new service
approaches to increase the value of our services
to our customers, to foster competitive distinc-
tiveness, and to extend our market penetration.
While these changes represent only a fine-tun-
ing of our business approach, this new align-
ment sharpens our focus on our customers
and our opportunities to serve their needs as
Team continues its growth toward $1 billion in
revenues and beyond.
We are all proud of the outstanding sustained
high growth performance of Team. I thank my
4,000+ Team colleagues for their vital contri-
butions and leadership that is so critical to our
great service company. At Team, we all under-
stand that we have outstanding opportunities
before us, but we still have to earn this business
one service opportunity at a time!
Thank you for your continuing interest in and
support of our company. We look forward to
continued success and improvement in the
coming year.
Philip J. Hawk
Chairman & CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Í
‘
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2013
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)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
13131 Dairy Ashford, Suite 600, Sugar Land, Texas
(Address of Principal Executive Offices)
74-1765729
(I.R.S. Employer
Identification No.)
77478
(Zip Code)
(281) 331-6154
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.30 par value
Name of Each Exchange on Which Registered
New York Stock Exchange
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 Í
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 Í
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 Í 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 Í 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. Í
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ‘
‘
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í
The aggregate market value of the voting stock held by non-affiliates on November 30, 2012 was approximately $538 million,
Accelerated filer Í
Smaller reporting company ‘
determined using the closing price of shares of common stock on the New York Stock Exchange on that date of $35.92.
For purposes for the foregoing calculation only, all directors, executive officers, the Team, Inc. Salary Deferral Plan and Trust and
known 5% or greater beneficial owners have been deemed affiliates.
The Registrant had 20,589,041 shares of common stock, par value $0.30, outstanding and 89,569 shares of treasury stock as of
July 29, 2013.
Documents Incorporated by Reference
Portions of our Definitive Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III
of this report. These will be filed no later than September 27, 2013.
FORM 10-K INDEX
PART I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Narrative Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4.
PART II
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
ITEM 6.
ITEM 7.
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . .
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Annual Report on Internal Control Over Financial Reporting . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10.
ITEM 11.
ITEM 12.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
1
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2
4
5
5
5
5
6
6
6
7
10
11
11
12
13
13
15
16
26
26
27
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28
29
29
29
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . .
29
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
ITEM 14.
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29
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58
Certain items required in Part III of this Form 10-K can be found in our 2013 Proxy Statement and are
incorporated herein by reference. A copy of the 2013 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, 13131 Dairy Ashford, Suite 600, Sugar Land, Texas, 77478.
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 Delaware and our company website can be found at
www.teamindustrialservices.com. Our corporate headquarters is located at 13131 Dairy Ashford, Suite 600,
Sugar Land, Texas, 77478 and our telephone number is (281) 331-6154. Our stock is traded on the New York
Stock Exchange (“NYSE”) under the symbol “TISI” and our fiscal year ends on May 31 of each calendar year.
We are a leading provider of specialty industrial services, including inspection and assessment, required in
maintaining high temperature and high pressure piping systems and vessels that are utilized extensively in the
refining, petrochemical, power, pipeline and other heavy industries. Through fiscal year 2013, we operated in
only one segment—the industrial services segment (see Note 14 to our audited consolidated financial
statements). Within the industrial services segment, we were organized as two divisions. Our TCM division
provided the services of inspection and assessment and field heat treating. Our TMS division provided the
mechanical services listed below.
Effective July 1, 2013, we implemented a reorganization of our business divisions and from that date
forward we will conduct operations in three segments: Inspection and Heat Treating Services (“IHT”) Group,
Mechanical Services (“MS”) Group and Quest Integrity Group. While our services have been realigned in three
business groups, we believe our services broadly fall into three different classifications that have unique
customer demand drivers: inspection and assessment services, turnaround services, and on-stream services.
Inspection and assessment services are offered in both IHT Group and Quest Integrity Group. These
services include basic and advanced non-destructive testing, pipeline integrity management services, as well as
associated engineering and assessment services. These services can be offered while facilities are running (on-
stream) or during facility turnarounds or during new construction or expansion activities. We believe there is a
general growth in market demand for these services as improved inspection technologies enable better
information about asset reliability to be available to facility owners and operators.
Turnaround services are offered in both the IHT Group and in the MS Group (formerly TMS). These services
represent project-related services and demand is a function of the number and scope of scheduled and unscheduled
facility turnarounds and as well as new industrial facility construction or expansion. Turnaround services includes
the field machining, technical bolting, field valve repair, heat exchanger repair, and isolation test plugging services
that are part of the MS Group and the Field Heat Treating services that are part of the IHT Group.
On-stream services are offered by the MS Group and represent the services offered while plants are
operating and under pressure. These services include leak repair, fugitive emissions control and hot tapping. We
believe demand for on-stream services is a function of the population of the existing infrastructure of operating
industrial facilities.
1
Our specific major service categories are:
TCM Division
•
•
Inspection and Assessment
Field Heat Treating
TMS Division
• Leak Repair
•
Fugitive Emissions Control
• Hot Tapping
•
Field Machining
• Technical Bolting
•
Field Valve Repair
• Heat Exchanger and Maintenance
•
Isolation Test Plugging
We offer these services in over 125 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
penetrant, 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.
Through our subsidiary, Quest Integrity Group, LLC (“Quest Integrity”), we offer proprietary, technology-
enabled in-line inspections of fired heaters, steam reformers and piping systems primarily in the process, power
and pipeline industries. Additionally, Quest Integrity offers engineering assessment services associated with asset
integrity, reliability management solutions and pipeline integrity management services. Effective July 1, 2013,
with our new business alignment, Quest Integrity Group became a stand-alone business segment of Team.
Field Heat Treating Services. Our field heat treating services include electric resistance and gas-fired
combustion, primarily utilized by industrial customers 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 contaminants 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
2
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 compound (“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 complementary 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 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
3
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.
Heat Exchanger and Maintenance Services. We provide turnkey heat exchanger services that allows for blind
to blind disassembly and re-assembly. Utilizing our expanding fleet of bundle extraction that allows us to pull and
push the tube bundles, as well as field machining and bolting equipment, complete repairs can be made to minimize
downtime using one contractor. A complete service allows us to unbolt the exchanger heads and remove the tube
bundle for inspection and repair. We are certified by The National Board of Boiler and Pressure Vessel Inspectors to
make welded code repairs when necessary to the many components that make up the assembly. Based on the
inspection the bundle tubes can be replaced or plugged. Assembly of the exchanger is documented by our rigid
quality control providing documented procedures and final “as assembled” bolted values.
Isolation and Test Plug Services. We provide isolation plugs to provide a mechanical block for flammable
atmosphere to allow for pipe cutting and welding without having to purge the piping system. The plugs are
mechanically expanded to seal on the inside pipe surface and provide a venting system to prevent pressure from
building up in the piping system while the system is opened. Test plugs are used to verify the integrity of welded
joints by providing sealing surfaces on both sides of the weld and pressuring the void cavity in between. The test
plugs allows the customer to comply with American Society of Mechanical Engineers (“ASME”) hydrostatic test
requirements for welded joints without having to pressurize the whole system which may result in shutdown of
other systems or environmental issues with the test medium.
Acquisitions
In August 2012, Team’s subsidiary, Quest Integrity, acquired a specialty remote digital video inspection
company based in New Zealand for approximately $3.0 million in cash. Based upon the completed purchase
price allocation, we have recorded $0.7 million in fixed assets, $1.1 million in intangible assets classified as
customer relationships, $0.3 million in intangible assets classified as non-compete agreements and $0.9 million
in goodwill. In September 2012, Team also acquired the common stock of TCI Services, Inc. (“TCI”) for
approximately $23.2 million, of which $16.5 million was cash paid and $6.7 million was deferred payments. TCI
is a company based in Oklahoma specializing in the inspection and repair of above ground storage tanks. Based
upon the completed purchase price allocation associated with the TCI acquisition, we recorded $4.1 million in
net working capital, $2.6 million in fixed assets, $6.7 million in intangible assets classified as customer
relationships, $1.1 million in intangible assets classified as trade name, $8.6 million in goodwill, $1.0 million in
other current liabilities and $5.7 million in other long-term liabilities. The $1.0 million in other current liabilities
and $5.7 million in other long-term liabilities represent future consideration to be paid, of which $1.9 million is
an estimate of contingent payments to be made based upon the future performance criteria of TCI and the
remainder is due in annual installments of $1.0 million beginning in September 2013. The combined unaudited
annual revenues for both acquired businesses are approximately $24 million based upon their most recently
completed fiscal years, and the total consideration for both was approximately $26 million, subject to
adjustments for working capital true-ups and the future performance of the businesses. As a result of the two
business acquisitions, we expect to be able to deduct $6.7 million of the goodwill recognized for tax purposes. Of
the $8.6 million of TCI goodwill, $1.9 million is contingent consideration and will be considered deductible
when paid.
In fiscal year 2012, we completed two small acquisitions for a total of $19.4 million which were recorded as
$1.2 million in net working capital, $3.0 million in fixed assets, $7.5 million in intangible assets classified as
customer relationships and $7.7 million in goodwill. Both acquisitions were financed through borrowings on our
banking credit facility. We performed purchase price allocations based on our most current assessments of fair
value of the assets acquired and the liabilities assumed. We completed a final valuation report of intangibles and
goodwill associated with these transactions during the first half of fiscal year 2013. The final purchase price
allocation associated with both of these transactions did not result in material adjustments and, accordingly, no
retrospective adjustments were made in the accompanying 2012 financial statements.
4
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 and 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 equity section of the
Consolidated Balance Sheet as “Non-controlling interest.”
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 . . . .
$4,917
474
(7)
Carrying value of non-controlling interest at May 31, 2013 . . . . . . . . . . .
$5,384
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 single 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, 2013, we had approximately 4,200 employees in our worldwide operations. Our employees in
the U.S. are predominantly not unionized. Most of 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
5
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 EPA, 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
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.
Intellectual Property
We are the holder of various patents, trademarks, trade secrets and licenses, which have not historically
been material to our consolidated business operations. However, our recently acquired subsidiary, Quest
Integrity, has significant trade secrets and intellectual property pertaining to its in-line inspection tool
technologies. This subsidiary was acquired in fiscal year 2011 and a significant amount of the purchase price was
allocated to these intangible assets (See Note 2).
