-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DVfkaLalFUs94to/IdJ16QWWNAxp0RrMHyQoDDafI/cMKVTlaGga6PpvP67M6zIj vMD2ON1T1TXgaIViayk/cQ== 0000950129-02-004406.txt : 20020828 0000950129-02-004406.hdr.sgml : 20020828 20020828171834 ACCESSION NUMBER: 0000950129-02-004406 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEAM INC CENTRAL INDEX KEY: 0000318833 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS REPAIR SERVICES [7600] IRS NUMBER: 741765729 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08604 FILM NUMBER: 02751604 BUSINESS ADDRESS: STREET 1: 200 HERMANN DRIVE CITY: ALVIN STATE: TX ZIP: 77056 BUSINESS PHONE: 2813316154 MAIL ADDRESS: STREET 1: 1019 SOUTH HOOD STREET CITY: ALVIN STATE: TX ZIP: 77551 10-K 1 h99461e10vk.txt TEAM, INC. - DATED MAY 31, 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 2002 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 0-9950 --------------------- TEAM, INC. (Exact name of registrant as specified in its charter) TEXAS 74-1765729 (State of incorporation) (I.R.S. Employer Identification No.) 200 HERMANN DRIVE, ALVIN, TEXAS 77511 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 331-6154 --------------------- Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.30 par value American Stock Exchange, Inc.
Securities registered Pursuant to Section 12(g) of the Act: NONE --------------------- 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 [X] 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. [X] As of August 16, 2002, 7,760,242 shares of the registrant's common stock were outstanding, of which 5,265,883 were held by non-affiliates. The aggregate market value of common stock held by non-affiliates of the registrant (based upon the closing sales price of $8.15 per share on the American Stock Exchange, Inc. on such date) was $42,916,946. DOCUMENTS INCORPORATED BY REFERENCE Part III. Portions of the Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders of Team, Inc. to be held September 26, 2002. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-K INDEX PART I
PAGE ---- Item 1. Business.................................................... 1 Item 2. Properties.................................................. 5 Item 3. Legal Proceedings........................................... 5 Item 4. Submission of Matters to a Vote of Security Holders......... 5 PART II Item 5. Market for Team's Common Equity and Related Stockholder Matters................................................... 6 Item 6. Selected Financial Data..................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 12 Item 8. Consolidated Financial Statements and Supplementary Data.... 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 34 PART III Item 10. Directors and Executive and Other Officers of Team.......... 34 Item 11. Executive Compensation...................................... 34 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 34 Item 13. Certain Relationships and Related Transactions.............. 34 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 34
i PART I ITEM 1. BUSINESS (a) General Development of Business Team, Inc. ("Team" or the "Company"), incorporated in 1973, is a full service provider of specialized industrial services including leak repair, hot tapping, emissions control monitoring, field machining, technical bolting and non destructive testing/examination ("NDT-NDE") inspection services. These services are provided throughout the United States in approximately 40 locations. The Company licenses its proprietary leak repair and hot tapping techniques and materials to various companies outside the United States and receives a royalty based upon revenues earned by the licensee. Additionally, the Company conducts operations through international locations in Singapore, Trinidad and Asia. To date, international operations have not been material to the overall operations of the Company. Additionally, through its wholly-owned subsidiary, Climax Portable Machine Tools, Inc. ("Climax") of Newberg, Oregon, the Company is engaged in a separate business segment -- equipment sales and rental. Climax is a leading designer-manufacturer of portable, metal cutting machine tools used for on-site industrial maintenance. The Climax acquisition provided the support for the Company's offering of on-site field machining services beginning in February of 1999. (b) Financial Information about Segments See Note 12 to accompanying financial statements for financial information about business segments. (c) Narrative Description of Business The Company operates in two reportable revenue generating segments -- (1) industrial services and (2) equipment sales and rental. Industrial services consist principally of leak repair, hot tapping, emissions control monitoring, on-site field machining and inspection. The equipment sales and rentals segment is comprised of the Climax business. The following table sets forth the revenues (in thousands) from each segment in the three years ended May 31:
SEGMENT 2002 2001 2000 - ------- ------- ------- ------- Industrial Services..................................... $74,513 $66,492 $56,053 Equipment Sales and Rentals............................. 10,568 9,151 10,583 ------- ------- ------- Total......................................... $85,081 $75,643 $66,636 ======= ======= =======
INDUSTRIAL SERVICES The Company provides industrial services for over 2000 customers in the chemical, petrochemical, refining, pulp and paper, power, steel and other industries. Services include leak repair, hot tapping, emissions control, and, more recently, field machining and NDT inspection. Leak Repair Services. The Company is the leader in the industry in providing on-stream repairs of leaks in piping systems and related equipment. In conjunction with its leak repair services, the Company markets a line of products, which includes both standard and custom-designed clamps and enclosures for plant systems and pipelines. The Company's leak repair services consist of on-stream repairs of leaks in pipes, valves, flanges and other parts of piping systems and related equipment primarily in the chemical, refining and utility industries. The Company uses specially developed techniques, sealants and equipment for repairs. Many of the Company's repairs are furnished as interim measures which allow plant systems to continue operating until more permanent repairs can be made during scheduled plant shutdowns. The Company's leak repair services involve inspection of the leak by the Company's field crew who records pertinent information about the faulty part of the system and transmits the information to the Company's engineering department for determination of appropriate repair techniques. Repair materials such 1 as clamps and enclosures are custom designed and manufactured at the Company's facility in Alvin, Texas and delivered to the job site. The Company maintains an inventory of raw materials and semi-finished clamps and enclosures to reduce the time required to manufacture the finished product. Installations of the clamps and enclosures for on-stream repair work are then performed by the field crew using, in large part, materials and sealants that are developed and produced by the Company. The Company's manufacturing center has earned the international ISO-9001 certification for its engineering design and manufacturing operations. ISO-9001 is the most stringent of all ISO-9000 certification programs. The Company's non-destructive repair methods do not compromise the integrity of its customer's process system and can be performed in temperatures ranging from cryogenic to 1,700 degrees Fahrenheit and with pressures from vacuum to 6,000 pounds per square inch. The Company's proprietary sealants are specifically formulated to repair leaks involving over 300 different kinds of chemicals. Management attributes the success of its leak repair services to be substantially due to the quality and timely performance of its services by its highly skilled in-house trained technicians, its proprietary techniques and materials and its ability to repair leaks without shutting down the customer's operating system. On-stream repairs can prevent a customer's continued loss of energy or process materials through leaks, thereby avoiding costly energy and production losses that accompany equipment shutdowns, and also lessen fugitive emissions escaping into the atmosphere. The Company has continued to develop different types of standard and custom-designed clamps, enclosures and other repair products, which complement the Company's existing industrial market for leak repair services. The Company's leak repair services are supported by an in-house Quality Assurance/Quality Control program that monitors the design and manufacture of each product to assure material traceability on critical jobs and to ensure compliance with customers' requirements. Hot Tapping Services. The Company's hot tapping services consist primarily of hot tapping and Line-stop(R) services. Hot tapping services involve utilizing special equipment to cut a hole in an on-stream, pressurized pipeline so that a new line can be connected onto the existing line without interrupting operations. Hot tapping is frequently used for making branch connections into piping systems while the production process is operative. Line-stop(R) services permit the line to be depressurized downstream so that maintenance work can be performed on the piping system. The Company typically performs these services by mechanically drilling and cutting into the pipeline and installing a device to stop the process flow. The Company also utilizes a line freezing procedure when applicable to stop the process flow using special equipment and techniques. Emissions Control Services. The Company also provides leak detection services that include fugitive emissions identification, monitoring, data management and reporting services primarily for the chemical, refining and natural gas processing industries. These services are designed to monitor and record emissions from specific process equipment components as requested by the customer, typically to assist the customer in establishing an ongoing maintenance program and/or complying with present and/or future environmental regulations. The Company prepares standard reports in conjunction with EPA requirements or can custom-design these reports to its customers' specifications. Field Machining and Technical Bolting Services. The Climax acquisition in August 1998 provided the platform for the Company's entry into field machining services in February 1999. This service involves the use of portable machining equipment (manufactured by Climax, as well as third party vendors) to repair or modify in-place machinery, equipment, vessels and piping systems not easily removed from a permanent location. As opposed to the conventional machining process where the work piece rotates and the cutting tool is fixed, in field machining, the work piece remains fixed and the cutting tool rotates. Other common descriptions for this service are on-site or in-place machining. Field machining services include flange facing, pipe cutting, line boring, journal turning, drilling, and milling. Technical bolting services are often provided to our customers as an adjunct to field machining during turnaround or maintenance activities. These services involve the use of hydraulic or pneumatic equipment with bolt tightening techniques to achieve reliable and leak-free connections and also include bolt disassembly using hot bolting or nut splitting techniques. 2 Field machining and technical bolting services are offered to the Company's existing customer base through its extensive branch operations. In contrast to Team's other traditional industrial services which are performed while plant units are in operation (i.e., on-stream), field machining is an off-stream operation performed during piping isolations, shutdowns, or plant turnarounds. Inspection Services. With the acquisition of XRI, the Company has incorporated NDT inspection as a core industrial service offering. Inspection services consist of the testing and evaluation of piping, piping components and equipment to determine the present condition and predict remaining operability. The Company's inspection services use all the common methods of non-destructive testing, including radiography, ultrasound, magnetic particle and dye penetrate, as well as, higher end robotic and newly developed ultrasonic systems. The Company provides these services as part of planned construction and maintenance programs and on demand as the situation dictates, and provides reports based on interpretation in accordance to industry and national standards. Inspection services are marketed to the same industrial customer base as other Team services and to the pipeline industry. There are a large number of companies offering mechanical inspection services, with no single company having a significant share of the overall market. Marketing and Customers. Team's industrial repair services are marketed principally by personnel based at the Company's approximate 40 locations. Team has developed a cross-marketing program to utilize its sales personnel in offering many of the Company's services at its operating locations. Management believes that these operating and office locations are situated to facilitate timely response to customer needs, which is an important feature of its services. No customer accounted for 10% or more of consolidated Company 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. Emission control services may also be billed based on the number of components monitored. Services are usually performed pursuant to purchase orders issued under written customer agreements. While some purchase orders provide for the performance of a single job, others provide for services to be performed for a term of one year or less. In addition, Team is a party to certain long-term contracts, which are enabling agreements only. Substantially all such agreements may be terminated by either party on short notice. The agreements generally specify the range of services to be performed and the hourly rates for labor. While contracts have traditionally been entered into for specific plants or locations, the Company has recently entered into multiple regional or national contracts, which cover multiple plants or locations. The Company's industrial services are available 24 hours a day, seven days a week, 365 days a year. The Company typically provides various limited warranties for certain of its repair services. To date, there have been no significant warranty claims filed against the Company. Business Risks. While the Company's management is optimistic about Team's future, maintaining and expanding customer relationships and service volumes are key elements of the Company's strategy. Weakness in the markets served by the Company could constrain demand. Although the Company has a diversified customer base, a substantial portion of its business is dependent upon the chemical and refining industry sectors. Competitive initiatives and/or poor service performance could also reduce the strength and breadth of current customer relationships and preference for the Company. Although management believes sufficient qualified personnel are available in most areas, no assurance can be made that such personnel will be available when needed Competition. Competition in the Company's industrial services is primarily on the basis of service, quality, timeliness, and price. In general, competition stems from other outside service contractors and customers' in-house maintenance departments. Management believes Team has a competitive advantage over most service contractors due to the quality, training and experience of its technicians, its nationwide service capability, and due to the broad range of services provided, as well as its technical support and manufacturing capabilities supporting the service network. Management knows of two service contractors of a similar size with which the Company generally competes. Other principal competitors are primarily single-location or single-service companies that compete within a certain geographical area. 3 EQUIPMENT SALES AND RENTALS In August, 1998 the Company entered a new business segment -- equipment sales and rentals -- through the acquisition of Climax, a leading design-manufacturer of portable machine tools located in Newberg, Oregon. Climax' standard tools offering consists of boring bars, pipe beveling tools, key mills, portable flange facers, and portable lathes. These tools are sold to end users in the utilities, refining, and extractive industries, or to other service providers and contractors, such as Team. In addition, Climax designs and manufactures customized machining tools for on-site machine repair, manufacturing, fabrication and construction applications. Climax's design and manufacturing operations are conducted in a 30,000 square feet facility in Newberg, Oregon that is owned by the company and pledged to secure Team's bank debt (see Note 6 of Notes to the Consolidated Financial Statements). Climax uses state of the art equipment in its manufacturing process and maintains an inventory of raw materials, parts and completed machines as needed to support the current level of business. Most of the Company's orders for equipment are filled within 30 days of receipt. The Company believes that there are a limited number of original equipment manufacturers that compete with Climax and that it has a market share of approximately 10%. No single customer accounted for more than 10% of Climax revenues in fiscal 2002, 2001 or 2000. GENERAL Employees. As of May 31, 2002, the Company and its subsidiaries had approximately 850 employees in its operations. The Company's employees are not unionized. There have been no employee work stoppages to date, and management believes its relations with its employees are good. Insurance. The Company carries insurance it believes to be appropriate for the businesses in which it is engaged. Under its insurance policies, the Company has per occurrence self-insured retention limits of $25,000 for general liability, $100,000 for professional liability, $250,000 for automobile liability and workers' compensation in most states. The Company has obtained fully insured layers of coverage above such self-retention limits. Since its inception, the Company has not been the subject of any significant liability claims not covered by insurance arising from the furnishing of its services or products to customers. However, because of the nature of the Company's business, there exists the risk that in the future such liability claims could be asserted which might not be covered by insurance. Regulation. Substantially all of the Company's business activities are subject to federal, state and local laws and regulations. These regulations are administered by various federal, state and local health and safety and environmental agencies and authorities, including the Occupational Safety and Health Administration ("OSHA") of the U.S. Department of Labor and the EPA. The Company's training programs are required to meet certain OSHA standards. Expenditures relating to such regulations are made in the normal course of the Company's business and are neither material nor place the Company at any competitive disadvantage. The Company does not currently expect to expend material amounts for compliance with such laws during the ensuing two fiscal years. From time-to-time in the operation of its environmental consulting and engineering services, the assets of which were sold in 1996, the Company handled small quantities of certain hazardous wastes or other substances generated by its customers. Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (the "Superfund Act"), the EPA is authorized to take administrative and judicial action to either cause parties who are responsible under the Superfund Act for cleaning up any unauthorized release of hazardous substances to do so, or to clean up such hazardous substances and to seek reimbursement of the costs thereof from the responsible parties, who are jointly and severally liable for such costs under the Superfund Act. The EPA may also bring suit for treble damages from responsible parties who unreasonably refuse to voluntarily participate in such a clean up or funding thereof. Responsible parties include anyone who owns or operates the facility where the release occurred (either currently and/or at the time such hazardous substances were disposed of), or who by contract arranges for disposal, treatment, or transportation for disposal or treatment of a hazardous substance, or who accepts hazardous substances for transport to disposal or treatment facilities selected by such person from which there is a release. Management believes that its risk 4 of liability is minimized since its handling consisted solely of maintaining and storing small samples of materials for laboratory analysis that are classified as hazardous. The Company does not currently carry insurance to cover liabilities which the Company may incur under the Superfund Act or similar environmental statutes due to its prohibitive costs. Patents. While the Company is the holder of various patents, trademarks, and licenses, the Company does not consider any individual property to be material to its consolidated business operations. ITEM 2. PROPERTIES Team and its subsidiaries own real estate and office facilities in the Alvin, Texas area totaling approximately 88,000 square feet of floor space. These facilities are comprised of a corporate office and training building and a manufacturing facility for clamps, enclosures and sealants. The Company also owns real estate and facilities in Newberg, Oregon, which is the manufacturing facility and corporate office of Climax. All of those facilities are pledged as security for the Company's credit facility. (See Note 6 of Notes to Consolidated Financial Statements.) The Company and its subsidiaries also lease 36 office and/or plant and shop facilities at separate locations in 17 states. The Company believes that its property and equipment, as well as that of its subsidiaries, are adequate for its current needs, although additional investments are expected to be made in additional property and equipment for expansion, replacement of assets at the end of their useful lives and in connection with corporate development activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 10 of Notes to Consolidated Financial Statements for information regarding lease obligations on these properties. ITEM 3. LEGAL PROCEEDINGS In May 2002, a jury verdict was rendered against the Company in an employment related case brought in the United States District Court for the Western District of Louisiana. The case involves allegations of misconduct by personnel in one of the Company's branches during the years 1998 and 1999. In August 2002, the Court ruled on certain post-trial motions and determined that, with respect to one of the two plaintiffs, a $300,000 judgment will be entered against the Company. With respect to the second plaintiff, the Court set aside the jury verdict on most points and granted the Company's motion for a new trial on a specific issue. The Company is presently evaluating its legal options with respect to this case. In management's opinion, an adequate accrual has been made in the financial statements as of May 31, 2002 to provide for the probable amount of loss in this case. In December 2001, the Company was named a defendant in a lawsuit, along with 18 other parties, alleging that a former subsidiary, French Ltd. ("French"), was involved in the illegal disposal of hazardous substances during the years 1969 and 1970. The plaintiff's allege that Team is a successor-in-interest to French and is, therefore, liable for contribution to a settlement embodied in a consent decree entered into by the plaintiffs with the EPA in 1998. French was acquired by Team in 1978 and sold back to its prior owner in 1984. The case is early in the discovery stage and the Company is unable to estimate a range of potential loss, if any, with respect to this matter. However, the Company vigorously denies that it is a successor-in-interest of French and that it has any responsibility in this matter. The Company and certain subsidiaries are involved in various other lawsuits and are subject to various claims and proceedings encountered in the normal conduct of business. In the opinion of management, any uninsured losses that might arise from these lawsuits and proceedings will not have a materially adverse effect on the Company's consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2002. 5 PART II ITEM 5. MARKET FOR TEAM'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information Team's common stock is traded on the American Stock Exchange, Inc. under the symbol "TMI". The table below reflects the high and low sales prices of the Company's common stock on the American Stock Exchange by fiscal quarter for the fiscal years ended May 31, 2002 and 2001, respectively.
SALES PRICE ------------- HIGH LOW ----- ----- FISCAL 2002 Quarter Ended: August 31................................................. $5.80 $3.00 November 30............................................... 6.50 4.70 February 28............................................... 7.49 5.73 May 31.................................................... 9.29 5.96 FISCAL 2001 Quarter Ended: August 31................................................. $3.06 $1.75 November 30............................................... 3.00 1.63 February 28............................................... 4.13 2.75 May 31.................................................... 3.25 2.05
(b) Holders There were 311 holders of record of Team's common stock as of August 16, 2002, excluding beneficial owners of stock held in street name. Although exact information is unavailable, the Company estimates there are approximately 1,300 additional beneficial owners based upon information gathered in connection with proxy solicitation. (c) Dividends No dividends were declared or paid in fiscal 2002, 2001 or 2000. Pursuant to the Company's Credit Agreement, the Company may not pay dividends without the consent of its primary lender. Additionally, future dividend payments will continue to depend on Team's financial condition, market conditions and other matters deemed relevant by the Board of Directors. (d) Stock Repurchase Plan In fiscal 2002, the Company repurchased 435,000 shares of its outstanding common stock at a weighted average price of $4.59 per share, including 235,000 shares repurchased in a self-tender offer completed in June 2001 and 200,000 shares reacquired through open market purchases. As of May 31, 2002, the Company is authorized by its Board of Directors and lender to expend up to an additional $1.6 million on open market repurchases. 6 ITEM 6. SELECTED FINANCIAL DATA The following is a summary of certain consolidated financial information regarding the Company for the five years ended May 31, 2002 (amounts in thousands, except per share data):
FISCAL YEARS ENDED MAY 31, ----------------------------------------------- 2002 2001 2000 1999 1998 ------- ------- ------- ------- ------- Revenues..................................... $85,081 $75,643 $66,636 $54,632 $45,457 Net income................................... $ 3,909 $ 2,740 $ 1,471 $ 505 $ 1,423 Net income per share: basic.................. $ 0.51 $ 0.34 $ 0.18 $ 0.07 $ 0.24 Net Income per share: diluted................ $ 0.48 $ 0.34 $ 0.18 $ 0.07 $ 0.23 Weighted average shares outstanding: basic... 7,664 8,015 8,238 7,547 5,947 Weighted average shares outstanding: diluted.................................... 8,229 8,122 8,283 7,741 6,112 Cash dividend declared, per common share..... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
BALANCE SHEET DATA
MAY 31, ----------------------------------------------- 2002 2001 2000 1999 1998 ------- ------- ------- ------- ------- Total assets................................. $51,189 $47,996 $48,384 $47,765 $27,109 Long-term debt and other long-term liabilities................................ $13,019 $14,845 $17,409 $20,224 $ 6,042 Stockholders' equity......................... $28,182 $24,812 $23,137 $21,526 $15,534 Working capital.............................. $18,693 $16,801 $14,909 $15,736 $13,078
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 2002 COMPARED TO FISCAL 2001 Revenues in 2002 were $85.1 million compared to $75.6 million in 2001, an increase of 12.5%. This double-digit revenue growth resulted in significant operating leverage for the Company with operating profits (earnings before interest and taxes, or "EBIT") increasing by 24.1% to $7.2 million in 2002 as compared to $5.8 million in 2001. Operating profits in fiscal 2002 were impacted by a $368 thousand non-cash charge related to management stock options and by a severance charge in the Climax business of $173 thousand. In contrast, operating profits in fiscal 2001 benefited from other income (primarily gains on asset sales) of $278 thousand. Without regard to those elements of other income and expense, the operating profit improvement would have been 40.2% year over year. The improvement in operating results in 2002 was attributable both to the continued growth in newer services offered by the industrial services segment, as well as a rebound in profitability of the equipment sales and rental segment. With respect to industrial services, newer services comprise those services whose offerings began during fiscal year 1999 -- NDT inspection, field machining and technical bolting. Traditional services include leak repair, hot tapping and fugitive emissions monitoring. The following sets forth the revenue composition of industrial services between new and traditional services:
INCREASE 2002 2001 ------------------ ----------- ----------- $ % Traditional services........................... $51,036,000 $50,130,000 $ 906,000 1.8% New services................................... 23,477,000 16,362,000 7,115,000 43.5% ----------- ----------- ---------- ----- $74,513,000 $66,492,000 $8,021,000 12.1% =========== =========== ========== =====
As the table illustrates, year over year revenue growth in the industrial services segment came primarily from the newer service lines, which grew at a 43.5% rate. This growth has come primarily as a result of market share gains earned by improving the penetration of new service offerings to the Company's traditional customer base as well as an increase in the demand for our inspection services to the pipeline industry due to new pipeline construction and increased regulatory activities in the pipeline industry. 7 Management believes that demand for the Company's traditional services is, generally, a function of the population of high-temperature, high-pressure piping systems. Demand is also somewhat related, especially for leak repair and hot tapping, to the operating performance of our customers -- particularly in the refining, pipeline, and petrochemical industries. Generally, as those customers' margins improve, more funds are expended for the specialized industrial services offered by the Company. Through the third quarter which ended February 28, 2002, traditional service revenues were 1% behind year over year amounts due to a significant softening in third quarter demand. In the fourth quarter ended May 31, 2002, revenues from traditional services grew at a 9% rate in comparison to the fourth quarter of fiscal 2001, resulting in the nearly 2% increase for the year overall. The fourth quarter strengthening was impacted by two new multi-location, multi-service contracts which came on-stream during the quarter. The equipment sales and rental segment also achieved a strong rebound during the fourth quarter of the year. Through the third quarter, the segment had operated at a small loss year to date, partially due to the recognition of $173 thousand of costs associated with a reduction in work force implemented in December 2001. In the fourth quarter, revenues increased 34.5% compared to the same quarter of fiscal 2001 due principally to a $700 thousand shipment to the U.S. Navy. As a result of the strong revenue growth, operating profits for the segment were nearly $600 thousand in the fourth quarter. This strong performance in the quarter resulted in an operating profit for the year of $547 thousand, a $736 thousand improvement over the loss reported last year of $189 thousand. Overall, gross margins were 41.7% of revenues in fiscal 2002 as compared to 40.4% in fiscal 2001. The improvement reflects better margins in both the industrial services segment and the equipment sales and rental segment. Industrial services margins improved primarily in the NDT inspection line due to better performance in Texas locations. Climax margins improved due to cost reductions efforts and due to the business rebound experienced in the fourth quarter. Selling, general and administrative expenses were 32.5% of revenues in fiscal 2002 versus 33.1% of revenues in fiscal 2001. This reduction in SG&A expenses as a percentage of revenues illustrates the operating leverage that management believes exists in the business -- double-digit revenue growth will result in a faster rate of increase in profits since revenue growth can be supported without a proportionate increase in selling, general and administrative costs. The non-cash G&A compensation expense of $368 thousand in fiscal 2002 was related to the vesting of performance stock options previously awarded to the Company's chief executive officer. When the CEO joined the Company in 1998, he was awarded 200,000 performance-based stock options at the market price on the date of award of $3.625 per share. One third of these options vest upon the sustained achievement of average stock prices of $7.00, $10.50, and $14.00 per share. The first standard was met near the end of May 2002, when the price of Team's stock was $9.15 per share. Consequently, at that time, the Company was required to recognize a non-cash G&A compensation charge associated with one third of the options (approximately $0.03 per share, net of tax benefit). Income tax expense as a percent of pre-tax income was 38.4% in fiscal 2002 as compared to 35.0% in fiscal 2001. The 2001 tax rate reflects a $400,000 tax benefit associated with the liquidation of a small subsidiary in the United Kingdom in that year. FISCAL 2001 COMPARED TO FISCAL 2000 Revenues in 2001 were $75.6 million compared to $66.6 million in 2000, an increase of 13.5%. This double-digit revenue growth resulted in significant operating leverage for the Company with operating profits (earnings before interest and taxes, or "EBIT") increasing by 41.5% to $5.8 million in 2001 as compared to $4.1 million in 2000. The improvement in operating results in 2001 was attributable to the industrial services segment whose revenues increased by $10.4 million, or 18.6%, to $66.5 