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 Securities and Exchange Commission
(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.
6
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 of
Directors’ (the “Board”) committees on our website. Our governance documents are available in print to any
stockholder that submits a written request to Team, Inc., Attn: Corporate Secretary, 13131 Dairy Ashford, Suite
600, Sugar Land, Texas, 77478.
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 ongoing
economic uncertainty 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 ongoing economic
uncertainty 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
7
employees. The competition for these individuals is intense. The loss of the services of a number of these
individuals, or failure to attract new employees, could adversely affect our ability to perform our obligations on
our customers’ projects or maintenance and consequently could negatively impact the demand for our products
and services.
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 volatile organic compounds or 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 $3 million per occurrence. This insurance may not protect us against liability for certain
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
8
or cash flows. We are currently a defendant in legal proceedings arising from the operation of our business and it
is reasonable to expect that we will be named in future actions. Most of the legal proceedings against us arise out
of the normal course of performing services at customer facilities, and include claims for workers’ compensation,
personal injury and property damage. Legal proceedings can be expensive to defend and can divert the attention
of management and other personnel for significant periods of time, regardless of the ultimate outcome. An
unsuccessful defense of a liability claim could have an adverse 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, differing regulatory environments, 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 U.S. Foreign Corrupt Practices Act (“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 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 should not be relied upon as indicators of our future
performance.
9
Our business may be adversely impacted by work stoppages, staffing shortages and other labor
matters. At May 31, 2013, we had approximately 4,200 employees approximately 700 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 in general, 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.
Interruptions in the proper functioning of our information systems could disrupt operations and cause
increases in costs and/or decreases in revenues. The proper functioning of our information systems is critical to
the successful operation of our business. Although our information systems are protected through physical and
software safeguards, our information systems are still vulnerable to natural disasters, power losses,
telecommunication failures and other problems. If critical information systems fail or are otherwise unavailable,
our business operations could be adversely affected.
New regulations related to conflict-free minerals may cause us to incur additional expenses. The Dodd-
Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and
accountability regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and
adjoining countries “DRC”. The SEC has established new annual disclosure and reporting requirements for those
companies who use “conflict” minerals sourced from the DRC in their products. These new requirements could
limit the pool of suppliers who can provide conflict-free minerals and as a result, we cannot ensure that we will
be able to obtain these minerals at competitive prices. Compliance with these new requirements may also
increase our costs. In addition, we may face challenges with our customers if we are unable to sufficiently verify
the origins of the minerals used in our products.
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.
10
ITEM 2. PROPERTIES
We own several facilities used in our operations. Our 88,000 square foot facility in Alvin, Texas consists of
our primary training facility and ISO-9001 certified manufacturing facility for clamps, enclosures, and sealants.
Additionally, we own a 30,000 square foot manufacturing facility in Houston, Texas and an 11,000 square foot
equipment distribution facility in Pearland, Texas. We also own offices for our branch service locations in the
following areas:
• Beaumont, Texas (27,000 square feet)
•
Pasadena, Texas (27,000 square feet)
• Tulsa, Oklahoma (23,000 square feet)
•
Stafford, Texas (20,000 square feet)
• Edmonton, Alberta (17,000 square feet)
• Milwaukee, Wisconsin (10,000 square feet)
All other facilities used in our operations are provided through operating leases.
Included in assets held for sale is $5.2 million pertaining to 50 acres purchased in October 2007 on which
we had previously planned to construct future facilities in Pearland, Texas. During the fourth quarter of fiscal
year 2012, we decided not to proceed with construction of the future facilities at this location and recognized a
$1.7 million asset write-down of pre-construction building costs and capitalized interest. The property is being
actively marketed using the services of a broker.
We believe that our property and equipment are adequate for our current needs, although additional
investments are expected to be made in property and equipment for expansion, replacement of assets at the end
of their useful lives and in connection with corporate development activities.
ITEM 3. LEGAL PROCEEDINGS
Con Ed Matter—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, 2013, ninety-five
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 ultimate outcome of these matters will have a material adverse effect on our financial
position, results of operations, or cash flows.
EPA Matter—As part of a plea agreement entered in July 2012, we pled guilty to a single misdemeanor
violation of a section of the Clean Air Act related to fugitive emissions monitoring services provided to a
customer serviced by our Borger, Texas office. As part of the plea agreement, we developed and are now
implementing an environmental compliance plan for our emissions monitoring services to enhance our
11
compliance with the Clean Air Act. Also as part of the plea agreement, in November 2012 we were assessed a
fine of $200,000 and placed on probation for a term of five years.
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. MINE SAFETY DISCLOSURES
Not applicable.
12
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Prior to January 3, 2012, our stock was traded on the NASDAQ under the symbol “TISI”. Beginning
January 3, 2012, our stock is now traded on the NYSE under the same symbol. The table below reflects the high
and low sales prices of our common stock by quarter for the fiscal years ended May 31, 2013 and 2012,
respectively.
Sales Price
High
Low
2013
Quarter ended:
August 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
February 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32.63
$36.90
$45.66
$46.66
$25.61
$30.24
$35.34
$34.64
2012
Quarter ended:
August 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
February 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27.48
$27.43
$32.50
$33.50
$20.27
$19.98
$26.39
$24.95
13
Performance Graph
The following performance graph compares the performance of our common stock to the NYSE Composite
Index and a Peer Group Index. The comparison assumes $100 was invested on May 31, 2008 in our common
stock, the NYSE Composite Index and a 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
our 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 NYSE Composite Index, and a Peer Group
$120
$100
$80
$60
$40
$20
$0
5/08
5/09
5/10
5/11
5/12
5/13
Team, Inc.
NYSE Composite
Peer Group
*$100 invested on 5/31/08 in stock or index, including reinvestment of dividends.
Fiscal year ending May 31.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Team, Inc.
NYSE Composite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
44.16
65.82
47.64
46.94
76.23
40.97
71.79
97.29
59.28
83.27
87.93
54.12
112.58
113.11
62.26
5/08
5/09
5/10
5/11
5/12
5/13
Notes: The above information was provided by Research Data Group, Inc.
Holders
There were 197 holders of record of our common stock as of July 29, 2013 excluding beneficial owners of
stock held in street name.
Dividends
No cash dividends were declared or paid during the fiscal years ended May 31, 2013, 2012 and 2011. 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, 2013.
The information required regarding equity compensation plans is hereby incorporated by reference.
14
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial information for the five years ended May 31 (in thousands,
except per share data):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to Team shareholders . . . . . . . .
Net income per share
2013
2012
2011
2010
2009
$714,311
$ 55,602
$ 32,436
$623,740
$ 56,497
$ 32,911
$508,020
$ 42,475
$ 26,585
$453,869
$ 24,777
$ 12,275
$497,559
$ 41,271
$ 22,911
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.61
1.53
$
$
1.67
1.59
$
$
1.38
1.32
$
$
0.65
0.63
$
$
1.22
1.16
Weighted-average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,203
21,166
19,667
20,660
19,206
20,083
18,923
19,510
18,793
19,725
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,664
$
3,931
$ 26,068
$ 17,469
$
4,386
$ 23,924
$ 14,584
$
4,993
$ 13,158
$ 12,509
5,009
$
7,711
$
$ 12,116
$
4,761
$ 16,383
Balance sheet data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and other long-term liabilities . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
Working capital
. . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . .
$460,203
$ 95,209
$292,190
$174,114
5,384
$
$403,788
$ 97,131
$245,001
$157,019
5,097
$
$355,486
$ 86,299
$209,446
$130,533
4,983
$
$275,921
$264,989
$ 82,628
$ 56,795
$146,501
$165,192
$107,343
$109,845
$ — $ —
15
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 industrial services, including inspection and assessment, required in
maintaining high temperature and high pressure piping systems and vessels that are utilized extensively in the
refining, petrochemical, power, pipeline and other heavy industries. Through fiscal year 2013, we operated in
only one segment- the industrial services segment (see Note 14). Within the industrial services segment, we were
organized as two divisions. Our TCM division provided the services of inspection and assessment and field heat
treating and pipeline integrity management. Our TMS division provided the services of leak repair, fugitive
emissions, hot tapping, field machining, technical bolting, field valve repair and other mechanical services.
Effective July 1, 2013, we implemented a reorganization of our business divisions and from that date
forward we will conduct operations in three segments: Inspection and IHT Group. MS Group, and Quest
Integrity Group. While our services have been realigned in three business groups, we believe our services
broadly fall into three different classifications that have unique customer demand drivers: inspection and
assessment services, turnaround services, and on-stream services.
16
Inspection and assessment services are offered in both IHT Group and Quest Integrity Group. These
services include basic and advanced non-destructive testing, pipeline integrity management services, as well as
associated engineering and assessment services. These services can be offered while facilities are running (on-
stream) or during facility turnarounds or during new construction or expansion activities. We believe there is a
general growth in market demand for these services as improved inspection technologies enable better
information about asset reliability and integrity to be available to facility owners and operators.
Turnaround services are offered in both the IHT Group and in the MS Group. These services represent
project-related services and demand is a function of the number and scope of scheduled and unscheduled facility
turnarounds and as well as new industrial facility construction or expansion. Turnaround services includes the
field machining, technical bolting, field valve repair, heat exchanger repair, and isolation test plugging services
that are part of the MS Group and the Field Heat Treating services that are part of the IHT Group.
On-stream services are offered by the MS Group and represent the services offered while plants are
operating and under pressure. These services include leak repair, fugitive emissions control and hot tapping. We
believe demand for on-stream services is a function of the population of the existing infrastructure of operating
industrial facilities.
We offer these services in over 125 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, 2013 Compared to Year Ended May 31, 2012
The following table sets forth the components of revenue and operating income from our operations for
fiscal years 2013 and 2012 (in thousands):
Year Ended
May 31, 2013
Year Ended
May 31, 2012
Increase
(Decrease)
$
%
Revenues:
TCM division
Inspection and Heat Treating . . . . . . . . . . .
Quest Integrity Group . . . . . . . . . . . . . . . .
$380,518
57,433
$314,408
40,422
$66,110
17,011
TMS division . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses:
Field operations . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Non-routine legal settlement
Total SG&A expenses . . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . . . .
437,951
276,360
714,311
212,965
135,495
22,860
—
158,355
992
354,830
268,910
623,740
195,051
117,044
21,893
800
139,737
1,183
83,121
7,450
90,571
17,914
18,451
967
(800)
18,618
(191)
21%
42%
23%
3%
15%
9%
16%
4%
100%
13%
(16)%
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 55,602
$ 56,497
$ (895)
(2)%
Revenues. Our revenues for the year ended May 31, 2013 were $714.3 million compared to $623.7 million
for the year ended May 31, 2012, an increase of $90.6 million or 15%. Revenues for our TCM division for the
year ended May 31, 2013 were $438.0 million compared to $354.8 million for the year ended May 31, 2012, an
increase of $83.1 million or 23%. Included in the TCM division for 2013 are revenues from Quest Integrity
17
Group, which became a stand-alone segment effective as of the beginning of fiscal year 2014. Quest Integrity
revenues of $57.4 million were up 42% over the prior year as a result of expanded pipeline integrity management
services and further market penetration of proprietary in-line inspection technologies. The remainder of the TCM
division, which now comprises the new Inspection and Heat Treating Services group, had revenues of $380.5
million, up $66.1 million, or 21% over the prior year. Included in that amount was $13 million of revenue
associated with businesses acquired during the year.
Revenues for our TMS division for the year ended May 31, 2013 were $276.4 million compared to $268.9
million for the year ended May 31, 2012, an increase of $7.5 million or 3%. TMS revenue growth was negatively
impacted by a reduction in the number of very large turnaround projects in the second half of the fiscal year 2013
as compared to the same period of fiscal year 2012.
The following table presents our revenues by customer demand drivers (in thousands):
Inspection and assessment . . . . . . . . . . . . . . . . . . . . . . .
Turnaround . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
On-stream services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
May 31, 2013
Year Ended
May 31, 2012
Increase
(Decrease)
$
$338,343
231,916
144,052
$714,311
$262,523
215,908
145,309
$75,820
16,008
(1,257)
$623,740
$90,571
%
29%
7%
(1)%
15%
Gross margin. Our gross margin for the year ended May 31, 2013 was $213.0 million compared to $195.1
million for the year ended May 31, 2012, an increase of $17.9 million or 9%. Gross margin as a percentage of
revenue was 30% for the year ended May 31, 2013 compared to 31% for the year ended May 31, 2012. The
decline in gross margin percentage was primarily due to higher indirect costs in the second half of the year.
Revenue growth rates declined as a result of a reduction in the number of very large turnaround projects in the
spring of 2013 compared to the very strong spring 2012 turnaround season.
Selling, general and administrative expenses. Our SG&A expenses for the year ended May 31, 2013 were
$158.4 million compared to $139.7 million for the year ended May 31, 2012, an increase of $18.6 million or
13%. As a percentage of revenues, SG&A expenses were 22% in the current year and the prior year.
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, 2013 and May 31, 2012 were $13.5 million and $12.3 million, respectively. Our share of the earnings
from the joint venture were $1.0 million for the year ended May 31, 2013 and $1.2 million for the year ended
May 31, 2012.
Interest. Interest expense was $2.7 million for the year ended May 31, 2013 compared to $2.4 million for
the year ended May 31, 2012.
Foreign currency loss (gain). There were $0.9 million currency transaction losses for the year ended
May 31, 2013 compared to gains of $0.1 million for the year ended May 31, 2012. Currency transaction gains
and losses are primarily due to fluctuations between the Venezuelan Bolivar and the U.S. Dollar. We account for
Venezuela as a highly-inflationary economy and accordingly, all currency fluctuations between the Bolivar and
the U.S. Dollar are recorded in our statement of operations. Due to the recent devaluation of the Bolivar in
February 2013, we recorded a $0.6 million foreign currency loss during the year ended May 31, 2013.
Management is closely monitoring currency valuation developments in Venezuela. If further devaluations occur
in fiscal year 2014, we will incur further impairments of our investment in Venezuela.
Taxes. The provision for income tax was $19.2 million on pre-tax income of $51.9 million for the year
ended May 31, 2013 compared to the provision for income tax of $19.4 million on pre-tax income of $52.5
million for the year ended May 31, 2012. The effective tax rate was 37% for the year ended May 31, 2013 and
May 31, 2012.
18
Year Ended May 31, 2012 Compared to Year Ended May 31, 2011
The following table sets forth the components of revenue and operating income from our operations for
fiscal years 2012 and 2011 (in thousands):
Year Ended
May 31, 2012
Year Ended
May 31, 2011
Increase
(Decrease)
$
%
Revenues:
TCM division
Inspection and Heat Treating . . . . . . . . .
Quest Integrity Group . . . . . . . . . . . . . . .
$314,408
40,422
$268,783
15,833
$ 45,625
24,589
17%
155%
TMS division . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses:
Field operations . . . . . . . . . . . . . . . . . . . . . . . .
Corporate costs . . . . . . . . . . . . . . . . . . . . . . . .
Non-routine acquisition costs . . . . . . . . . . . . .
Non-routine legal settlement . . . . . . . . . . . . . .
Total SG&A expenses . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . .
354,830
268,910
623,740
195,051
117,044
21,893
—
800
139,737
1,183
284,616
223,404
508,020
157,143
95,806
19,260
632
—
115,698
1,030
70,214
45,506
115,720
37,908
21,238
2,633
(632)
800
24,039
153
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 56,497
$ 42,475
$ 14,022
25%
20%
23%
24%
22%
14%
(100)%
100%
21%
15%
33%
Revenues. Our revenues for the year ended May 31, 2012 were $623.7 million compared to $508.0 million
for the year ended May 31, 2011, an increase of $115.7 million or 23%. Revenues for our TCM division for the
year ended May 31, 2012 were $354.8 million compared to $284.6 million for the year ended May 31, 2011, an
increase of $70.2 million or 25%. Revenues for our TMS division for the year ended May 31, 2012 were $268.9
million compared to $223.4 million for the year ended May 31, 2011, an increase of $45.5 million or 20%.
Organic revenue growth was approximately $100 million or 20% for the year ended May 31, 2012. Overall
revenue growth was broad based across services lines, geography and customers and was a result of strong
service performance, beginning the year with a strong tailwind as it relates to turnaround projects, expansion of
new services lines and capabilities, and long term procurement consolidation trends by our customers.
The following table presents our revenues by customer demand drivers (in thousands):
Inspection and assessment . . . . . . . . . . . . . . . . . . . . . .
Turnaround . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
On-stream services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
May 31, 2012
Year Ended
May 31, 2011
Increase
(Decrease)
$
$262,523
215,908
145,309
$623,740
$200,926
175,728
131,366
$ 61,597
40,180
13,943
$508,020
$115,720
%
31%
23%
11%
23%
Gross margin. Our gross margin for the year ended May 31, 2012 was $195.1 million compared to
$157.1 million for the year ended May 31, 2011, an increase of $37.9 million or 24%. Gross margin as a
percentage of revenue was 31% for the year ended May 31, 2012 and 2011. Gross margin for our TCM division
for the year ended May 31, 2012 was $110.2 million compared to $87.6 million for the year ended May 31, 2011,
an increase of $22.6 million or 26%. TCM division gross margin as a percentage of revenue was 31% for the
year ended May 31, 2012 and 2011. Gross margin for our TMS division was $84.9 million for the year ended
May 31, 2012 compared to $69.6 million for the year ended May 31, 2011, an increase of $15.3 million or 22%.
19
TMS division gross margin as a percentage of revenue was 32% for the year ended May 31, 2012 and 31% for
the year ended May 31, 2011. Gross margins for both divisions reflect relatively flat year over year job margins.
Fluctuations in gross margins are primarily impacted by service line mix.
Selling, general and administrative expenses. Our SG&A expenses for the year ended May 31, 2012 were
$139.7 million compared to $115.7 million for the year ended May 31, 2011, an increase of $24.0 million or
21%. SG&A expenses for the current year ended May 31, 2012 includes a non-routine $0.8 million pre-tax legal
settlement related to the resolution of a long outstanding personal injury matter and in the prior year included
$0.6 million of non-routine expense related to the Quest Integrity acquisition. Excluding these non-routine
charges, SG&A expenses for the year ended May 31, 2012 were $138.9 million, an increase of $23.9 million or
21%. SG&A expenses as a percentage of revenue, adjusted to exclude the non-routine charges, was 22% for the
year ended May 31, 2012 compared to 23% for the year ended May 31, 2011. The increase in SG&A expenses
primarily was related to compensation related costs within field operations supporting organic growth. Also
included in SG&A expenses were approximately $2.7 million in unusually elevated expenses in the year. First,
we incurred $2.0 million in increased medical costs accruals. We accrue medical costs based on our actuarial
expectation of claims. Due to an unusual number of major claims that hit during the fiscal year, our actual costs
exceeded our accruals, thus requiring the additional expense. Second, we incurred about $0.7 million in outside
legal and professional services expenses related to two recently completed acquisitions as well as significant
efforts on unsuccessful transaction activities.
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, 2012 and 2011 were $12.3 million and $9.9 million, respectively. As a result of the higher revenue
levels in the joint venture, and leverage of fixed costs of the joint venture, our share of the earnings from the joint
venture were $1.2 million, an increase of $0.2 million or 15%.
Interest. Interest expense was $2.4 million for the year ended May 31, 2012 compared to $2.2 million for
the year ended May 31, 2011. The increase is a result of higher interest rates applied to increased outstanding
borrowings.
Foreign currency (gain) loss. There were no significant currency transaction gains or losses for the year
ended May 31, 2012 and 2011, respectively.
Taxes. The provision for income tax for fiscal year 2012 was $19.4 million on pre-tax income of $52.5
million, compared to the provision for income tax for fiscal year 2011 of $13.5 million on pre-tax income of
$40.2 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. Our effective
tax rate for the fiscal year 2012 was 37% compared to 38% for the fiscal year 2011 which excludes the effect of
the $1.8 million portion of the cumulative adjustments related to prior years (see Note 8).