million. EBIT for the industrial services segment was $9.8 million, an increase of 35.3% over 2000. The revenue growth occurred in both traditional service lines -- 8 leak repair, hot tapping, and emissions control monitoring -- and in the newer service lines -- inspection, field machining and technical bolting. Revenue from traditional service lines grew by 15% over fiscal 2000, which is a result of a combination of factors: (1) fiscal 2001 was a strong year for refining margins, which results in an increased demand for the Company's on-stream service offerings to avoid the necessity of our customers having to shut-down operating units; (2) we obtained significant new contracts for fugitive emissions monitoring in fiscal 2001 as a result of a trend toward customers' out-sourcing of these compliance functions to professional service providers such as Team, coupled with an increase in enforcement actions by federal and state agencies, and (3) an increase in market penetration for our traditional services. Team's newer services grew at an even faster rate -- with revenue from inspection, field machining and technical bolting growing by 44% over fiscal 2000. The rapid growth in these services is a result of two primary factors: (1) an increase in the demand for our inspection services to the pipeline industry due to new pipeline construction and increased regulatory activities in the pipeline industry; and (2) a continuing penetration of our newer services within our existing customer base. In contrast to the services segment, the equipment sales and rental segment experienced a disappointing fiscal 2001, with sales of $9.2 million being 13.5% less than the fiscal 2000 amount, with the significant portion of the reduction coming in the first half of the year. Management believes the sales decline is due primarily to a softness in capital equipment markets. Overall, gross margins were 40.4% of revenues in fiscal 2001 as compared to 42.6% in fiscal 2000. The reduction is associated with the severely depressed margins at Climax during the first half of fiscal 2001 and due to pricing concessions to sustain the growth in services revenues. The decline in margins was compensated for by an overall reduction in selling, general and administrative expenses, which were 33.1% of revenues in fiscal 2001 versus 36.7% of revenues in fiscal 2000. This reduction in SG&A expenses as a percentage of revenues illustrates the operating leverage that management believes exists in the business -- double-digit revenue growth will result in a faster rate of increase in profits since revenue growth can be supported without a proportionate increase in selling, general and administrative costs. Income tax expense as a percent of pre-tax income was 35.0% in fiscal 2001 as compared to 41.5% in fiscal 2000 due to the recognition of a $400,000 effective tax benefit associated with the liquidation of a small subsidiary in the United Kingdom in 2001. LIQUIDITY AND CAPITAL RESOURCES At May 31, 2002, the Company's liquid working capital (cash and accounts receivable, less current liabilities) totaled $8.7 million, an increase of $900 thousand since May 31, 2001. The Company utilizes excess operating funds to automatically reduce the amount outstanding under the revolving credit facility. At May 31, 2002, the outstanding balance under the revolving credit facility was $5.9 million and approximately $5.2 million was available to borrow under the facility. During fiscal 2002, the Company reduced its total outstanding debt by $1.6 million as a result of cash flow from operations. In fiscal 2002, the Company also expended $2.0 million to reacquire an additional 435,000 shares of its common stock, including 235,000 shares pursuant to a self-tender offer and 200,000 on the open market pursuant to a stock repurchase plan. In the opinion of management, the Company currently has sufficient funds and adequate financial sources available to meet its anticipated liquidity needs. Management believes that cash flows from operations, cash balances and available borrowings will be sufficient for the foreseeable future to finance anticipated working capital requirements, capital expenditures and debt service requirements. The Company has a $24 million bank credit facility that consists of: (i) a $12,500,000 revolving loan, which matures September 30, 2003, (ii) $9,500,000 in term loans for business acquisitions and (iii) a $2,000,000 mortgage loan. Amounts borrowed against the term loans are due in quarterly installments in the amount of $339,000 until the loans mature on September 30, 2003. Amounts borrowed against the mortgage 9 loan are repaid in quarterly installments of $31,000 until its maturity date of September 30, 2008. Amounts outstanding under the credit facility bear interest at a marginal rate over either the LIBOR rate or the prime rate. At May 31, 2002, the Company's marginal rate was 1.5% over the LIBOR rate. The weighted average rate on outstanding borrowings at May 31, 2002 is approximately 4.3%. The Company also pays a commitment fee of .25% per annum on the average amount of the unused availability under the revolving loan. The Company entered into an interest rate swap agreement that expires in September, 2003 and which qualifies as a cash flow hedge under SFAS No. 133. The agreement was entered into in 1998 to hedge the exposure of an increase in interest rates. Pursuant to this agreement, which covers approximately $2.9 million of outstanding debt, the Company exchanged a variable LIBOR rate for a fixed LIBOR rate of approximately 5.2%. Two other swap agreements, covering approximately $3.5 million, expired on December 31, 2001. As the interest rates on the credit facility are based on market rates, the fair value of amounts outstanding under the facility approximate the carrying value. The interest rate swap agreements, which have no carrying value, had a negative mark-to-market value of approximately $92,000 and $56,000 at May 31, 2002 and 2001, respectively. The fair value of interest rate swaps is estimated by discounting expected cash flows using quoted market interest rates. Loans under the credit facility are secured by substantially all of the assets of the Company. The terms of the agreement require the maintenance of certain financial ratios and limit investments, liens, leases and indebtedness, and dividends, among other things. At May 31, 2002 and 2001, the Company was in compliance with all credit facility covenants. At May 31, 2002, the Company was contingently liable for $1.4 million in outstanding stand-by letters of credit and, at that date, approximately $5.2 million was available to borrow under the credit facility. CRITICAL ACCOUNTING POLICIES Goodwill -- The Company has $10.0 million of recorded goodwill associated with business acquisitions made in fiscal year 1999. Of that amount, approximately $6.8 million is associated with the industrial services segment and $3.2 million is associated with the equipment sales and rental business. Through May 31, 2002, Goodwill was being amortized over 40 years and its carrying value was periodically evaluated using management's estimate of future undiscounted cash flows in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Under SFAS No. 121, there has been no impairment of the Company's recorded goodwill. Effective at the beginning of the Company's next fiscal year, June 1, 2002, we will adopt the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets", which requires that goodwill no longer be amortized but that it be reviewed for impairment annually using a methodology that is different than the methodology required under SFAS No. 121. Management is presently evaluating the impact of SFAS No. 142 on the consolidated financial statements. At present, management does not expect there to be any adjustment to the carrying value of goodwill as a result of the implementation of SFAS No. 142. Revenue Recognition -- The Company derives its revenues by providing a variety of industrial services including leak repair, hot tapping, emissions control services, field machining and inspection services. In addition, the Company sells and rents portable machine tools through one of its subsidiaries. For all of these services, revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer. Deferred Income Taxes -- The Company records deferred income tax assets and liabilities related to temporary differences between the book and tax bases of assets and liabilities. The Company computes its deferred tax balances by multiplying these temporary differences by the current tax rates. If deferred tax assets exceed deferred tax liabilities, the Company must estimate whether those net deferred asset amounts will be realized in the future. A valuation allowance is then provided for the net deferred asset amounts that are not likely to be realized. As of May 31, 2002 management believes that it is more likely than not that the Company will have sufficient future taxable income to allow it to realize the benefits of the net deferred tax assets. Accordingly, no valuation allowance has been recorded. 10 Loss Contingencies -- The Company is involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, management consults with its legal counsel and evaluates the merits of the claim based on the facts available at that time. Currently, the Company is involved with two significant matters, which are summarized in Legal Proceedings above. In management's opinion, an adequate accrual has been made as of May 31, 2002 to provide for any losses that may arise from these contingencies. OTHER CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The Company enters into capital leases related to certain computer and equipment and software, as well as operating leases related to facilities and transportation and other equipment. These operating leases are over terms ranging from one to five years with typical renewal options and escalation clauses. The Company is occasionally required to post letters of credit generally issued by a bank as collateral under certain agreements. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that the Company has failed to meet its obligations under the letter of credit. If this were to occur, the Company would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. To date, the Company has not had any claims made against a letter of credit that resulted in a payment made be the issuer or the Company to the holder. The Company believes that it is unlikely that it will have to fund claims made under letters of credit in the foreseeable future. At May 31, 2002, the Company's contractual obligations are summarized as follows:
YEAR ENDING CAPITAL OPERATING DEBT MAY 31, LEASES LEASES OBLIGATIONS TOTAL - ----------- ------- ---------- ----------- ----------- 2003................................. $32,000 $2,926,000 $ 1,512,000 $ 4,470,000 2004................................. -- 2,168,000 10,794,000 12,962,000 2005................................. -- 1,269,000 125,000 1,394,000 2006................................. -- 397,000 125,000 522,000 2007................................. -- 40,000 125,000 165,000 Thereafter........................... -- -- 809,000 809,000 ------- ---------- ----------- ----------- Total........................... $32,000 $6,800,000 $13,490,000 $20,322,000 ======= ========== =========== ===========
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and No. 138, became effective for the Company as of June 1, 2001. Those statements establish accounting and reporting standards requiring that all derivative instruments be recorded as either assets or liabilities measured at fair value. These statements also require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met, which includes an assessment of the effectiveness of the hedging instrument. The effective portion of the change in the fair value of derivatives used as cash flow hedges are reported as other comprehensive income, with all other changes reported in net income. The Company's only derivative instrument is an interest rate swap agreement that expires in September, 2003 and which qualifies as a cash flow hedge under SFAS No. 133. The agreement was entered into in 1998 to hedge the exposure of an increase in interest rates. Pursuant to this agreement, which covers approximately $2.9 million of outstanding debt, the Company exchanged a variable LIBOR rate for a fixed LIBOR rate of approximately 5.2%. Two other swap agreements, covering approximately $3.5 million, expired on December 31, 2001. Adoption of this new accounting standard resulted in a before tax charge to other comprehensive income of $56 thousand on June 1, 2001. During fiscal 2002, there has been an additional before tax charge to other comprehensive income of $36 thousand to reflect the increase in the mark-to-market liability associated with the swaps resulting from the continued reduction in variable rates below the fixed rate obtained by the 11 Company. In fiscal 2002 interest expense includes approximately $113 thousand pertaining to settlements under the swap agreements. Approximately $69 thousand of the amounts in accumulated other comprehensive loss will be reclassified to interest expense over the course of the next twelve months. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141 Accounting for Business Combinations and SFAS No. 142 Accounting for Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interest method for business combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill that arises from purchases after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 requires the continuation of the amortization of goodwill and all amortizable intangible assets through the end of the fiscal year preceding the adoption year, but amortization of existing goodwill will cease on the first day of the adoption year. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Accordingly, the Company will adopt SFAS No. 142 as of the beginning of its next fiscal year that commences June 1, 2002. The Company has six months from the date it initially applies SFAS No. 142 to test goodwill for impairment and any impairment charge resulting from the initial application of the new standard must be classified as the cumulative effect of a change in accounting principle. Thereafter, goodwill should be tested for impairment at least annually and impairment losses will be presented in the operating section of the income statement. Management is currently assessing the impact that the adoption of SFAS No. 142 will have on the Company's consolidated financial statements. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets, except for certain obligations of lessees. SFAS 143 is effective for the Company in June 2003. Management is in the process of evaluating the impact of the adoption of Statement 143. SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections," was issued in April 2002. SFAS No. 145 provides guidance for income statement classification of gains and losses on extinguishment of debt and accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 145. SFAS No. 146, "Accounting for Exit or Disposal Activities" was issued in June 2002. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 146. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Any forward-looking information contained herein is being provided in accordance with the provisions of the Private Securities Litigation Reform Act. Such information is subject to certain assumptions and beliefs based on current information known to the Company and is subject to factors that could result in actual results differing materially from those anticipated in any forward-looking statements contained herein. Such factors include domestic and international economic activity, interest rates, market conditions for the Company's customers, regulatory changes and legal proceedings, and the Company's successful implementation of its internal operating plans. Accordingly, there can be no assurance that any forward-looking statements contained herein will occur or that objectives will be achieved. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has a credit facility and interest rate swap agreements, which subject the Company to the risk of loss associated with movements in market interest rates. At May 31, 2002, the Company has floating-rate obligations totaling $13.5 million outstanding under its credit facility (see Note 6 to the Company's 12 Consolidated Financial Statements). The exposure of these obligations to increases in short-term interest rates is limited in part by an interest rate swap agreement entered into by the Company. This swap agreement effectively fixes the interest rate on approximately $2.9 million of the Company's variable rate debt. Under these swap agreements, payments are made based on a fixed rate of 5.19% and received on a LIBOR based variable rate. Any change in the value of the swap agreements, real or hypothetical, would be offset by an inverse change in the value of the underlying hedged item. With respect to the remaining $10.6 million of floating-rate debt not covered by swap agreements, a 1% increase in interest rates could result in an annual increase in interest expense of $100 thousand. 13 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders of Team, Inc. Alvin, Texas We have audited the accompanying consolidated balance sheet of Team, Inc. and subsidiaries as of May 31, 2002, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Team, Inc. and subsidiaries as of May 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2002. KPMG LLP Houston, Texas July 16, 2002, except as to the first paragraph of Note 10, which is as of August 27, 2002. 