Liquidity and Capital Resources
Financing for our operations consists primarily of vendor financing and leasing arrangements, our banking
credit facility “Credit Facility” and cash flows attributable to our operations, which we believe are sufficient to
fund our business needs. In July 2011, we renewed our Credit Facility with our banking syndicate. The Credit
Facility has borrowing capacity of up to $150 million in multiple currencies, bears interest based on a variable
20
Eurodollar rate option (LIBOR plus 1.75% margin at May 31, 2013) with the margin based on financial
covenants set forth in the Credit Facility, and matures in July 2016. In connection with the renewal of the Credit
Facility, we capitalized $0.8 million of associated debt issuance costs which are being amortized over the life of
the Credit Facility. At May 31, 2013, we had $34.2 million of cash on hand and approximately $64 million of
available borrowing capacity through our Credit Facility. Our Credit Facility does not mature until July 2016 and
there are no mandatory payments before the maturity date. At that time, we expect to be able to renew the facility
based upon our long-term relationships with each member bank of our Credit Facility and the relatively low
credit leverage defined as our debt to EBITDA ratio. During fiscal year 2013, our net borrowing/repayment
activity resulted in a $13.6 million reduction to the outstanding balance of the Credit Facility compared to the
ending balance as of May 31, 2012.
In order to secure our casualty 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, 2013 and May 31, 2012, we were contingently liable for outstanding stand-by letters of credit
totaling $13.1 million and $13.5 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.
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, 2013, the €12.3 million borrowing had a U.S. Dollar value of $16.0 million.
Contractual Obligations
A summary of contractual obligations as of May 31, 2013 are as follows (in thousands):
Less than 1 year
1-3 years
3-5 years More than 5 years
Total
Long term debt obligations . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
14,736
—
$14,736
$ — $72,946
8,999
21,123
—
5,097
$26,220
$81,945
$ —
13,383
—
$13,383
$ 72,946
58,241
5,097
$136,284
A summary of long-term debt and other contractual obligations as of May 31, 2013 and May 31, 2012 is as
follows (in thousands):
May 31,
2013
2012
Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$72,946
—
$85,872
—
Long-term debt, excluding current maturities . . . . . . . .
$72,946
$85,872
Outstanding letters of credit
. . . . . . . . . . . . . . . . . . . . . . . . .
Leasing arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,149
$58,241
$ 5,097
$13,548
$36,121
—
Restrictions on cash. Included in our cash and cash equivalents at May 31, 2013, is $1.2 million of cash in
Venezuela and $16.5 million of cash in foreign subsidiaries (located primarily in Europe and Canada) where
earnings are considered by the Company to be permanently reinvested. In the event that some or all of this cash
were to be repatriated, we would be required to accrue and pay additional taxes. While not legally restricted from
21
repatriating this cash, we consider all undistributed earnings of these foreign subsidiaries in the amount of $14.4
million to be indefinitely reinvested and access to cash to be limited. Similarly, the uncertain economic and
political environment in Venezuela makes it very difficult to repatriate the cash of our Venezuelan subsidiary.
Due to the official devaluation of the Venezuelan currency, the Bolivar, in February 2013 we recorded a
devaluation loss of $0.6 million during the year ended May 31, 2013. Management is closely monitoring
currency valuation developments in Venezuela. If further devaluations occur in fiscal year 2014, we will incur
further impairments of our investment in Venezuela.
Cash flows attributable to our operating activities. For the year ended May 31, 2013, net cash provided by
operating activities was $58.6 million. Positive operating cash flow was primarily attributable to net income of
$32.7 million, depreciation and amortization of $19.7 million, and non-cash compensation cost of $3.9 million
offset by a $3.1 million increase in working capital.
Cash flows attributable to our investing activities. For the year ended May 31, 2013, net cash used in
investing activities was $42.9 million, consisting primarily of $26.1 million of capital expenditures and $18.6
million related to business acquisitions. 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, 2013, net cash used in
financing activities was $3.9 million consisting primarily of $13.6 million of cash related to net payments made
under the Credit Facility.
Effect of exchange rate changes on cash. For the year ended May 31, 2013, the effect of exchange rate
changes on cash was a negative impact of $0.2 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
• 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, 2013 and May 31, 2012, the amount of earned but unbilled revenue included in accounts receivable
was $25.5 million and $20.6 million, respectively.
22
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.
Through the end of fiscal year 2013 we operated in only one segment—the industrial services segment (see
Note 14). Within the industrial services segment, we were organized as two divisions. Our TCM division
provided the services of inspection and assessment and field heat treating. Our TMS division provided the
services of leak repair, fugitive emissions, hot tapping, field machining, technical bolting, field valve repair and
other mechanical services. Each division has goodwill relating to past acquisitions and we assess goodwill for
impairment at the 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.
Prior to the adoption of Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment,
“ASU 2011-08” at May 31, 2012, the annual impairment test for goodwill was a two-step process that involved
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 exceeded its carrying amount, the goodwill of the business unit was not considered
impaired; therefore, the second step of the impairment test was deemed unnecessary. If the carrying amount of a
business unit exceeded 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 tested, the fair
values of reporting units in fiscal year 2011 was 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 estimated fair value by discounting
each reporting unit’s estimated future cash flows using a discount rate that approximated both our weighted-
average cost of capital and reflects current market conditions.
The fair value derived from the income approach in our fiscal year 2011 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
reviewed 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.
On May 31, 2012, we adopted ASU 2011-08 which requires reporting entities to assess relevant events and
circumstances in evaluating whether it is more likely than not that the fair value of a reporting unit is less than
the carrying amount of goodwill. If, after assessing the totality of events and circumstances, an entity determines
that it is more likely than not that the fair value of a reporting unit is greater than the carrying amount, then the
first and second steps of the goodwill impairment test are not necessary. We evaluated considerations under ASU
23
2011-08 such as macroeconomic effects on our business, industry and market considerations, cost factors that
could have a negative effect on cash flows or earnings, overall financial performance, entity-specific events,
events affecting reporting units, and any realization of a sustained decrease in the price of our stock. After
consideration of the aforementioned events and circumstances, we concluded that it was more likely than not that
the fair value of a reporting unit was greater than the carrying amount of goodwill. Accordingly, we did not
perform the two-step process described above for our fiscal year 2012 and 2013 annual tests.
There was $103.5 million and $95.0 million of goodwill at May 31, 2013 and May 31, 2012, respectively. A
summary of goodwill is as follows (in thousands):
Twelve Months Ended
May 31, 2013
Twelve Months Ended
May 31, 2012
TCM Division TMS Division
Total
TCM Division TMS Division
Total
Balance at beginning of year . . .
Acquisitions . . . . . . . . . . . . . . . .
Foreign currency adjustments . . .
$75,131
9,009
195
$19,871
(1,221)
481
$ 95,002
7,788
676
$76,872
—
(1,741)
$12,648
8,926
(1,703)
$89,520
8,926
(3,444)
Balance at end of year
. . . . . . . .
$84,335
$19,131
$103,466
$75,131
$19,871
$95,002
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.
In accordance with ASC 740, we are required to assess the likelihood that our deferred tax assets will be
realized 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 existing taxable temporary differences 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. 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,
2013, we believe that it is more likely than not that we will have sufficient reversals of temporary differences and
future taxable income to allow us to realize 100% of the benefits of the net deferred tax assets and accordingly,
no material valuation allowance is recorded. Our belief is based upon our track record of consistent earnings over
the past six years and projections of future taxable income over the periods in which the deferred tax assets are
deductible. As of May 31, 2013, our deferred tax assets were $11.0 million, and our deferred tax liabilities were
$22.1 million.
Significant judgment is required in assessing the timing and amounts of deductible and taxable items for tax
purposes. In accordance with ASC 740-10, we establish reserves for uncertain tax positions when, despite our
belief that our tax return positions are fully supportable, we believe that certain positions may be challenged and
potentially disallowed. When facts and circumstances change, we adjust these reserves through our provision for
income taxes. To the extent interest and penalties may be assessed by taxing authorities on any related
24
underpayment of income tax, such amounts have been accrued and are classified as a component of income tax
expense in our Consolidated Statements of Income. As of May 31, 2013, our unrecognized tax benefits related to
uncertain tax positions were $0.7 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,
our self-insured retention is $1 million and our automobile liability self-insured retention is currently $500,000
per occurrence. For general liability claims we have an effective self-insured retention of $3 million per
occurrence. For medical claims, our self-insured retention is $175,000 per individual claimant determined on an
annual basis. For environmental liability claims, our self-insured retention is $500,000 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.
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
ASU 2011-05. In June 2011, the FASB issued an update to existing guidance on the presentation of
comprehensive income. This update requires the presentation of the components of net income and other
comprehensive income either in a single continuous statement or in two separate but consecutive statements. In
addition, companies are also required to present reclassification adjustments for items that are reclassified from
other comprehensive income to net income on the face of the financial statements. In December 2011, the FASB
issued an accounting update to defer the effective date for presentation of reclassification of items out of
accumulated other comprehensive income to net income. These updates are effective for fiscal years and interim
periods beginning after December 15, 2011 with early adoption permitted. This update was adopted by Team on
June 1, 2012. The adoption of this pronouncement did not have a material effect on our results of operations,
financial position or cash flows.
ASU 2011-04. In May 2011, an update regarding fair value measurement was issued to conform the
definition of fair value and common requirements for measurement of and disclosure about fair value under U.S.
GAAP and International Financial Reporting Standards. The standard also clarifies the application of existing
fair value measurement requirements and expands the disclosure requirements for fair value measurements that
25
are estimated using significant unobservable Level 3 inputs. The standard update is effective for interim and
annual periods beginning after December 15, 2011. The adoption of this standard did not have a material impact
on our results of operations, financial position or cash flows.
Accounting Principles Not Yet Adopted
ASU 2011-11. In December 2011, an update was issued related to new disclosures on offsetting assets and
liabilities of financial and derivative instruments. The amendments require the disclosure of gross asset and
liability amounts, amounts offset on the balance sheet and amounts subject to the offsetting requirements, but not
offset on the balance sheet. This standard does not amend the existing guidance on when it is appropriate to
offset. The standard update is effective for annual periods beginning after January 1, 2013. We do not expect the
adoption of this standard to have a material 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,
2013, the exchange rate with the Euro increased from $1.24 per Euro to $1.30 per Euro, an increase of 5%.
During the same period, the exchange rate with the Canadian Dollar remained constant at $0.97 per Canadian
Dollar. For foreign subsidiaries with a functional currency that 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 shareholders’ equity. Foreign currency translation losses in other comprehensive
income were $1.1 million for the year ended May 31, 2013.
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, 2013, our Venezuelan subsidiary had $2.8 million of net assets denominated in Venezuelan
Bolivars and translated into U.S. Dollars. We account for Venezuelan operations pursuant to accounting guidance
for hyperinflationary economies. Following the designation of the Venezuelan economy as hyperinflationary, we
ceased recording the effects of currency fluctuations to accumulated other comprehensive income and began
reflecting all effects as a component of other income in our statement of operations. We use the Venezuelan
central bank’s official published rate (6.30 Bolivars per U.S. Dollar) to translate Venezuelan assets into U.S.
Dollars as no other legal rate is 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 $0.3 million. As discussed above, there
was an official devaluation of the Venezuelan currency, the Bolivar, in February 2013 which resulted in the
recognition of a devaluation loss of $0.6 million during the year ended May 31, 2013. Management is closely
monitoring currency valuation developments in Venezuela. If further devaluations occur in fiscal year 2014, we
will incur further impairments of our investment in Venezuela.
We hold certain floating-rate obligations. We are exposed to market risk primarily related to potential
increases in interest rates related to our debt.
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.
26
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 individual acts, by collusion of two or more people, or by management override of the controls.
The design of any system of controls is also based in part on certain assumptions about the likelihood of future
events and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of management’s assessments of the current effectiveness of our disclosure
controls and procedures and its internal control over financial reporting are subject to risks. However, our
disclosure controls and procedures are designed to provide reasonable assurance that the objectives of our control
system are met.
Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, an
evaluation was carried out under the supervision and with the participation of our management, including our
Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the
Securities Exchange Act of 1934, as amended (“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.
Based on this evaluation, our CEO and CFO concluded that, as of May 31, 2013, 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.
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.
27
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, 2013.
Attestation report of the registered public accounting firm
The attestation report of KPMG LLP, the Company’s independent registered public accounting firm, on the
Company’s internal control over financial reporting is set forth in this Annual Report on Form 10-K on page 31
and is incorporated herein by reference.
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 ended May 31, 2013.
ITEM 9B. OTHER INFORMATION
None.
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, 2013, 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 AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING 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, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the Years Ended May 31, 2013, 2012 and 2011 . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended May 31, 2013, 2012 and 2011 . . . .
Consolidated Statements of Shareholders’ Equity for the Years Ended May 31, 2013, 2012 and 2011 . . . . . .
Consolidated Statements of Cash Flows for the Years Ended May 31, 2013, 2012 and 2011 . . . . . . . . . . . . . .
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 Shareholders
Team, Inc. and Subsidiaries:
We have audited Team Inc. and Subsidiaries’ (the Company) internal control over financial reporting as of
May 31, 2013, 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, 2013, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Team Inc. and Subsidiaries as of May 31, 2013 and 2012, and
the related consolidated statements of income, comprehensive income, shareholders’, and cash flows for each of
the years in the three-year period ended May 31, 2013, and our report dated August 12, 2013 expressed an
unqualified opinion on those consolidated financial statements.
(signed) KPMG LLP
Houston, Texas
August 12, 2013
31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Team, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Team, Inc. and Subsidiaries (the
Company) as of May 31, 2013 and 2012, and the related consolidated statements of income, comprehensive
income, shareholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2013.
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, 2013 and 2012, and the results of their
operations and their cash flows for each of the years in the three-year period ended May 31, 2013, 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.’s internal control over financial reporting as of May 31, 2013, 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 12, 2013 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
(signed) KPMG LLP
Houston, Texas
August 12, 2013
32
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
May 31,
2013
2012
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net of allowance of $5,438 and $4,405 . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34,201
172,108
26,507
5,321
8,781
$ 22,477
157,625
24,986
5,157
8,430
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $9,039 and $5,658 . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
246,918
74,939
5,207
25,950
103,466
2,907
816
218,675
62,041
5,830
18,508
95,002
3,081
651
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$460,203
$403,788
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,411
49,165
1,228
72,804
17,166
72,946
5,097
18,427
38,492
4,737
61,656
11,259
85,872
—
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
168,013
158,787
Commitments and contingencies
Equity:
Preferred stock, 500,000 shares authorized, none issued . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.30 per share, 30,000,000 shares authorized; 20,587,808
and 19,954,996 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 89,569 and 89,569 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Team shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest
—
—
6,176
99,278
184,485
(1,789)
(1,344)
286,806
5,384
5,985
85,801
152,049
(2,587)
(1,344)
239,904
5,097
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
292,190
245,001
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$460,203
$403,788
See accompanying 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,
2013
2012
2011
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$714,311
501,346
$623,740
428,689
$508,020
350,877
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
212,965
158,355
992
195,051
139,737
1,183
157,143
115,698
1,030
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of property costs (see Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Provision for income taxes (see Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Less: Income attributable to non-controlling interest
55,602
2,734
—
943
51,925
19,211
32,714
278
56,497
2,380
1,658
(31)
52,490
19,422
33,068
157
42,475
2,156
—
147
40,172
13,548
26,624
39
Net income available to Team shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 32,436
$ 32,911
$ 26,585
Net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share: Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.61
1.53
$
$
1.67
1.59
$
$
1.38
1.32
See accompanying notes to consolidated financial statements.
34
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Twelve Months Ended May 31,
2013
2012
2011
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax provision attributable to other comprehensive income . . . . . . . . . . . . . . . . . . .
$32,714
1,070
(674)
411
$33,068
(8,264)
2,385
318
$26,624
8,349
(2,587)
(367)
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .
Less: Total comprehensive income attributable to non-controlling interest
33,521
287
27,507
114
32,019
66
Total comprehensive income available to Team shareholders . . . . . . . . . . . . . . . .
$33,234
$27,393
$31,953
See accompanying notes to consolidated financial statements.
35
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S
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Twelve Months Ended May 31,
2013
2012
2011
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
$ 32,714
$ 33,068
$ 26,624
activities:
Earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on asset disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of property costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash compensation cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease:
(992)
19,664
193
222
943
5,089
—
3,931
(1,183)
17,469
(21)
283
(31)
(717)
1,658
4,386
(1,030)
14,584
437
303
147
(1,405)
—
4,993
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,964)
(1,405)
443
(16,990)
(3,629)
(559)
(25,048)
(1,231)
(1,320)
Increase (decrease):
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,210
7,779
(2,184)
(5,965)
6,871
2,012
3,578
8,070
(222)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,643
36,652
28,480
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26,068)
758
(18,589)
1,000
—
(23,924)
220
(19,351)
800
(9)
(13,158)
—
(41,376)
750
(158)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42,899)
(42,264)
(53,942)
Cash flows from financing activities:
. . . . . . . . . . . . . . .
(Payment) borrowings under revolving credit agreement, net
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to term and auto notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment related to withholding tax for share-based payment arrangements . . . .
Corporate tax effect from share-based payment arrangements . . . . . . . . . . . . . . .
Issuance of common stock from share-based payment arrangements . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,600)
—
—
(1,534)
2,996
8,275
—
(3,863)
(157)
11,724
22,477
12,707
(799)
(235)
(868)
1,533
2,997
—
15,335
(1,324)
8,399
14,078
25,437
—
(343)
(433)
551
2,230
(1,344)
26,098
832
1,468
12,610
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34,201
$ 22,477
$ 14,078
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,615
$ 12,926
$ 2,315
$ 16,474
$ 2,100
$ 14,034
See accompanying 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 tangible and intangible assets and subsequent assessments for possible impairment, (3) the fair
value of the non-controlling interest in subsidiaries that are not wholly-owned, (4) estimating various factors used
to accrue liabilities for workers’ compensation, auto, medical and general liability, (5) establishing an allowance
for uncollectible accounts receivable, (6) estimating the useful lives of our assets and (7) assessing future tax
exposure and the realization of tax 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
2-15 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 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 to the job site 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, 2013 and May 31, 2012, the amount of earned but unbilled
revenue included in accounts receivable was $25.5 million and $20.6 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 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.
Through fiscal year 2013 we operated in only one segment—the industrial services segment (see Note 14).
Within the industrial services segment, we were 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.
Prior to the adoption of ASU 2011-08 at May 31, 2013, the annual impairment test for goodwill was a two-step
process that involved 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 exceeded its carrying amount, the goodwill of the business
unit was not considered impaired; therefore, the second step of the impairment test was deemed unnecessary. If
the carrying amount of a business unit exceeded 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 tested, the fair values of reporting units in fiscal year 2011 was 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 estimated fair
value by discounting each reporting unit’s estimated future cash flows using a discount rate that approximated
both our weighted-average cost of capital and reflects current market conditions.
The fair value derived from the income approach in our fiscal year 2011 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
reviewed 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
On May 31, 2012, we adopted ASU 2011-08 which requires reporting entities to assess relevant events and
circumstances in evaluating whether it is more likely than not that the fair value of a reporting unit is less than
the carrying amount of goodwill. If, after assessing the totality of events and circumstances, an entity determines
that it is more likely than not that the fair value of a reporting unit is greater than the carrying amount, then the
first and second steps of the goodwill impairment test are not necessary. We evaluated considerations under ASU
2011-08 such as macroeconomic effects on our business, industry and market considerations, cost factors that
could have a negative effect on cash flows or earnings, overall financial performance, entity-specific events,
events affecting reporting units, and any realization of a sustained decrease in the price of our stock. After
consideration of the aforementioned events and circumstances, we concluded that it was more likely than not that
the fair value of a reporting unit was greater than the carrying amount of goodwill. Accordingly, we did not
perform the two-step process described above for our fiscal year 2012 and 2013 annual tests.
There was $103.5 million and $95.0 million of goodwill at May 31, 2013 and May 31, 2012, respectively. A
summary of goodwill is as follows (in thousands):
Twelve Months Ended
May 31, 2013
Twelve Months Ended
May 31, 2012
TCM Division TMS Division
Total
TCM Division TMS Division
Total
Balance at beginning of year . . .
Acquisitions . . . . . . . . . . . . . . . .
Foreign currency adjustments . . .
$75,131
9,009
195
$19,871
(1,221)
481
$ 95,002
7,788
676
$76,872
—
(1,741)
$12,648
8,926
(1,703)
$89,520
8,926
(3,444)
Balance at end of year
. . . . . . . .
$84,335
$19,131
$103,466
$75,131
$19,871
$95,002
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 realized, and, to the extent we believe that it is more likely than not 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 existing taxable temporary differences 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, our self-insured retention is
$1.0 million and our automobile liability self-insured retention is currently $500,000 per occurrence. For general
liability claims we have an effective self-insured retention of $3.0 million per occurrence. For medical claims,
our self-insured retention is $175,000 per individual claimant determined on an annual basis. For environmental
liability claims, our self-insured retention is $500,000 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.