14 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders of Team, Inc. Alvin, Texas We have audited the accompanying consolidated balance sheet of Team, Inc. and subsidiaries as of May 31, 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended May 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Team, Inc. and subsidiaries as of May 31, 2001, and the results of its operations and its cash flows for each of the two years in the period ended May 31, 2001 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Houston, Texas July 12, 2001 15 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MAY 31, ------------------------- 2002 2001 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents................................. $ 823,000 $ 968,000 Receivables, net.......................................... 17,250,000 14,608,000 Inventories............................................... 8,802,000 8,245,000 Deferred income taxes..................................... 685,000 511,000 Prepaid expenses and other current assets................. 513,000 248,000 ----------- ----------- Total Current Assets.............................. 28,073,000 24,580,000 Property, Plant and Equipment: Land and buildings........................................ 7,173,000 7,109,000 Machinery and equipment................................... 20,483,000 18,816,000 ----------- ----------- 27,656,000 25,925,000 Less: accumulated depreciation and amortization... 15,719,000 14,139,000 ----------- ----------- 11,937,000 11,786,000 Goodwill, net of accumulated amortization of $922,000 and $648,000.................................................. 10,049,000 10,341,000 Other assets, net........................................... 712,000 861,000 Restricted cash............................................. 418,000 428,000 ----------- ----------- Total Assets...................................... $51,189,000 $47,996,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt......................... $ 1,512,000 $ 1,536,000 Accounts payable.......................................... 2,953,000 1,957,000 Other accrued liabilities................................. 4,294,000 3,276,000 Current income taxes payable.............................. 621,000 1,010,000 ----------- ----------- Total Current Liabilities......................... 9,380,000 7,779,000 Deferred income taxes....................................... 435,000 343,000 Long-term debt.............................................. 11,978,000 13,531,000 Other long-term liabilities................................. 1,041,000 1,314,000 Minority Interest........................................... 173,000 217,000 Commitments and Contingencies Stockholders' Equity: Preferred stock, 500,000 shares authorized, none issued... -- -- Common stock, par value $.30 per share, 30,000,000 shares authorized; 8,331,132 and 8,342,654 shares issued...... 2,499,000 2,503,000 Additional paid-in capital................................ 32,961,000 32,257,000 Accumulated deficit....................................... (4,670,000) (8,579,000) Accumulated other comprehensive loss...................... (57,000) -- Treasury stock at cost, 658,520 and 459,420 shares........ (2,551,000) (1,369,000) ----------- ----------- Total Stockholders' Equity........................ 28,182,000 24,812,000 ----------- ----------- Total Liabilities and Stockholders' Equity........ $51,189,000 $47,996,000 =========== ===========
See notes to consolidated financial statements. 16 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED MAY 31, --------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Revenues.............................................. $85,081,000 $75,643,000 $66,636,000 Operating expenses.................................... 49,616,000 45,053,000 38,270,000 ----------- ----------- ----------- Gross margin................................ 35,465,000 30,590,000 28,366,000 Selling, general and administrative expenses.......... 27,686,000 25,035,000 24,461,000 Non-cash G&A compensation cost........................ 368,000 -- -- Other expense (income)................................ 173,000 (278,000) (218,000) ----------- ----------- ----------- Earnings before interest and taxes.................... 7,238,000 5,833,000 4,123,000 Interest expense...................................... 892,000 1,616,000 1,610,000 ----------- ----------- ----------- Earnings before income taxes.......................... 6,346,000 4,217,000 2,513,000 Provision for income taxes............................ 2,437,000 1,477,000 1,042,000 ----------- ----------- ----------- Net income............................................ $ 3,909,000 $ 2,740,000 $ 1,471,000 =========== =========== =========== Net income per common share -- Basic........................................... $ 0.51 $ 0.34 $ 0.18 -- Diluted......................................... $ 0.48 $ 0.34 $ 0.18 Weighted average number of shares outstanding -- Basic........................................... 7,664,000 8,015,000 8,238,000 =========== =========== =========== -- Diluted......................................... 8,229,000 8,122,000 8,283,000 =========== =========== ===========
See notes to consolidated financial statements. 17 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FISCAL YEARS ENDED MAY 31, ------------------------------------ 2002 2001 2000 ---------- ---------- ---------- Net income.................................................. $3,909,000 $2,740,000 $1,471,000 Cumulative effect of an accounting change, net of tax of $21,000................................................... (35,000) -- -- Net losses on interest rate swaps, net of tax of $57,000.... (92,000) -- -- Reclassification adjustments related to interest rate swaps, net of tax of $43,000..................................... 70,000 -- -- ---------- ---------- ---------- Comprehensive income........................................ $3,852,000 $2,740,000 $1,471,000 ========== ========== ==========
See notes to consolidated financial statements. 18 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MAY 31, ----------------------------------------- 2002 2001 2000 ----------- ------------ ------------ COMMON STOCK: Balance at beginning of year...................... $ 2,503,000 $ 2,477,000 $ 2,464,000 Shares issued..................................... 5,000 8,000 4,800 Shares retired.................................... (71,000) -- -- Exercise of stock options......................... 62,000 18,000 8,200 ----------- ------------ ------------ Balance at end of year.................... $ 2,499,000 $ 2,503,000 $ 2,477,000 =========== ============ ============ ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year...................... $32,257,000 $ 32,103,000 $ 32,000,000 Shares issued..................................... 46,000 43,000 55,000 Shares retired.................................... (741,000) -- -- Exercise of stock options......................... 748,000 111,000 48,000 Value of options issued in exchange for earn-out....................................... 283,000 -- -- Non-cash compensation............................. 368,000 -- -- ----------- ------------ ------------ Balance at end of year.................... $32,961,000 $ 32,257,000 $ 32,103,000 =========== ============ ============ ACCUMULATED DEFICIT: Balance at beginning of year...................... $(8,579,000) $(11,319,000) $(12,790,000) Net income........................................ 3,909,000 2,740,000 1,471,000 ----------- ------------ ------------ Balance at end of year.................... $(4,670,000) $ (8,579,000) $(11,319,000) =========== ============ ============ UNEARNED STOCK COMPENSATION: Balance at beginning of year...................... $ -- $ (27,000) $ (51,000) Compensation expense.............................. -- 27,000 24,000 ----------- ------------ ------------ Balance at end of year.................... $ -- $ -- $ (27,000) =========== ============ ============ ACCUMULATED OTHER COMPREHENSIVE LOSS: Balance at beginning of year...................... $ -- $ -- $ -- Unrealized loss on derivative instruments......... (57,000) -- -- ----------- ------------ ------------ Balance at end of year.................... $ (57,000) $ -- $ -- =========== ============ ============ TREASURY STOCK: Balance at beginning of year...................... $(1,369,000) $ (97,000) $ (97,000) Repurchase of common stock........................ (1,994,000) (1,272,000) -- Shares retired.................................... 812,000 -- -- ----------- ------------ ------------ Balance at end of year.................... $(2,551,000) $ (1,369,000) $ (97,000) =========== ============ ============ TOTAL STOCKHOLDERS' EQUITY.......................... $28,182,000 $ 24,812,000 $ 23,137,000 =========== ============ ============
See notes to consolidated financial statements. 19 TEAM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MAY 31, --------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Cash Flows From Operating Activities: Net income.......................................... $ 3,909,000 $ 2,740,000 $ 1,471,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization.................... 2,693,000 2,773,000 2,957,000 Provision for doubtful accounts.................. 119,000 141,000 (46,000) Other income..................................... -- (278,000) (218,000) Equity in (earnings) losses of unconsolidated subsidiary and other........................... (17,000) 73,000 -- Deferred income taxes............................ (47,000) 138,000 63,000 Non cash G&A compensation cost................... 368,000 -- -- Changes in assets and liabilities, net of effects from business acquisitions: (Increase) decrease: Accounts receivable............................ (2,761,000) (1,169,000) (2,443,000) Inventories.................................... (557,000) (424,000) 745,000 Prepaid expenses and other current assets...... (215,000) 253,000 11,000 Income tax receivable.......................... -- -- 87,000 Increase (decrease): Accounts payable............................... 996,000 (22,000) 875,000 Other accrued liabilities...................... 882,000 453,000 (695,000) Income taxes payable........................... (89,000) (92,000) 1,102,000 ----------- ----------- ----------- Net cash provided by operating activities... $ 5,281,000 $ 4,586,000 $ 3,909,000 ----------- ----------- ----------- Cash Flows From Investing Activities: Capital expenditures............................. (2,043,000) (1,563,000) (1,525,000) Rental and demonstration equipment............... (369,000) (524,000) (787,000) Proceeds from disposal of property and equipment...................................... 122,000 1,571,000 478,000 Increase in other assets, net.................... (102,000) -- (120,000) Other............................................ -- 260,000 (651,000) ----------- ----------- ----------- Net cash used in investing activities....... $(2,392,000) $ (256,000) $(2,605,000) ----------- ----------- ----------- Cash Flows From Financing Activities: Payments under debt agreements and other long-term obligations...................................... (1,852,000) (2,597,000) (2,152,000) Issuance of common stock............................ 812,000 180,000 140,000 Repurchase of common stock.......................... (1,994,000) (1,272,000) -- ----------- ----------- ----------- Net cash used in financing activities....... $(3,034,000) $(3,689,000) $(2,012,000) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents......................................... (145,000) 641,000 (708,000) Cash and cash equivalents at beginning of year........ 968,000 327,000 1,035,000 ----------- ----------- ----------- Cash and cash equivalents at end of year.............. $ 823,000 $ 968,000 $ 327,000 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest.................................... $ 981,000 $ 1,641,000 $ 1,555,000 =========== =========== =========== Income taxes................................ $ 2,200,000 $ 1,426,000 $ 327,000 =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During 2000, the Company received a $365,000 note as partial consideration for the sale of real estate. See notes to consolidated financial statements. 20 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements of Team, Inc. (the "Company") include the financial statements of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Use of Estimates in Financial Statement Preparation The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company's financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives:
CLASSIFICATION LIFE -------------- ---- Buildings.............................................. 20-30 years Machinery and equipment................................ 2-10 years
Machinery and equipment includes rental and demonstration machining tools used in the equipment sales and rental business segment totaling $1,859,000 and $1,608,000 (before accumulated depreciation of $208,000 and $176,000) at May 31, 2002 and 2001, respectively. These self-constructed assets are periodically transferred to inventory and sold as used equipment. Goodwill Goodwill represents the excess of the purchase price over the fair value of acquired companies and is being amortized on a straight line basis over the estimated economic lives of the acquired companies of forty years. Amortization expense for the years ended May 31, 2002, 2001 and 2000 was approximately $275,000 in each year. Revenue Recognition Revenue is recognized when services are rendered or when product is shipped and risk of ownership passes to the customer. Income Taxes The Company accounts for taxes on income using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted rates. 21 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk The Company provides services to the chemical, petrochemical, refining, pulp and paper, power and steel industries throughout the United States. No single customer accounts for more than 10% of consolidated revenues. Reclassifications Certain prior year amounts have been reclassified to conform to the 2002 presentation. Earnings Per Share The Company has adopted Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share," which specifies the computation, presentation and disclosure requirements for earnings per share ("EPS"). There is no difference, for any of the years presented, in the amount of net income (numerator) used in the computation of basic and diluted earnings per share. With respect to the number of weighted average shares outstanding (denominator), diluted shares reflects only the pro forma exercise of options to acquire common stock to the extent that the options' exercise prices are less than the average market price of common shares during the period. All outstanding options were "in the money" in 2002 and therefore, no options were excluded from the computation of diluted EPS in the current year. Options to purchase 655,000, and 747,000 shares of common stock were outstanding during the years ended May 31, 2001 and 2000, respectively, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of common shares during the period. Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Dividends No dividends were paid during the current or prior two fiscal years. Pursuant to the Company's Credit Agreement, the Company may not pay quarterly dividends without the consent of its senior lender. Future dividend payments will depend upon the Company's financial condition and other relevant matters. Interest Rate Swap Agreements The differential to be paid or received on interest rate swap agreements is accrued as interest rates change and is recognized over the life of the agreements as an increase or decrease in interest expense. The Company does not use these instruments for trading purposes. Instead, it uses them to hedge the impact of interest rate fluctuations on floating rate debt. See Note 6 regarding the fair value of the Company's interest rate swap agreements. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The fair values of the Company's credit facility are representative of their carrying values based upon the variable rate terms and management's opinion that the current rates offered to the Company with the same maturity and security structure are equivalent to that of the credit facility. 22 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) New Accounting Standards Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and No. 138, became effective for the Company as of June 1, 2001. Those statements establish accounting and reporting standards requiring that all derivative instruments be recorded as either assets or liabilities measured at fair value. These statements also require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met, which includes an assessment of the effectiveness of the hedging instrument. The effective portion of the change in the fair value of derivatives used as cash flow hedges are reported as other comprehensive income, with all other changes reported in net income. The Company's only derivative instrument is an interest rate swap agreement that expires in September, 2003 and which qualifies as a cash flow hedge under SFAS No. 133. The agreement was entered into in 1998 to hedge the exposure of an increase in interest rates. Pursuant to this agreement, which covers approximately $2.9 million of outstanding debt, the Company exchanged a variable LIBOR rate for a fixed LIBOR rate of approximately 5.2%. Two other swap agreements, covering approximately $3.5 million, expired on December 31, 2001. Adoption of this new accounting standard resulted in a before tax charge to other comprehensive income of $56 thousand on June 1, 2001. During fiscal 2002, there has been an additional before tax charge to other comprehensive income of $36 thousand to reflect the increase in the mark-to-market liability associated with the swaps resulting from the continued reduction in variable rates below the fixed rate obtained by the Company. In fiscal 2002 interest expense includes approximately $113 thousand pertaining to settlements under the swap agreements. Approximately $69 thousand of the amounts in accumulated other comprehensive loss will be reclassified to interest expense over the course of the next twelve months. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141 Accounting for Business Combinations and SFAS No. 142 Accounting for Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interest method for business combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill that arises from purchases after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 requires the continuation of the amortization of goodwill and all amortizable intangible assets through the end of the fiscal year preceding the adoption year, but amortization of existing goodwill will cease on the first day of the adoption year. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Accordingly, the Company will adopt SFAS No. 142 as of the beginning of its next fiscal year that commences June 1, 2002. The Company has six months from the date it initially applies SFAS No. 142 to test goodwill for impairment and any impairment charge resulting from the initial application of the new standard must be classified as the cumulative effect of a change in accounting principle. Thereafter, goodwill should be tested for impairment at least annually and impairment losses will be presented in the operating section of the income statement. Management is currently assessing the impact that the adoption of SFAS No. 142 will have on the Company's consolidated financial statements. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets, except for certain obligations of lessees. SFAS 143 is effective for the Company in June 2003. Management is in the process of evaluating the impact of the adoption of Statement 143. SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections," was issued in April 2002. SFAS No. 145 provides guidance for income statement classification of gains and losses on extinguishment of debt and accounting for certain lease 23 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 145. SFAS No. 146, "Accounting for Exit or Disposal Activities" was issued in June 2002. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for the Company in June 2003. The Company is evaluating the impact of SFAS No. 146. 2. RECEIVABLES Receivables consist of:
MAY 31, ------------------------- 2002 2001 ----------- ----------- Trade accounts receivable.................................. $17,649,000 $14,918,000 Other receivables.......................................... 112,000 82,000 Allowance for doubtful accounts............................ (511,000) (392,000) ----------- ----------- Total............................................ $17,250,000 $14,608,000 =========== ===========
See note 10 for discussion of trade receivables subject to foreign currency risk. The following summarizes the activity in the allowance for doubtful accounts:
MAY 31, ------------------- 2002 2001 -------- -------- Balance at beginning of year................................ $392,000 $251,000 Provision for doubtful accounts............................. 119,000 141,000 -------- -------- Balance at end of year...................................... $511,000 $392,000 ======== ========
3. INVENTORIES Inventories consist of:
MAY 31, ----------------------- 2002 2001 ---------- ---------- Raw materials............................................... $ 953,000 $ 935,000 Finished goods and work in progress......................... 7,849,000 7,310,000 ---------- ---------- Total............................................. $8,802,000 $8,245,000 ========== ==========
24 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. OTHER ACCRUED LIABILITIES Other accrued liabilities consist of:
MAY 31, ----------------------- 2002 2001 ---------- ---------- Payroll and other compensation expenses..................... $1,736,000 $1,537,000 Insurance accruals.......................................... 1,334,000 1,000,000 Accrued interest............................................ 104,000 222,000 Current payments due to former officers..................... 264,000 301,000 Other....................................................... 856,000 216,000 ---------- ---------- Total............................................. $4,294,000 $3,276,000 ========== ==========
5. INCOME TAXES The provision for income taxes attributable to pre-tax earnings are as follows:
FISCAL YEARS ENDED MAY 31, ------------------------------------ 2002 2001 2000 ---------- ---------- ---------- Federal income taxes: Current........................................ $2,016,000 $1,179,000 $ 843,000 Deferred....................................... (37,000) 177,000 31,000 State income taxes: Current........................................ 468,000 159,000 136,000 Deferred....................................... (10,000) (38,000) 32,000 ---------- ---------- ---------- Total.................................. $2,437,000 $1,477,000 $1,042,000 ========== ========== ==========
A reconciliation between income taxes related to earnings before income taxes and income taxes computed by applying the statutory federal income tax rate to such earnings follows:
FISCAL YEARS ENDED MAY 31, ------------------------------------ 2002 2001 2000 ---------- ---------- ---------- Earnings before federal income taxes............. $6,346,000 $4,217,000 $2,513,000 ========== ========== ========== Computed income taxes at statutory rate.......... $2,158,000 $1,434,000 $ 854,000 Liquidation of foreign subsidiary................ -- (400,000) -- Goodwill amortization............................ 93,000 93,000 93,000 State income taxes............................... 309,000 160,000 111,000 Foreign (gain) losses............................ (2,000) 104,000 -- Other............................................ (121,000) 86,000 (16,000) ---------- ---------- ---------- Total.................................. $2,437,000 $1,477,000 $1,042,000 ========== ========== ==========
During fiscal 2001, a United Kingdom subsidiary was liquidated (see note 8). The subsidiary had incurred operating losses since the early 1990's; however, no tax benefit had been recognized or realized since the utilization of such benefits could not be assured prior to the liquidation of the subsidiary. With the liquidation of the subsidiary, the Company will recognize the tax benefit of the losses in its fiscal year 2001 Federal income tax return. 25 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the significant components of the Company's deferred tax assets and liabilities follows:
MAY 31, ----------------------- 2002 2001 ---------- ---------- Receivables................................................. $ 207,000 $ 175,000 Accrued expenses and other liabilities...................... 850,000 855,000 Inventory................................................... 133,000 99,000 ---------- ---------- Gross deferred assets............................. 1,190,000 1,129,000 ---------- ---------- Property, plant and equipment............................... (761,000) (752,000) Other....................................................... (179,000) (209,000) ---------- ---------- Gross deferred liabilities........................ (940,000) (961,000) ---------- ---------- Net deferred taxes................................ $ 250,000 $ 168,000 ========== ==========
No valuation account is required for the deferred tax assets as the Company is projecting profitable fiscal years in the future that will allow it to realize the benefits of the net deferred tax assets. Most of the assets represent temporary differences on certain accruals that will reverse over a period of less than 10 years. 6. LONG-TERM DEBT Long-term debt consists of:
MAY 31, ------------------------- 2002 2001 ----------- ----------- Revolving loan............................................. $ 5,919,000 $ 5,960,000 Term and mortgage notes.................................... 7,540,000 9,022,000 Capital lease obligations.................................. 31,000 85,000 ----------- ----------- 13,490,000 15,067,000 Less current portion....................................... 1,512,000 1,536,000 ----------- ----------- Total............................................ $11,978,000 $13,531,000 =========== ===========
Maturities of long-term debt are as follows: FY2003................................................. $ 1,512,000 2004................................................ 10,794,000 2005................................................ 125,000 2006................................................ 125,000 2007................................................ 125,000 Thereafter............................................. 809,000 ----------- $13,490,000 ===========
The Company has a $24 million bank credit facility that consists of: (i) a $12,500,000 revolving loan, which matures September 30, 2003, (ii) $9,500,000 in term loans for business acquisitions and (iii) a $2,000,000 mortgage loan. Amounts borrowed against the term loans are due in quarterly installments in the amount of $339,000 until the loans mature on September 30, 2003. Amounts borrowed against the mortgage loan are repaid in quarterly installments of $31,000 until its maturity date of September 30, 2008. Amounts outstanding under the credit facility bear interest at a marginal rate over either the LIBOR rate or the prime rate. At May 31, 2002, the Company's marginal rate was 1.5% over the LIBOR rate. The weighted average rate on outstanding borrowings at May 31, 2002 is approximately 4.3%. The Company also pays a commitment fee of .25% per annum on the average amount of the unused availability under the revolving loan. 26 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company entered into an interest rate swap agreement that expires in September, 2003 and which qualifies as a cash flow hedge under SFAS No. 133. The agreement was entered into in 1998 to hedge the exposure of an increase in interest rates. Pursuant to this agreement, which covers approximately $2.9 million of outstanding debt, the Company exchanged a variable LIBOR rate for a fixed LIBOR rate of approximately 5.2%. Two other swap agreements, covering approximately $3.5 million, expired on December 31, 2001. As the interest rates on the credit facility are based on market rates, the fair value of amounts outstanding under the facility approximate the carrying value. The interest rate swap agreements, which have no carrying value, had a negative mark-to-market value of approximately $92,000 and $56,000 at May 31, 2002 and 2001, respectively. The fair value of interest rate swaps is estimated by discounting expected cash flows using quoted market interest rates. Loans under the credit facility are secured by substantially all of the assets of the Company. The terms of the agreement require the maintenance of certain financial ratios and limit investments, liens, leases and indebtedness, and dividends, among other things. At May 31, 2002 and 2001, the Company was in compliance with all credit facility covenants. At May 31, 2002, the Company was contingently liable for $1.4 million in outstanding stand-by letters of credit and, at that date, approximately $5.2 million was available to borrow under the credit facility. 7. OTHER LONG-TERM LIABILITIES Other liabilities consisted of:
MAY 31, ----------------------- 2002 2001 ---------- ---------- Post retirement payments.................................... $ 886,000 $1,187,000 Deferred compensation due former officer.................... 419,000 428,000 Less amounts due in one year................................ (264,000) (301,000) ---------- ---------- $1,041,000 $1,314,000 ========== ==========
Amounts due within one year of $264,000 and $301,000, respectively, are included in other accrued liabilities in the accompanying consolidated balance sheet. Post Retirement Benefits: The Company is obligated for post-retirement benefits to three former officers with payments due through 2007. Future maturities of amounts due under post retirement benefit agreements are as follows: 2003..................................................... $264,000 2004..................................................... 238,000 2005..................................................... 245,000 2006..................................................... 100,000 2007..................................................... 39,000 -------- $886,000 ========
Deferred Compensation Arrangement: Under a nonqualified deferred compensation agreement, a former officer of the Company (the "Participant") elected to defer a portion of his compensation into a trust established by the Company. The trust assets, consisting of cash and cash equivalents, are subject to the claims of the Company's creditors in the event of the Company's insolvency, until paid to the Participant and his beneficiaries. In accordance with EITF 97-14, "Accounting for Deferred Compensation Arrangements where amounts earned are held in a 27 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rabbi Trust and Invested," the accounts of the trust have been consolidated into the Company's financial statements for fiscal 2002 and 2001. The principal of the trust and any earnings thereon are to be used exclusively for the uses and purposes of the Participant and general creditors of the Company in the event of the Company's insolvency, and therefore the trust assets of $418,000 and $428,000 at May 31, 2002 and 2001, respectively, have been classified as restricted cash in the balance sheet. 8. OTHER EXPENSE (INCOME) In 2002, other expense of $173,000 consists of severance and related costs associated with a reduction in work force at Climax. All such amounts were paid during the year ended May 31, 2002. In fiscal 2001, the Company sold rental property for $1.575 million in cash (net). The property was carried as a corporate asset unrelated to either of the Company's operating segments. The transaction, net of other charges, resulted in a gain of $360,000. Also in 2001, the Company completed the sale of substantially all of the assets and operations of a small operating subsidiary located in the United Kingdom resulting in a loss on disposal of the business of $82 thousand. The operations of the UK subsidiary were not material to the Company's business. In fiscal 2000, other income consisted of the gain on the sale of real estate. 9. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS Stock Options: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is, generally, recognized. Pursuant to various option plans, the Company has granted options to purchase common stock to officers, directors and employees at prices equal to or greater than the market value of the common stock on the date of grant. The exercise price, terms and other conditions applicable to each option granted under the Company's plans are generally determined by the Compensation Committee at the time of grant of each option and may vary. In addition to the options granted under the option plans discussed above, the Company's chief executive officer was granted options to purchase 200,000 shares of common stock at a price of $3.625 per share upon joining the Company in 1998. Such grant was subject to a vesting schedule based on stock performance measures which provided that one third of the options vest upon the sustained achievement of average stock prices of $7.00, $10.50, and $14.00 per share. The first standard was met near the end of May 2002, when the price of Team's stock was $9.15 per share. Consequently, at that time, the Company was required to recognize a non-cash G&A compensation charge associated with one third of the options totaling $368,000 (approximately $0.03 effect on earnings per share, net of tax). In July 2002, the Board of Directors modified the vesting requirements of the remaining 133,333 performance based options held by the chief executive officer as well as 20,000 performance based options held by an officer of one of the Company's subsidiaries. The modification causes the remaining options to vest on May 31, 2008 unless earlier vesting occurs, in the case of the chief executive officer, as a result of the achievement of the $10.50 and $14.00 stock-price hurdles described above. The modification allows the Company to fix the amount of the future non-cash G&A compensation expense associated with the remaining options ($750,000) and to recognize the charge against earnings ratably over a six-year period of time ($125,000 per year), unless otherwise accelerated by the achievement of the performance hurdles. 28 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Transactions under all plans are summarized below: (For purposes of the summary, the chief executive officer's 66,667 performance options that vested in fiscal 2002 are included as fiscal 2002 grants.