40
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.
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):
Twelve Months Ended
May 31,
2013
2012
2011
Weighted-average number of basic shares outstanding . . . . . . . . . . . . . .
Stock options, stock units and performance awards . . . . . . . . . . . . . . . .
Assumed conversion of non-controlling interest . . . . . . . . . . . . . . . . . . .
20,203
759
204
19,667
758
235
19,206
728
149
Total shares and dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,166
20,660
20,083
There were zero, 617,500 and 743,000 options to purchase shares of common stock outstanding during the
twelve month periods ended May 31, 2013, 2012 and 2011 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 shareholders’ 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 16).
Newly Adopted Accounting Principles
ASU 2011-05. In June 2011, the FASB issued an update to existing guidance on the presentation of
comprehensive income. This update requires the presentation of the components of net income and other
comprehensive income either in a single continuous statement or in two separate but consecutive statements. In
addition, companies are also required to present reclassification adjustments for items that are reclassified from
other comprehensive income to net income on the face of the financial statements. In December 2011, the FASB
issued an accounting update to defer the effective date for presentation of reclassification of items out of
accumulated other comprehensive income to net income. These updates are effective for fiscal years and interim
periods beginning after December 15, 2011 with early adoption permitted. This update was adopted by Team on
June 1, 2012. The adoption of this pronouncement did not have a material effect on our results of operations,
financial position or cash flows.
41
ASU 2011-04. In May 2011, an update regarding fair value measurement was issued to conform the
definition of fair value and common requirements for measurement of and disclosure about fair value under U.S.
GAAP and International Financial Reporting Standards. The standard also clarifies the application of existing
fair value measurement requirements and expands the disclosure requirements for fair value measurements that
are estimated using significant unobservable Level 3 inputs. The standard update is effective for interim and
annual periods beginning after December 15, 2011. The adoption of this standard did not have a material impact
on our results of operations, financial position or cash flows.
Accounting Principles Not Yet Adopted
ASU 2011-11. In December 2011, an update was issued related to new disclosures on offsetting assets and
liabilities of financial and derivative instruments. The amendments require the disclosure of gross asset and
liability amounts, amounts offset on the balance sheet and amounts subject to the offsetting requirements, but not
offset on the balance sheet. This standard does not amend the existing guidance on when it is appropriate to
offset. The standard update is effective for annual periods beginning after January 1, 2013. We do not expect the
adoption of this standard to have a material impact on our results of operations, financial position or cash flows.
2. ACQUISITIONS
In August 2012, Team’s subsidiary, Quest Integrity, acquired a specialty remote digital video inspection
company based in New Zealand for approximately $3.0 million in cash. Based upon the completed purchase
price allocation, we have recorded $0.7 million in fixed assets, $1.1 million in intangible assets classified as
customer relationships, $0.3 million in intangible assets classified as non-compete agreements and $0.9 million
in goodwill. In September 2012, Team also acquired the common stock of TCI for approximately $23.2 million,
of which $16.5 million was cash paid and $6.7 million was deferred payments. TCI is a company based in
Oklahoma specializing in the inspection and repair of above ground storage tanks. Based upon the completed
purchase price allocation associated with the TCI acquisition, we recorded $4.1 million in net working capital,
$2.6 million in fixed assets, $6.7 million in intangible assets classified as customer relationships, $1.1 million in
intangible assets classified as trade name, $8.6 million in goodwill, $1.0 million in other current liabilities and
$5.7 million in other long-term liabilities. The $1.0 million in other current liabilities and $5.7 million in other
long-term liabilities represent future consideration to be paid, of which $1.9 million is an estimate of contingent
payments to be made based upon the future performance criteria of TCI and the remainder is due in annual
installments of $1.0 million beginning in September 2013. The combined unaudited annual revenues for both
acquired businesses are approximately $24 million based upon their most recently completed fiscal years, and the
total consideration for both was approximately $26 million, subject to adjustments for working capital true-ups
and the future performance of the businesses. As a result of the two business acquisitions, we expect to be able to
deduct $6.7 million of the goodwill recognized for tax purposes. Of the $8.6 million of TCI goodwill, $1.9
million is contingent consideration and will be considered deductible when paid.
In fiscal year 2012, we completed two small acquisitions for a total of $19.4 million which were recorded as
$1.2 million in net working capital, $3.0 million in fixed assets, $7.5 million in intangible assets classified as
customer relationships and $7.7 million in goodwill. Both acquisitions were financed through borrowings on our
Credit Facility. We performed purchase price allocations based on our most current assessments of fair value of
the assets acquired and the liabilities assumed. We completed a final valuation report of intangibles and goodwill
associated with these transactions during the first half of fiscal year 2013. The final purchase price allocation
associated with both of these transactions did not result in material adjustments and, accordingly, no
retrospective adjustments were made in the accompanying 2012 financial statements.
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,
42
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 are reflected in our TCM division.
3. RECEIVABLES
A summary of accounts receivable as of May 31, 2013 and 2012 is as follows (in thousands):
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . .
$152,030
25,516
(5,438)
$141,469
20,561
(4,405)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$172,108
$157,625
May 31,
2013
2012
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, 2013, 2012 and 2011 (in thousands):
Twelve Months Ended
May 31,
2013
2012
2011
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Write-off of bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,405
2,922
(1,889)
$ 4,222
1,650
(1,467)
$ 4,934
1,048
(1,760)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,438
$ 4,405
$ 4,222
4. INVENTORY
A summary of inventory as of May 31, 2013 and 2012 is as follows (in thousands):
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,460
845
22,202
$ 3,529
937
20,520
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,507
$24,986
May 31,
2013
2012
43
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of May 31, 2013 and 2012 is as follows (in thousands):
May 31,
2013
2012
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and computer software . . . . . . . . . . . . . . . . .
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,108
18,445
137,439
4,469
8,871
3,842
3,816
$
1,285
15,095
121,533
2,246
7,980
2,624
1,912
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . .
179,990
(105,051)
152,675
(90,634)
Property, plant, and equipment, net . . . . . . . . . . . . . . . . .
$ 74,939
$ 62,041
Depreciation expense for fiscal years ended May 31, 2013, 2012 and 2011 was $16.2 million, $14.9 million,
and $13.6 million, respectively.
In the fourth quarter of the year ended May 31, 2012, we incurred a $1.7 million charge to write-off
development costs capitalized through 2009 related to a planned new headquarters, manufacturing, equipment
and training facility that was to have been constructed on an approximately 50 acre tract of land in Houston,
Texas that was acquired in 2007. The charge was due to management’s decision not to pursue the development of
the site. Instead, our former corporate headquarters facility in Alvin, Texas was repurposed as a technical center
for operations support and the corporate headquarters was relocated to a leased commercial office space in Sugar
Land, Texas, a suburb of Houston.
6. INTANGIBLE ASSETS
A summary of intangible assets as of May 31, 2013 and 2012 is as follows (in thousands):
May 31, 2013
Gross
Carrying
Amount
Accumulated
Amortization
Customer relationships . . . . . . . . . . . . . . . . . . $21,418
3,701
Non-compete agreements . . . . . . . . . . . . . . . .
4,075
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . .
5,112
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . .
683
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(4,168)
(3,232)
(424)
(1,166)
(49)
Net
Carrying
Amount
$17,250
469
3,651
3,946
634
Gross
Carrying
Amount
$12,198
3,136
2,962
5,112
758
May 31, 2012
Accumulated
Amortization
$(1,973)
(2,844)
(207)
(634)
—
Net
Carrying
Amount
$10,225
292
2,755
4,478
758
$34,989
$(9,039)
$25,950
$24,166
$(5,658)
$18,508
Amortization expense for fiscal years ended May 31, 2013, 2012 and 2011 was $3.4 million, $2.6 million,
and $1.0 million, respectively. Amortization expense for current intangible assets is forecasted to be
approximately $3.6 million per year through fiscal year 2018.
44
7. OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities as of May 31, 2013 and 2012 is as follows (in thousands):
Payroll and other compensation expenses . . . . . . . . . . . . . . . . . . . . . . .
Insurance accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, sales and other non-income related taxes . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32,093
5,385
2,385
9,302
$27,871
4,388
1,966
4,267
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49,165
$38,492
May 31,
2013
2012
8. INCOME TAXES
For the years ended May 31, 2013, 2012 and 2011, we were taxed on income from continuing operations at
an effective tax rate of 37%, 37% and 38%, respectively. Our income tax provision for May 31, 2013, 2012 and
2011 was $19.2 million, $19.4 million and $13.5 million, respectively, and include federal, state and foreign
taxes. The components of our tax provision were as follows (in thousands):
Year ended May 31, 2013:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Federal
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended May 31, 2012:
U.S. Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended May 31, 2011:
U.S. Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State & local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$ 7,947
1,847
4,328
$ 4,873
236
(20)
$12,820
2,083
4,308
$14,122
$ 5,089
$19,211
$10,918
1,880
7,378
$
379
62
(1,195)
$11,297
1,942
6,183
$20,176
$ (754)
$19,422
$ 8,546
1,676
4,872
$ (984)
24
(586)
$ 7,562
1,700
4,286
$15,094
$(1,546)
$13,548
The components of pre-tax income for the years ended May 31, 2013, 2012 and 2011 were as follows (in
thousands):
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,445
14,480
$31,984
20,506
$27,641
12,531
$51,925
$52,490
$40,172
Twelve Months Ended May 31,
2013
2012
2011
45
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,
2013
2012
2011
Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51,925
$52,490
$40,172
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,174
1,570
(363)
(113)
473
(340)
—
(190)
$18,371
1,342
(471)
(161)
470
(233)
—
104
$14,060
1,135
(326)
(178)
350
(197)
(1,682)
386
Total provision for income tax . . . . . . . . . . . . . . . . . .