FISCAL YEARS ENDED MAY 31, --------------------------------------------------------------------- 2002 2001 2000 --------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ---------- -------- ---------- -------- ---------- -------- Shares under option, beginning of year......... 1,114,800 $3.06 1,111,000 $3.11 1,029,200 $3.03 Changes during the year: Granted................... 391,200 $4.14 142,000 $2.04 226,000 $3.29 Exercised................. (209,000) $3.88 (60,700) $2.13 (27,300) $2.13 Canceled.................. (20,000) $3.63 (77,500) $3.43 (116,900) $2.97 ---------- ----- ---------- ----- ---------- ----- Shares under option, end of year............ 1,277,000 $3.41 1,114,800 $3.00 1,111,000 $3.11 Exercisable at end of year...................... 980,000 $3.27 824,000 $3.06 705,000 $2.97 ========== ===== ========== ===== ========== ===== Available for future grant..................... 174,000 410,000 413,000 ========== ========== ========== Weighted average grant-date fair value of options granted during year....... $ 1.29 $ 0.99 $ 1.45 ========== ========== ==========
For options outstanding at May 31, 2002, the range of exercise prices and remaining contractual lives are as follows:
WEIGHTED WEIGHTED NUMBER OF AVERAGE AVERAGE LIFE RANGE OF PRICES OPTIONS PRICE (IN YEARS) - --------------- --------- -------- ------------ $1.94 to $2.75..................................... 326,000 $2.24 6.2 $3.06 to $3.50..................................... 453,000 $3.46 7.0 $3.56 to $7.20..................................... 498,000 $4.09 7.6 --------- ----- --- 1,277,000 $3.39 7.0 ========= ===== ===
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for the options granted after this date was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2002, 2001, and 2000, respectively: risk-free interest rate of 3.8%, 4.5%, and 6.6%; volatility factor of the expected market price of the Company's common stock of 42.8%, 73.8%, and 47.6%; expected dividend yield percentage of 0.0% for each period; and a weighted average expected life of the option of three years for each period. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 29 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's pro forma information, as if the fair value method described above had been adopted, is as follows:
FISCAL YEARS ENDED MAY 31, ------------------------------------ 2002 2001 2000 ---------- ---------- ---------- Net income -- as reported...................... $3,909,000 $2,740,000 $1,471,000 Pro forma net income........................... $3,746,000 $2,536,000 $1,184,000 ========== ========== ========== Earnings per share -- diluted.................. $ 0.48 $ 0.34 $ 0.14 Pro forma earnings per share -- diluted........ $ 0.46 $ 0.31 $ 0.14 ========== ========== ==========
EMPLOYEE BENEFIT PLANS: Under the Team, Inc. Salary Deferral Plan, contributions are made by qualified employees at their election and matching Company contributions are made at specified rates. Company contributions in fiscal 2002, 2001 and 2000, were $319,000, $302,000, and $259,000, respectively. 10. COMMITMENTS AND CONTINGENCIES Loss Contingencies In May 2002, a jury verdict was rendered against the Company in an employment related case brought in the United States District Court for the Western District of Louisiana. The case involves allegations of misconduct by personnel in one of the Company's branches during the years 1998 and 1999. In August 2002, the Court ruled on certain post-trial motions and determined that, with respect to one of the two plaintiffs, a $300,000 judgment will be entered against the Company. With respect to the second plaintiff, the Court set aside the jury verdict on most points and granted the Company's motion for a new trial on a specific issue. The Company is presently evaluating its legal options with respect to this case. In management's opinion, an adequate accrual has been made in the financial statements as of May 31, 2002 to provide for the probable amount of loss in this case. In December 2001, the Company was named a defendant in a lawsuit, along with 18 other parties, alleging that a former subsidiary, French Ltd. ("French"), was involved in the illegal disposal of hazardous substances during the years 1969 and 1970. The plaintiff's allege that Team is a successor-in-interest to French and is, therefore, liable for contribution to a settlement embodied in a consent decree entered into by the plaintiffs with the EPA in 1998. French was acquired by Team in 1978 and sold back to its prior owner in 1984. The case is early in the discovery stage and the Company is unable to estimate a range of potential loss, if any, with respect to this matter. However, the Company vigorously denies that it is a successor-in-interest of French and that it has any responsibility in this matter. The Company has a U.S. dollar receivable ($250,000, net) from a Venezuelan contractor to the national oil company of Venezuela ("PDVSA"), pertaining to services performed by the Company in fiscal 2002. While the contractor has committed to honor its US dollar obligation to Team, its arrangement with PDVSA is in the local Venezuelan currency, the Bolivar, which has depreciated significantly against the dollar. The Company believes it has adequately provided for any losses associated with this receivable. The Company and certain subsidiaries are involved in various other lawsuits and are subject to various claims and proceedings encountered in the normal conduct of business. In the opinion of management, any uninsured losses that might arise from these lawsuits and proceedings will not have a materially adverse effect on the Company's consolidated financial statements. 30 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Lease Commitments The Company's capital leases relate to certain computer equipment and software, whose capitalized balances are not significant to property, plant and equipment. The Company also has operating leases which relate to facilities and transportation and other equipment which are leased over terms ranging from one to five years with typical renewal options and escalation clauses. Rental payments on operating leases charged against earnings were $2,848,000, $2,151,000, and $1,991,000 in 2002, 2001, and 2000, respectively. Minimum rental commitments for future periods are as follows:
YEAR ENDING CAPITAL OPERATING MAY 31, LEASES LEASES TOTAL - ----------- ------- ---------- ---------- 2003............................................... $32,000 $2,926,000 $2,958,000 2004............................................... -- 2,168,000 2,168,000 2005............................................... -- 1,269,000 1,269,000 2006............................................... -- 397,000 397,000 2007............................................... -- 40,000 40,000 ------- ---------- ---------- Total minimum payments................... $32,000 $6,800,000 $6,832,000 ========== ========== Less: amount representing interest....... (1,000) ------- Present value of lease payments.......... $31,000 =======
11. COMMON STOCK In June 2001, the Company completed the reacquisition of 235,647 shares of its common stock for $812,000, including expenses, pursuant to a self-tender offer announced in April 2001. These shares were retired and, accordingly, the cost was charged to Common Stock (at par value of $.30 per share) and to Additional Paid-in Capital. Additionally, during fiscal 2002, the Company reacquired approximately 200,000 shares pursuant to an approved, open market repurchase plan at a average price of $5.93 per share. In fiscal 2001, the Company repurchased 449,720 shares of its outstanding common stock at a weighted average price of $2.83 per share. The shares acquired through open market purchases have not been formally retired and, accordingly, are carried as treasury stock. The following summarizes the activity of shares outstanding for the years 2002 and 2001:
COMMON STOCK TREASURY SHARES ISSUED STOCK OUTSTANDING --------- -------- ----------- Number of Shares, May 31, 1999...................... 8,213,652 (9,700) 8,203,952 Shares issued for director fees................... 15,969 -- 15,969 Exercise of stock options......................... 27,333 -- 27,333 --------- -------- --------- Number of Shares, May 31, 2000...................... 8,256,954 (9,700) 8,247,254 Shares issued for director fees................... 25,700 -- 25,700 Exercise of stock options......................... 60,000 -- 60,000 Shares repurchased................................ -- (449,720) (449,720) --------- -------- --------- Number of shares, May 31, 2001...................... 8,342,654 (459,420) 7,883,234 Shares issued for director fees................... 15,150 -- 15,150 Exercise of stock options......................... 208,975 -- 208,975 Shares repurchased................................ -- (434,747) (434,747) Shares retired.................................... (235,647) 235,647 -- --------- -------- --------- Number of shares, May 31, 2002...................... 8,331,132 (658,520) 7,672,612 ========= ======== =========
31 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of May 31, 2002, the Company is authorized by its Board of Directors and lender to expend up to an additional $1.6 million on open market repurchases. 12. INDUSTRY SEGMENT INFORMATION The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," in fiscal 1999. SFAS No. 131 requires that the Company disclose certain information about its operating segments where operating segments are defined as "components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance." Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. Pursuant to SFAS No. 131, the Company has two reportable segments: industrial services and equipment sales and rentals. The industrial services segment includes services consisting of leak repair, hot tapping, emissions control monitoring, field machining, and mechanical inspection. The equipment sales and rental segment consists of the Climax business. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on earnings before interest and income taxes. Inter-segment sales are eliminated in the operating measure used by the Company to evaluate segment performance, and this has been eliminated in the following schedule. Interest is not allocated to the segments. Information about business segments for the fiscal years 2002, 2001 and 2000 is set forth below: FISCAL YEAR ENDED MAY 31, 2002
INDUSTRIAL EQUIPMENT CORPORATE SERVICES SALES AND RENTALS AND OTHER TOTAL ----------- ----------------- ----------- ----------- Revenues.............................. $74,513,000 $10,568,000 $ -- $85,081,000 ----------- ----------- ----------- ----------- Earnings before interest and taxes.... 11,470,000 547,000 (4,779,000) 7,238,000 Interest.............................. -- -- 892,000 892,000 ----------- ----------- ----------- ----------- Earnings before income taxes.......... $11,470,000 $ 547,000 $(5,671,000) $ 6,346,000 =========== =========== =========== =========== Depreciation and amortization......... $ 1,644,000 $ 684,000 $ 365,000 $ 2,693,000 =========== =========== =========== =========== Capital expenditures.................. $ 1,829,000 $ 120,000 94,000 $ 2,043,000 =========== =========== =========== =========== Identifiable assets................... $35,430,000 $12,247,000 $ 3,512,000 $51,189,000 =========== =========== =========== ===========
FISCAL YEAR ENDED MAY 31, 2001
INDUSTRIAL EQUIPMENT CORPORATE SERVICES SALES AND RENTALS AND OTHER TOTAL ----------- ----------------- ----------- ----------- Revenues.............................. $66,492,000 $ 9,151,000 $ -- $75,643,000 ----------- ----------- ----------- ----------- Earnings before interest and taxes.... 9,831,000 (189,000) (3,809,000) 5,833,000 Interest.............................. -- -- 1,616,000 1,616,000 ----------- ----------- ----------- ----------- Earnings before income taxes.......... $ 9,831,000 $ (189,000) $(5,425,000) $ 4,217,000 =========== =========== =========== =========== Depreciation and amortization......... $ 1,635,000 $ 716,000 $ 422,000 $ 2,773,000 =========== =========== =========== =========== Capital expenditures.................. $ 1,351,000 $ 153,000 59,000 $ 1,563,000 =========== =========== =========== =========== Identifiable assets................... $32,563,000 $12,011,000 $ 3,422,000 $47,996,000 =========== =========== =========== ===========
32 TEAM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FISCAL YEAR ENDED MAY 31, 2000
INDUSTRIAL EQUIPMENT CORPORATE SERVICES SALES AND RENTALS AND OTHER TOTAL ----------- ----------------- ----------- ----------- Revenues.............................. $56,053,000 $10,583,000 $ -- $66,636,000 ----------- ----------- ----------- ----------- Earnings before interest and taxes.... 7,267,000 777,000 (3,921,000) 4,123,000 Interest.............................. -- -- 1,610,000 1,610,000 ----------- ----------- ----------- ----------- Earnings before income taxes.......... $ 7,267,000 $ 777,000 $(5,531,000) $ 2,513,000 =========== =========== =========== =========== Depreciation and amortization......... $ 1,669,000 $ 855,000 $ 433,000 $ 2,957,000 =========== =========== =========== =========== Capital expenditures.................. $ 1,190,000 $ 304,000 31,000 $ 1,525,000 =========== =========== =========== =========== Identifiable assets................... $31,381,000 $12,616,000 $ 4,387,000 $48,384,000 =========== =========== =========== ===========
13. ACQUISITIONS In July 2001, the Company entered into an exchange agreement with the former owners of X-Ray Inspection, Inc. which was acquired by the Company in April 1999. Pursuant to the agreement, the Company's obligation for contingent future consideration (up to $2.5 million depending on future earnings of X-Ray) was cancelled in exchange for the issuance of options to acquire 100,000 of the Company's common stock (at $3.50 per share) and the nomination of the principal former owner of X-Ray to the Company's Board of Directors. The value of the options issued in exchange for the cancellation of the contingent future consideration ($283,000) was recorded as additional goodwill with an offsetting credit to additional paid-in capital. 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The Company's consolidated results of operations by quarter for the fiscal years ended May 31, 2002, and 2001 are shown below.
FISCAL 2002 ----------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- Revenues................................. $19,828,000 $21,594,000 $19,047,000 $24,612,000 =========== =========== =========== =========== Gross margin............................. $ 8,183,000 $ 9,043,000 $ 7,879,000 $10,360,000 =========== =========== =========== =========== Net income............................... 802,000 1,244,000 526,000 1,337,000 =========== =========== =========== =========== Net income per share: Basic.................................. $ 0.10 $ 0.16 $ 0.07 $ 0.17 =========== =========== =========== =========== Diluted................................ $ 0.10 $ 0.15 $ 0.06 $ 0.16 =========== =========== =========== ===========
FISCAL 2001 ----------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- Revenues................................. $16,776,000 $19,545,000 $18,656,000 $20,666,000 =========== =========== =========== =========== Gross margin............................. $ 6,592,000 $ 7,915,000 $ 7,313,000 $ 8,770,000 =========== =========== =========== =========== Net income............................... 211,000 879,000 619,000 1,031,000 =========== =========== =========== =========== Net income per share -- basic and diluted................................ $ 0.03 $ 0.11 $ 0.08 $ 0.13 =========== =========== =========== ===========
33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements concerning accounting and financial disclosures with the Company's independent accountants within the past two years. PART III THE INFORMATION CONTAINED IN ITEMS 10, 11, 12 AND 13 OF PART III HAS BEEN OMITTED FROM THIS REPORT ON FORM 10-K SINCE THE COMPANY WILL FILE, NOT LATER THAN 120 DAYS FOLLOWING THE CLOSE OF ITS FISCAL YEAR ENDED MAY 31, 2002, ITS DEFINITIVE PROXY STATEMENT. THE INFORMATION REQUIRED BY PART III WILL BE INCLUDED IN THAT PROXY STATEMENT AND SUCH INFORMATION IS HEREBY INCORPORATED BY REFERENCE, WITH THE EXCEPTION OF THE INFORMATION UNDER THE HEADINGS "COMPENSATION COMMITTEE REPORT" AND "COMPARISON OF TOTAL SHAREHOLDERS' RETURN." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of Team, Inc. and its subsidiaries are included in Part II, Item 8.
PAGE ----- Independent Auditors' Reports............................... 14&15 Consolidated Balance Sheets -- May 31, 2002 and 2001........ 16 Consolidated Statements of Operations -- Years ended May 31, 2002, 2001 and 2000....................................... 17 Consolidated Statements of Comprehensive Income -- Years ended May 31, 2002, 2001, 2000............................ 18 Consolidated Statements of Stockholders' Equity -- Years ended May 31, 2002, 2001 and 2000......................... 19 Consolidated Statements of Cash Flows -- Years ended May 31, 2002, 2001 and 2000....................................... 20 Notes to Consolidated Financial Statements.................. 21
2. Financial Statement Schedules All other schedules are omitted because they are not applicable or because the required information is included in the Consolidated Financial Statements or Notes thereto. 3. Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1* -- Second Restated Articles of Incorporation of the Company, as amended through August 31, 1999, (filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1999) 3.2* -- Bylaws of the Company (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-2, File No. 33-31663) 4.1* -- 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)
34
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1*# -- Employment Agreements and Consulting and Salary Continuation Agreements between the Company and certain of its executive officers (filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1988, as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1989, as amended by Form 8 dated October 19, 1989, and Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1990) 10.2* -- Team, Inc. Salary Deferral Plan (filed as Exhibit 99(a) to the Company's Registration Statement on form S-8, File No. 333-74062) 10.3*# -- Team, Inc. Restated Non-Employee Directors' Stock Option Plan as amended through March 28, 1996 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1996) 10.4*# -- Amendment dated January 9, 1997, to the Team, Inc. Restated Non-Employee Directors Stock Option Plan (filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997) 10.5*# -- Amendment dated January 29, 1998, to the Team, Inc. Restated Non-Employee Directors Stock Option Plan (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997) 10.6# -- Amendment dated September 27, 2001 to the Team, Inc. Restated Non-Employee Directors' Stock Option Plan 10.7*# -- Team, Inc. Officers' Restricted Stock Option Plan dated December 14, 1995 (filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1996) 10.8*# -- First Amendment to the Consulting and Salary Continuation Agreement by and between Team, Inc. and George W. Harrison dated December 24, 1990 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended November 30, 1996) 10.9*# -- First Amendment to Employment Agreement by and between Philip J. Hawk and Team, Inc. effective October 1, 2001 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2002) 10.10*# -- Incentive Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated November 2, 1998 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998) 10.11*# -- Standard Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated November 2, 1998 (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998) 10.12*# -- First Amendment to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2002) 10.12# -- Second Amendment dated July 11, 2002 to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. 10.14*# -- Stock Purchase Agreement by and between Philip J. Hawk and Team, Inc. dated November 2, 1998 (filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998)
35
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.15*# -- Incentive Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2002) 10.16* -- Stock Purchase Agreement by and between Team, Inc. and Houston Post Oak Partners, Ltd. Dated June 9, 1998 (filed as a exhibit to the Company's Current Report on Form 8-K filed June 8, 1998) 10.17* -- 1998 Incentive Stock Option Plan dated January 29, 1998 (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998) 10.18* -- Credit Agreement dated August 28, 1998 among Team, NationsBank, N.A. and various Financial Institutions named in the Credit Agreement (filed as Exhibit 2.5 to the Company's Current Report on Form 8-K filed September 9, 1998) 10.19# -- Exchange Agreement by and among E. Patrick Manuel, B. Dal Miller and Team, Inc. dated July 5, 2001. 10.20# -- Stock Option Agreement by and between B. Dal Miller and Team, Inc. dated July 5, 2001. 21* -- Subsidiaries of the Company (filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1999) 23.1 -- Consent of Independent Auditor -- KPMG LLP 23.2 -- Consent of Independent Auditor -- Deloitte & Touche LLP 99.1 -- Written Statement of the Chief Executive Officer of Team, Inc. pursuant to 18 U.S.C. Section 1350 99.2 -- Written Statement of the Chief Financial Officer of Team, Inc. pursuant to 18 U.S.C. Section 1350.
- --------------- * Incorporated herein by reference to the respective filing identified above. # Management contracts and/or compensation plans required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K. The Company filed two (2) reports on form 8-K during the fourth quarter, both covering Item 4, Changes in Registrants Certified Accountant. The dates of the reports were April 23, 2002 and May 2, 2002. 36 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 28, 2002. 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 Chief Executive Officer and August 28, 2002 - ----------------------------------------------------- Director (Philip J. Hawk) /s/ GEORGE W. HARRISON Director August 28, 2002 - ----------------------------------------------------- (George W. Harrison) /s/ JACK M. JOHNSON, JR. Director August 28, 2002 - ----------------------------------------------------- (Jack M. Johnson, Jr.) /s/ E. THEODORE LABORDE Director August 28, 2002 - ----------------------------------------------------- (E. Theodore Laborde) /s/ E. PATRICK MANUEL Director August 28, 2002 - ----------------------------------------------------- (E. Patrick Manuel) /s/ LOUIS A. WATERS Director August 28, 2002 - ----------------------------------------------------- (Louis A. Waters) /s/ SIDNEY B. WILLIAMS Director August 28, 2002 - ----------------------------------------------------- (Sidney B. Williams) /s/ TED W. OWEN Vice President Chief Financial August 28, 2002 - ----------------------------------------------------- Officer (Principal Financial (Ted W. Owen) Officer and Principal Accounting Officer)
37 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1* -- Second Restated Articles of Incorporation of the Company, as amended through August 31, 1999, (filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1999) 3.2* -- Bylaws of the Company (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-2, File No. 33-31663) 4.1* -- 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) 10.1*# -- Employment Agreements and Consulting and Salary Continuation Agreements between the Company and certain of its executive officers (filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1988, as Exhibit 10 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1989, as amended by Form 8 dated October 19, 1989, and Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1990) 10.2* -- Team, Inc. Salary Deferral Plan (filed as Exhibit 99(a) to the Company's Registration Statement on form S-8, File No. 333-74062) 10.3*# -- Team, Inc. Restated Non-Employee Directors' Stock Option Plan as amended through March 28, 1996 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1996) 10.4*# -- Amendment dated January 9, 1997, to the Team, Inc. Restated Non-Employee Directors Stock Option Plan (filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997) 10.5*# -- Amendment dated January 29, 1998, to the Team, Inc. Restated Non-Employee Directors Stock Option Plan (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997) 10.6# -- Amendment dated September 27, 2001 to the Team, Inc. Restated Non-Employee Directors' Stock Option Plan 10.7*# -- Team, Inc. Officers' Restricted Stock Option Plan dated December 14, 1995 (filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1996) 10.8*# -- First Amendment to the Consulting and Salary Continuation Agreement by and between Team, Inc. and George W. Harrison dated December 24, 1990 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended November 30, 1996) 10.9*# -- First Amendment to Employment Agreement by and between Philip J. Hawk and Team, Inc. effective October 1, 2001 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2002) 10.10*# -- Incentive Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated November 2, 1998 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998) 10.11*# -- Standard Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated November 2, 1998 (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998)
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.12*# -- First Amendment to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2002) 10.12# -- Second Amendment dated July 11, 2002 to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. 10.14*# -- Stock Purchase Agreement by and between Philip J. Hawk and Team, Inc. dated November 2, 1998 (filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1998) 10.15*# -- Incentive Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2002) 10.16* -- Stock Purchase Agreement by and between Team, Inc. and Houston Post Oak Partners, Ltd. Dated June 9, 1998 (filed as a exhibit to the Company's Current Report on Form 8-K filed June 8, 1998) 10.17* -- 1998 Incentive Stock Option Plan dated January 29, 1998 (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998) 10.18* -- Credit Agreement dated August 28, 1998 among Team, NationsBank, N.A. and various Financial Institutions named in the Credit Agreement (filed as Exhibit 2.5 to the Company's Current Report on Form 8-K filed September 9, 1998) 10.19# -- Exchange Agreement by and among E. Patrick Manuel, B. Dal Miller and Team, Inc. dated July 5, 2001. 10.20# -- Stock Option Agreement by and between B. Dal Miller and Team, Inc. dated July 5, 2001. 21* -- Subsidiaries of the Company (filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1999) 23.1 -- Consent of Independent Auditor -- KPMG LLP 23.2 -- Consent of Independent Auditor -- Deloitte & Touche LLP 99.1 -- Written Statement of the Chief Executive Officer of Team, Inc. pursuant to 18 U.S.C. Section 1350 99.2 -- Written Statement of the Chief Financial Officer of Team, Inc. pursuant to 18 U.S.C. Section 1350.