$19,211
$19,422
$13,548
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,
2013
2012
Deferred tax assets:
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,819
1,686
598
3,671
175
1,158
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,107
(65)
11,042
(12,548)
(5,308)
(261)
(1,973)
(1,263)
(718)
$ 4,386
1,330
598
4,755
242
818
12,129
—
12,129
(9,798)
(4,406)
(672)
(420)
(1,518)
(766)
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(22,071)
(17,580)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(11,029)
$ (5,451)
As of May 31, 2013, we had no material valuation allowance reducing our deferred tax assets. In assessing
the realizability of deferred tax assets, we consider whether, based on the weight of available evidence, 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 various sources of taxable income prescribed by ASC 740, against which
future deductible temporary differences can be deducted. We consider future reversals of existing temporary
differences, projected taxable income and tax planning strategies in making this determination.
46
As of May 31, 2013, we had net operating loss carry forwards totaling $0.4 million that were expected to be
realized in fiscal year 2013. Of this amount $0.1 million will expire in fiscal year 2022, $0.3 million has an
unlimited life.
At May 31, 2013, undistributed earnings of foreign operations totaling $14.4 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.
At May 31, 2013, we have established liabilities for uncertain tax positions of $0.7 million, inclusive of
interest and penalties. To the extent these uncertainties are ultimately resolved favorably, the resulting 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 2010. The income tax laws and regulations
are voluminous and are often ambiguous. As such, we are required to make certain subjective assumptions and
judgments regarding our tax positions that may have a material effect on our results of operations, financial
position or cash flows. We believe, however, that there is appropriate support for the income tax positions taken,
and to be taken, on our returns, and that our accruals for tax liabilities are adequate for all open tax years based
on an assessment of many factors including past experience and interpretations of tax law applied to the facts of
each matter.
Set forth below is a reconciliation of the changes in our unrecognized tax benefits associated with uncertain
tax positions (in thousands):
Balance at beginning of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year
Ended May 31
2013
$ 624
—
191
2012
$ 421
326
—
2011
$321
112
—
(118)
$ 697
(123)
$ 624
(12)
$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.
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 fiscal
year 2011.
Recent Legislation
The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013 and includes an
extension for one year of the 50% bonus depreciation allowance. The provision specifically applies to qualifying
property placed in service before January 1, 2014. The acceleration of deductions for the year ended May 31,
47
2013 on qualifying capital expenditures resulting from the bonus depreciation provision had no impact on our
current period effective tax rate because the acceleration of deductions does not result in permanent differences
between asset bases for financial reporting purposes and income tax purposes. The act also reinstated the
research and development credit retroactively from January 1, 2012 through December 31, 2013. This change in
legislation resulted in a permanent decrease in income tax expense for the year ended May 31, 2013 of
$0.5 million.
9. LONG-TERM DEBT, DERIVATIVES AND LETTERS OF CREDIT
In fiscal year 2012, we renewed our banking credit facility with our banking syndicate. The Credit Facility
has borrowing capacity of up to $150 million in multiple currencies, is secured by virtually all of our domestic
assets and a majority of the stock of our foreign subsidiaries and matures in July of 2016. In connection with the
renewal, we capitalized $0.8 million of associated debt issuance costs which will be amortized over the life of the
Credit Facility. The Credit Facility bears interest at LIBOR plus 1.75% and has commitment fees of 0.30% on
unused borrowing capacity.
Future maturities of long-term debt, reflecting the Credit Facility are as follows (in thousands):
Fiscal Year
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
—
—
72,946
—
—
$72,946
In order to secure our casualty 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 $13.1 million and $13.5
million at May 31, 2013 and 2012, 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.
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.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the
gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into
earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on
48
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.
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, 2013, the €12.3 million borrowing had a U.S. Dollar value of $16.0 million.
The amounts recognized in other comprehensive income, and reclassified into income, for the twelve
months ended May 31, 2013 and 2012, are as follows (in thousands):
Gain (Loss)
Recognized in
Other
Comprehensive
Income
Twelve Months
Ended May 31,
2013
2012
Euro denominated long-term debt
. . . . . . . . . . . . . . . . . . . .
$(674)
$2,385
Gain (Loss) Reclassified
from Other
Comprehensive
Income to
Earnings
Twelve Months
Ended May 31,
2013
$ —
2012
$ —
The following table presents the fair value totals and balance sheet classification for derivatives and non-
derivative instruments designated as hedges under ASC 815 (in thousands):
May 31, 2013
May 31, 2012
Classification
Balance Sheet
Location
Fair
Value Classification
Balance Sheet
Location
Fair
Value
Euro denominated long-
term debt . . . . . . . . . . . . . Liability Long-term debt $2,004 Liability Long-term debt $2,678
We enter into operating leases to rent facilities and obtain vehicles and equipment for our field operations.
Our obligations under non-cancellable operating leases, primarily consisting of facility and auto leases, were
approximately $58.2 million at May 31, 2013 and are as follows (in thousands):
Twelve Months Ended May 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating
Leases
$14,736
12,055
9,068
5,466
3,533
13,383
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,241
Total rent expense resulting from operating leases for the twelve months ended May 31, 2013, 2012 and
2011 was $23.5 million, $20.5 million and $18.8 million, respectively.
10. 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.
49
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
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, 2013 and May 31, 2012, 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, 2013
Quoted Prices
in Active
Markets for
Identical
Items (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3) Total
Liabilities:
Euro denominated long-term debt . . . . . . . . .
$ —
$2,004
$ —
$2,004
May 31, 2012
Quoted Prices
in Active
Markets for
Identical
Items (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3) Total
Liabilities:
Euro denominated long-term debt . . . . . . . . .
$ —
$2,678
$ —
$2,678
11. 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, 2013, there were approximately 1.4 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 7,120,000 at May 31, 2013. 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 $3.9 million, $4.4 million and $5.0 million for the years ended May 31, 2013, 2012 and
50
2011, respectively. The tax benefit related to share-based compensation was $3.0 million, $1.5 million and $0.6
million for the years ended May 31, 2013, 2012 and 2011, respectively. At May 31, 2013, $7.7 million of
unrecognized compensation expense related to share-based compensation is expected to be recognized over a
remaining weighted-average period of 2.7 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. There was no compensation expense
related to stock options for the year ended May 31, 2013 as all stock options were fully vested as of the
beginning of the year. Compensation expense related to stock options totaled $0.8 million and $2.4 million in
2012 and 2011. 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, 2013, 2012 and 2011 are summarized below:
Year Ended
May 31, 2013
Year Ended
May 31, 2012
Year Ended
May 31, 2011
No. of
Options
Weighted
Average
Exercise Price
No. of
Options
Weighted
Average
Exercise Price
No. of
Options
Weighted
Average
Exercise Price
Shares under option, beginning of year . . .
Changes during the year:
(in thousands)
1,562
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . .
—
(509)
(1)
—
Shares under option, end of year . . . . . . . .
Exercisable at end of year . . . . . . . . . . . . .
1,052
1,052
$18.95
$ —
$16.25
$30.33
$ —
$20.24
$20.24
(in thousands)
1,856
—
(278)
(2)
(14)
1,562
1,562
$17.81
$ —
$10.77
$30.33
$30.33
$18.95
$18.95
(in thousands)
2,213
—
(329)
(13)
(15)
1,856
1,711
$16.50
$ —
$ 8.08
$30.33
$26.56
$17.81
$16.75
Options exercisable at May 31, 2013 had a weighted-average remaining contractual life of 3.5 years. For
total options outstanding at May 31, 2013, the range of exercise prices and remaining contractual lives are as
follows:
Range of Prices
$6.42 to $9.62 . . . . . . . . . . . . . . . . . . . . . . . . . .
$9.63 to $12.82 . . . . . . . . . . . . . . . . . . . . . . . . .
$12.83 to $16.03 . . . . . . . . . . . . . . . . . . . . . . . .
$16.04 to $32.05 . . . . . . . . . . . . . . . . . . . . . . . .
No. of
Options
(in thousands)
122
157
308
465
1,052
Weighted
Average
Exercise Price
$ 8.92
$11.10
$14.56
$30.05
$20.24
Weighted
Average
Remaining
Life
(in years)
1.9
2.7
3.1
4.4
3.5
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. Compensation expense related to performance awards totaled $0.6 million, $0.5 million and $0.4
51
million for the years ended May 31, 2013, 2012 and 2011, respectively. Transactions involving our performance
awards during the years ended May 31, 2013, 2012 and 2011 are summarized below:
Year Ended
May 31, 2013
Year Ended
May 31, 2012
Year Ended
May 31, 2011
No. of
Performance
Awards
Weighted
Average
Fair Value
No. of
Performance
Awards
Weighted
Average
Fair Value
No. of
Performance
Awards
Weighted
Average
Fair Value
Performance awards, beginning of year . . .
Changes during the year:
Granted . . . . . . . . . . . . . . . . . . . . . . . .
Vested and settled . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . .
Performance awards, end of year
. . . . . . . .
(in thousands)
64
19
(26)
—
57
$21.86
$32.89
$22.04
$ —
$25.47
(in thousands)
61
24
(21)
—
64
$20.33
$25.16
$21.14
$ —
$21.86
(in thousands)
51
25
(15)
—
61
$20.84
$20.04
$21.61
$ —
$20.33
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. Compensation expense related to stock units and director stock grants
totaled $3.3 million, $3.0 million and $2.2 million for the years ended May 31, 2013, 2012 and 2011,
respectively. Transactions involving our stock units and director stock grants during the years ended May 31,
2013, 2012 and 2011 are summarized below:
Year Ended
May 31, 2013
Year Ended
May 31, 2012
Year Ended
May 31, 2011
No. of Stock
Units
(in thousands)
342
141
(143)
(11)
329
Weighted
Average
Fair Value
$21.73
$32.81
$22.53
$23.58
$26.07
No. of Stock
Units
(in thousands)
310
159
(120)
(7)
342
Weighted
Average
Fair Value
$19.80
$24.78
$20.81
$21.27
$21.73
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
Stock and stock units, beginning of year . . .
Changes during the year:
Granted . . . . . . . . . . . . . . . . . . . . . . . .
Vested and settled . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . .
Stock and stock units, end of year . . . . . . . .
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 2013, 2012 and 2011, were approximately $3.7 million, $2.9 million and
$1.7 million, respectively, and are included in selling, general and administrative expenses.
13. COMMITMENTS AND CONTINGENCIES
Con Ed Matter—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, 2013, ninety-five
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
52
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 ultimate outcome of these matters will have a material adverse effect on our financial
position, results of operations, or cash flows.
EPA Matter—As part of a plea agreement entered in July 2012, we pled guilty to a single misdemeanor
violation of a section of the Clean Air Act related to fugitive emissions monitoring services provided to a
customer serviced by our Borger, Texas office. As part of the plea agreement, we developed and are now
implementing an environmental compliance plan for our emissions monitoring services to enhance our
compliance with the Clean Air Act. Also as part of the plea agreement in November 2012, we were assessed a
fine of $200,000 and placed on probation for a term of five years.
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.” Through July 1, 2013 we operated in only one segment—the
industrial services segment. Within the industrial services segment, we were organized as two divisions. Our
TCM division provided the services of inspection and assessment and field heat treating. Our TMS division
provided 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 shared the same chief operating
decision maker and both divisions were supported by common and often centralized technical and commercial
support staffs, quality assurance, training, finance, legal, human resources and health and safety departments.
Revenues and total assets in the United States and other countries are as follows for the fiscal years ended
May 31, 2013, 2012 and 2011 (in thousands):
Total
Revenues
Total
Assets
FY 2013
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . .
$508,928
135,527
37,787
32,069
$334,579
68,164
35,734
21,726
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$714,311
$460,203
53
Total
Revenues
Total
Assets
FY 2012
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . .
$438,413
121,865
36,448
27,014
$296,240
60,334
30,352
16,862
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$623,740
$403,788
FY 2011
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other foreign countries . . . . . . . . . . . . . . . . . . . . . . .
$361,996
99,888
28,059
18,077
$243,046
64,023
31,469
16,948
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$508,020
$355,486
Effective July 1, 2013, Team structured its business operations from the single Industrial Services segment
into three separate reportable segments, namely IHT Group, MS Group, and Quest Integrity Group. Each
business segment is headed by a business group president who reports to the CEO. As such, Team will begin to
report three operating segments under ASC 280 beginning in its first quarter of fiscal year 2014. The IHT Group
segment will consist substantially of the same operations previously conducted in the TCM division other than
Quest Integrity Group, the MS Group segment will consist substantially of the same operations previously
conducted in the TMS division, and Quest Integrity Group will be a standalone segment.
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 $1.8 million at May 31, 2013 and 2012. Revenues from the joint venture not
reflected in our consolidated revenues were $13.5 million and $12.3 million as of May 31, 2013 and 2012,
respectively.
16. 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. Following the designation of the
Venezuelan economy as hyperinflationary, we ceased taking the effects of currency fluctuations to accumulated
other comprehensive income and began reflecting all effects as a component of other income in our statement of
operations. Prior to February 2013, we were using the Venezuelan central bank’s official published rate (5.30
Bolivars per U.S. Dollar) to translate Venezuelan assets into U.S. Dollars as no other legal rate was readily
available. In February 2013, the Venezuelan government announced a devaluation in its currency and created a
new official exchange rate of 6.30 Bolivars per U.S. Dollar. As a result of the currency devaluation, we
recognized a $0.6 million pre-tax foreign currency loss during the third quarter of fiscal year 2013. Management
is closely monitoring currency valuation developments in Venezuela. If further devaluations occur in fiscal year
2014, we will incur further impairments of our investment in Venezuela. Due to the uncertain economic and
political environment in Venezuela, it is very difficult to repatriate cash flows of these operations. At May 31,
2013, our Venezuelan subsidiary had $2.8 million of net assets, consisting primarily of Bolivar denominated cash
equal to $1.2 million.
54
17. OTHER COMPREHENSIVE INCOME
A summary of other comprehensive income included within shareholders’ equity as of May 31, 2013 and
2012 is as follows (in thousands):
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . .
Foreign currency hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax provision on other comprehensive income . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 31, 2013 May 31, 2012
$(3,532)
2,004
(261)
$(1,789)
$(4,593)
2,678
(672)
$(2,587)
The following table represents the related tax effects allocated to each component of other comprehensive
income (in thousands):
Twelve Months Ended
May 31, 2013
Twelve Months Ended
May 31, 2012
Twelve Months Ended
May 31, 2011
Gross
Amount
Tax
Effect
Net
Amount
Gross
Amount
Tax
Effect
Net
Amount
Gross
Amount
Tax
Effect
Net
Amount
Foreign currency translation
adjustments . . . . . . . . . . . . . . . . $1,070 $130 $1,200
(393)
Foreign currency hedge . . . . . . . . .
(674) 281
$(8,264) $1,246 $(7,018) $ 8,349 $(1,368) $ 6,981
(1,586)
(2,587)
1,457
1,001
2,385
(928)
Total . . . . . . . . . . . . . . . . . . . . $ 396 $411 $ 807
$(5,879) $ 318 $(5,561) $ 5,762 $ (367) $ 5,395
18. SELECTED QUARTERLY FINANCIAL DATA
The following is a summary of selected unaudited quarterly financial data for the years ended May 31, 2013
and 2012 (in thousands, except per share data):
Year Ended May 31, 2013
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) available to Team shareholders . . .
Net income (loss) per share: Basic . . . . . . . . . . . .
Net income (loss) per share: Diluted . . . . . . . . . .
$161,492
$ 12,824
7,561
$
0.38
$
0.36
$
$201,196
$150,975
$200,648
609
$ 23,040
$ 19,129
$
(535) $ 11,474
$ 13,936 $
0.57
(0.03) $
$
0.69
$
0.54
(0.03) $
$
0.66
$
$714,311
$ 55,602
$ 32,436
1.61
$
1.53
$
Year Ended May 31, 2012
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 . . . . . . . . . . . . . . .
$141,093
$ 11,755
6,794
$
0.35
$
0.33
$
$158,273
$ 17,080
$ 10,342
0.53
$
0.50
$
$136,523
3,456
$
2,011
$
0.10
$
0.10
$
$187,851
$ 24,206
$ 13,764
0.69
$
0.66
$
$623,740
$ 56,497
$ 32,911
1.67
$
1.59
$
19. SUBSEQUENT EVENTS
On July 19, 2013, subsequent to our year end, we acquired all of the stock of Global Ascent, Inc. (“Global
Ascent”) for $10 million, subject to working capital adjustments, plus additional consideration of up to a
maximum of $4 million based upon the future performance of Global Ascent over the next six years. The
preliminary purchase price allocation is expected to result in the majority of the purchase price being allocated to
goodwill and other intangible assets. Global Ascent is a leading provider of industrial rope access services and is
headquartered in Fullerton, California. Global Ascent provides a range of basic and advanced non-destructive
testing services and maintenance services to its clients in the energy and industrial markets primarily via rope
access. Results for Global Ascent will be reported within our IHT Group beginning in our first quarter of fiscal
year 2014.
55
3. Exhibits
Exhibit
Number
3.1
3.2
4.1
10.1†
10.2†
10.3†
10.4†
10.5
10.6
10.7
10.8
10.9
10.10
10.11
21
23.1
Amended and Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on December 2, 2011).
Bylaws of the Company (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K
filed on December 2, 2011).
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. 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).
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).
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).
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).
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 (filed as Exhibit 10.34 to the Company’s Annual Report on
Form 10-K for the year ended May 31, 2011).
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm—KPMG LLP.
56
Exhibit
Number
31.1
31.2
32.1
32.2
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.
*101.INS
XBRL Instance Document.
*101.SCH
XBRL Taxonomy Schema Document.
*101.CAL
XBRL Calculation Linkbase Document.
*101.DEF
XBRL Definition Linkbase Document.
*101.LAB
XBRL Label Linkbase Document.
*101.PRE
XBRL Presentation Linkbase Document.
† Management contract or compensation plan or arrangement.
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or
Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized August 12,
2013.
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 12, 2013
/S/ VINCENT D. FOSTER
Director
August 12, 2013
(Vincent D. Foster)
/S/
JACK M. JOHNSON, JR.
(Jack M. Johnson, Jr.)
Director
August 12, 2013
/S/ EMMETT J. LESCROART
Director
August 12, 2013
(Emmett J. Lescroart)
/S/ LOUIS A. WATERS
Director
August 12, 2013
(Louis A. Waters)
/S/ SIDNEY B. WILLIAMS
Director
August 12, 2013
(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 12, 2013
58
Corporate Information
Operating Locations*
NORTH AMERICAN LOCATIONS
Canada
Calgary, Alberta
Edmonton, Alberta
Fort McMurray, Alberta
Grand Prairie, Alberta
Red Deer, Alberta
Slave Lake, Alberta
Lloydminster, Alberta/
Saskatchewan
Mount Pearl, Newfoundland
Dartmouth, Nova Scotia
Kitchener, Ontario
Oakville, Ontario
Sarnia, Ontario
Thunder Bay, Ontario
Regina, Saskatchewan
Weyburn, Saskatchewan
International
Locations
Angola
Australia
Belgium
Colombia
Jamaica
Malaysia
Mexico
Netherlands
New Zealand
Saudi Arabia
Singapore
Suriname
Trinidad
U.A.E.
United Kingdom
Venezuela
*As of August 1, 2013
Registrar and
Transfer Agent
Communications regarding
change of address, transfer
of stock ownership, lost stock
certificates or consolidation
of multiple listings should be
directed to:
Registrar and Transfer 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
13131 Dairy Ashford, Suite 600
Sugar Land, Texas 77478
Investor Relations
Ted W. Owen
Executive Vice President,
Chief Financial Officer and
Treasurer Team, Inc.
Phone: 281/388-5525
E-mail: ir@teamindustrial
services.com
Independent Auditors
KPMG LLP
811 Main St.
Houston, TX 77002
Directors
Philip J. Hawk
Chairman of the Board and
Chief Executive Officer Team, Inc.
Vincent D. Foster
Chairman and CEO Main Street
Capital Corp.
(NYSE: “MAIN”)
Jack M. Johnson, Jr.
Managing General Partner
Wintermann & Company
(real estate management)
Emmett J. Lescroart
Managing Director EJL
Capital, LLC.
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 Officer
Ted W. Owen
Executive Vice President, Chief
Financial Officer and Treasurer
Arthur F. Victorson
President, Inspection and
Heat Treating Services
Peter W. Wallace, Jr.
President, Mechanical Services
Jeffrey L. Ott
President
Quest Integrity Services
André C. Bouchard
Senior Vice President
Administration, General Counsel
and Secretary
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
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
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.
Corporate Headquarters
13131 Dairy Ashford, Suite 600
Sugar Land, Texas 77478
United States
Phone: 281/331-6154 I Fax: 281/331-4107