- --------------- * Incorporated herein by reference to the respective filing identified above. # Management contracts and/or compensation plans required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. EX-10.6 3 h99461exv10w6.txt AMEND. TO NON-EMPLOYEE DIRECTORS' STOCK OPT. PLAN EXHIBIT 10.6 AMENDMENT OF SEPTEMBER 27, 2001 TO TEAM, INC. RESTATED NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN (As amended through March 28, 1996) WHEREAS, the Board of Directors of Team, Inc. during a meeting held on September 27, 2001, adopted a resolution amending the Team, Inc. Restated Non-Employee Directors' Stock Option Plan ("Plan") to increase the maximum number of shares which may be offered pursuant to the Plan from 310,000 to 410,000. NOW, THEREFORE, by order of the Board of Directors, Paragraph 4 of the Plan has been amended in its entirety to read as follows: "4. Common Stock Subject to Options. The aggregate number of shares of the Company's Common Stock which may be issued upon exercise of Options granted under the Plan shall not exceed 410,000, subject to adjustment under the provisions of Paragraph 7. The shares of Common Stock to be issued upon the exercise of Options may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the market for the purposes of the Plan. In the event any Option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares subject to such Option but not purchased thereunder shall again be available for Options to be granted under the Plan." EFFECTIVE as of September 27, 2001. EX-10.13 4 h99461exv10w13.txt 2ND AMEND. TO PRICE VESTED RESTRICTED STOCK AGMT. EXHIBIT 10.13 SECOND AMENDMENT TO PRICE VESTED STOCK OPTION AWARD AGREEMENT The Price Vested Stock Option Award Agreement dated as of November 2, 1998 and amended as of October 1, 2001 (the "Option Agreement") by and between Team, Inc., a Texas corporation (the "Company"), and Phillip J. Hawk ("Hawk") is hereby amended effective July 11, 2002 as follows: WHEREAS, the Executive Committee of the Company's Board of Directors ("Board") adopted a resolution on July 11, 2002 to the effect that all stock options that are outstanding under the Option Agreement as of May 31, 2008 will become fully vested on May 31, 2008; and, WHEREAS, the Board by resolution adopted during a special meeting held on July 12, 2002, ratified, approved and affirmed the action of the Executive Committee described in the preceding recital; and, WHEREAS, the Company and Hawk wish to memorialize the aforesaid action by executing this Second Amendment to the Option Agreement; NOW, THEREFORE, in consideration of the recitals and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Company and Hawk hereby agree as follows: 1. All stock options outstanding under the Option Agreement as of May 31, 2008 that have not then vested shall become fully vested on May 31, 2008. 2. Except as specifically provided by this Second Amendment, the Option Agreement is unchanged and its provisions are hereby reaffirmed. IN WITNESS WHEREOF, the Company and Hawk have executed this Second Amendment on this the 23rd day of August 2002 to be effective as of July 11, 2002. TEAM, INC. By: /s/ JACK M. JOHNSON, JR. ------------------------------- Name: Jack M. Johnson, Jr. Title: Director and Chairman of the Compensation Committee OPTION HOLDER: /s/ PHILIP J. HAWK ------------------------------- Philip J. Hawk EX-10.19 5 h99461exv10w19.txt EXCHANGE AGREEMENT - DATED JULY 5, 2001 EXHIBIT 10.19 EXCHANGE AGREEMENT BY AND AMONG E. PATRICK MANUEL, B. DAL MILLER AND TEAM, INC. DATED JULY 5, 2001 This agreement (the "Exchange Agreement") is entered into by and among E. Patrick Manuel ("Manuel"), B. Dal Miller ("Miller") and Team, Inc., ("Team") to be effective as of July 5, 2001 (the "Effective Date"); Team, Manuel and Miller are sometimes collectively referred to herein as the "Parties"; WHEREAS, Manuel, Miller and Team entered into a Stock Purchase Agreement dated as of April 9, 1999 (the "Purchase Agreement") and pursuant thereto Team purchased all of the issued and outstanding shares of the capital stock of X-Ray Inspection, Inc., (the "X-Ray Stock") from Manuel and Miller and has paid the full amount of the purchase price due there under through the Effective Date; and, WHEREAS, Section 2.2.4 of the Purchase Agreement provides among other things for the contingent payments of certain additional amounts ("Earn-Out") as the Purchase Price for the X-Ray Shares if the conditions provided therein are satisfied; and, WHEREAS, Manuel and Team have agreed that Manuel's entitlement to receive additional payments of purchase price for the X-Ray Stock will be canceled and that he will be nominated by the Board of Directors of Team (the "Team Board") for election to the Team Board at the 2001 annual meeting of the Team Shareholders; and, WHEREAS, the Team Board has unanimously adopted a resolution nominating Manuel for election to the Team Board at the 2001 annual shareholders' meeting; and, WHEREAS, Miller and Team have agreed that Miller 's entitlement to receive additional payments of purchase price for the X-Ray Shares will be canceled in exchange for the grant by Team of the Option to purchase 100,000 shares of Team common stock with par value of $0.30 per share pursuant the terms and conditions contained in the copy of the agreement (the "Option Agreement") attached hereto as Exhibit A; and, WHEREAS, Miller and Team have executed this Exchange Agreement simultaneously with their execution of the Option Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained and other good and valuable consideration, the receipt and adequacy of which is acknowledged, the Parties agree as follows: 1 1. Termination of Entitlement to Receive Additional Payments under Purchase Agreement. For and in exchange for the consideration described in the above Recitals, Manuel and Miller hereby relinquish any and all rights and entitlements that either of them have or may have to receive Earn Out payments pursuant to the Purchase Agreement. Without limiting the foregoing, the Purchase Agreement is hereby amended as of the Effective Date to eliminate therefrom in the entirety all of the provisions of Section 2.2.4 and Sections 2.2.4.1 through 2.2.4.8 inclusive. 2. Representations, Warranties and Covenants of Manuel. Manuel hereby represents, warrants and covenants as follows: (A) As of the Effective Date, Manuel has not heretofore transferred, assigned or pledged his interest in the Purchase Agreement or his right to receive any additional payments thereunder and he is the beneficial owner of any and all rights to receive additional payments for the X Ray Shares sold by him to Team pursuant to the Purchase Agreement and no other party (other than B. Dal Miller) has any ownership interest in, lien or claim against or right to receive any such payment whether presently due or that could hereafter arise under the terms of the Purchase Agreement; (B) Manuel has the complete and total authority to enter into this Amendment without the necessity of obtaining the consent of any other person; (C) Manuel will not hereafter make any claim against Team for any Earn Out payments pursuant to the Purchase Agreement or for any additional consideration for the X Ray Shares that Team purchased from him, excluding Manuel's right under the Purchase Agreement (i) to receive Deferred Payments and (ii) to assert indemnity claims and receive payments therefor. (D) Manuel is familiar with the financial affairs, operations and business prospects of the Company and of its Mechanical Inspection Services Segment and has been provided with detailed financial data and other materials pertaining to the Company and its Mechanical Inspection Services Segment including all information he has requested. Manuel has been afforded the opportunity to discuss the Company's business prospects with senior officials of the Company and is satisfied that he has been provided with all information that is necessary for him to make an informed decision with respect to entering into this Exchange Agreement. 3. Representations, Warranties and Covenants of Miller. Miller hereby represents, warrants and covenants as follows: (A) As of the Effective Date, Miller has not heretofore transferred, assigned or pledged his interest in the Purchase Agreement or his right to receive any additional payments thereunder and he is the beneficial owner of any and all rights to receive any additional payments for the X Ray Shares sold by him to Team pursuant to the Purchase Agreement and no other party (other than E. Patrick Manuel) has any ownership interest in, lien or claim against or right to receive any such payment whether presently due or that could hereafter arise under the terms of the Purchase Agreement; 2 (B) Miller has the complete and total authority to enter into this Amendment without the necessity of obtaining the consent of any other person; (C) Miller will not hereafter make any claim against Team for any Earn Out payments pursuant to the Purchase Agreement or for any additional consideration for the X Ray Shares that Team purchased from him, excluding Miller's right under the Purchase Agreement (i) to receive Deferred Payments and (ii) to assert indemnity claims and receive payments therefor. (D) Miller is familiar with the financial affairs, operations and business prospects of the Company and of its Mechanical Inspection Services Segment and has been provided with detailed financial data and other materials pertaining to the Company and its Mechanical Inspection Services Segment including all information he has requested. Miller has been afforded the opportunity to discuss the Company's business prospects with senior officials of the Company and is satisfied that he has been provided with all information that is necessary for him to make an informed decision with respect to entering into this Exchange Agreement. 4. Representations, Warranties and Covenants of Team. Team hereby represents, warrants and covenants with Manuel and Miller as follows: (A) Team is fully authorized to enter into this Amendment and that it is binding upon and enforceable against Team in accordance with its terms. (B) The Option Agreement has been duly authorized and executed on behalf of Team and is binding upon and enforceable against Team in accordance with its terms. (C) Attached hereto as Exhibit B is a true copy of resolutions adopted by the Team Board as of the Effective Date. (D) This Exchange Agreement shall not affect Manuel's and Miller's right to receive Deferred Payments pursuant to the terms and conditions of the Purchase Agreement and/or their right to assert indemnity claims under the Purchase Agreement and receive, if entitled, to payments for such claims. 5. Survival of Representations, Warranties and Covenants. The Representations, Warranties and Covenants contained herein shall survive the execution of this Exchange Agreement and the completion of the transactions covered thereby. 6. Amendment to Purchase Agreement - Incorporation By Reference. The Purchase Agreement as amended by this Exchange Agreement is hereby reaffirmed and shall continue in full force and effect and, as amended, is hereby incorporated herein for all purposes. 3 7. Reliance Upon Own Professional Advisors. Each of the Parties has been represented by and has relied upon his/its own separate legal counsel, accountants and other advisors in connection with all matters pertaining to this Exchange Agreement. Each Party acknowledges that no representations or warranties have been made with respect to the tax consequences of the transactions covered by this Exchange Agreement and that each Party shall be responsible for determining and satisfying his/its own tax liability with respect to the matters covered by this Exchange Agreement. IN WITNESS WHEREOF, the Parties have executed this Exchange Agreement on the date set forth below to be effective as of July 5, 2001. /s/ E. PATRICK MANUEL ------------------------------------- E. Patrick Manuel /s/ B.DAL.MILLER ------------------------------------- B. Dal Miller Team, Inc. By: /s/ PHILIP J. HAWK ------------------------------------- Philip J. Hawk, Chairman and CEO 4 EX-10.20 6 h99461exv10w20.txt STOCK OPTION AGREEMENT - B. DAL MILLER EXHIBIT 10.20 TEAM, INC. STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the Agreement) is made effective as of July 5, 2001 (the Effective Date) between Team, Inc., a Texas corporation (the Company or "Team") and B. Dal Miller (Miller or Option Holder). WHEREAS, the Company purchased all of the issued and outstanding shares of the capital stock of X-Ray Inspection, Inc., ("X-Ray Inc.") a Louisiana corporation, from Miller and E. Patrick Manuel pursuant to a Stock Purchase Agreement dated April 9, 1999 (the "Purchase Agreement"), and, WHEREAS, the Company, Miller and Manuel amended the Purchase Agreement by a written document made effective July 5, 2001 (the "Exchange Agreement") which provides among other things for Miller to relinquish his entitlement to receive additional consideration (the "Earn-out") pursuant to the Purchase Agreement in exchange for an option to acquire 100,000 Shares of Team common stock; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the receipt, and sufficiency and adequacy of which are hereby acknowledged, the parties agree as follows: 1. GRANT OF OPTION. The Company hereby grants Miller the Option (the "Option" to purchase 100,000 Shares of Team common stock, $0.30 par value (the "Shares") from Team for a purchase price of $3.50 per Share (the Option Price) subject to the terms and conditions of this Agreement in exchange for which Miller hereby transfers and relinquishes to Team any and all Earn Out payments pursuant to the Purchase Agreement. 2. OPTION PERIOD--VESTING. This Option may be exercised in whole or in part at any time prior to the termination of the Option Period as determined pursuant to Section 5 below, subject however to the limitation that the Option shall be exercisable in increments ratably as set forth in Exhibit A hereto (the Vesting Schedule); provided, however, that notwithstanding the Vesting Schedule, the Option shall immediately become fully vested and exercisable with respect to all Shares covered by the Option if while Miller is an employee of the Company: (i) a Change of Control Transaction (as that term is defined in Section 11.i below) occurs, or (ii) the Adjusted EBIT (as defined by and determined pursuant to Section 11.j below) from Team's Mechanical Inspection Services Segment for either of Team's fiscal years ending May 31, 2002 or May 31, 2003 equals or exceeds $2,000,000. The Board of Directors of the Company, in its sole discretion, may waive the Vesting Schedule and, upon written notice to the Option Holder, accelerate the earliest date or dates in which the Option granted hereunder is exercisable. The Option granted by this Agreement is the Option described in the July 2001 Exchange Agreement. 3. METHOD FOR EXERCISING THE OPTION. The vested portion of the Option may be exercised in whole or in part only by delivery in person or through certified or registered mail to the Company at its principal office in Alvin, Texas (attention: Corporate Secretary) of written notice specifying the number of Shares with respect to which the Option is being exercised. The notice must be accompanied by payment of the Option Price for the portion of the Option being exercised. Payment of the Option Price for the Shares being purchased shall be made in full by one or a combination of the following two methods: a. In cash or by certified or cashier's check payable to Team, Inc.; or, b. The delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver promptly to the Company, in payment of the Option Price, the amount of the cash proceeds of the sale of Shares or a loan from the broker to the Option Holder sufficient, in each case, to pay the Option Price, and in a form satisfactory to the Corporate Secretary. Upon such notice to the Corporate Secretary and payment in full of the amount of the Option Price being exercised, the exercise of the Option shall be deemed to be effective, and a properly executed certificate or certificates representing the Shares so purchased shall be issued by the Company and delivered to the Option Holder or the agent designated by the Option Holder. 4. ADJUSTMENTS. The adjustments described in this Section 4 shall be made to the Option in the event of the occurrence of any of the events described in Subsections 4(a), 4(b) or 4(c) irrespective of whether such event results in a Change of Control Transaction as defined in Section 11.i: (a) In the event that the outstanding Shares of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, or dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Board in the number and kind of shares as to which the outstanding Option, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the Option Holder shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in the 2 outstanding Option shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the Option price per share. (b) In the event that the Board shall adopt resolutions recommending the dissolution or liquidation of the Company, any Option granted under this Agreement shall terminate as of a date to be fixed by the Board, provided that not less than thirty (30) days' written notice of the date so fixed shall be given to Option Holder and Option Holder shall have the right during such period to exercise the Option as to all or any part of the shares covered thereby, including shares as to which such Option would not otherwise be exercisable by reason of an insufficient lapse of time. (c) In the event of a Reorganization (as hereinafter defined) in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly owned subsidiary of another company after the effective date of the Reorganization, then (i) If there is no plan or agreement respecting the Reorganization ("Reorganization Agreement") or if the Reorganization Agreement does not specifically provide for the change, conversion or exchange of the Shares under outstanding and unexercised stock options for securities of another corporation, then the Option shall terminate on the date fixed by the Board, provided that not less than 30 days' written notice of the date so fixed shall be given to the Option Holder and Option Holder shall have the right during such period to exercise the Option as to all or any part of the Shares covered thereby; or (ii) If there is a Reorganization Agreement and if the Reorganization Agreement specifically provides for the change, conversion, or exchange of the Shares under outstanding and unexercised stock options for securities of another corporation, then the Board shall adjust the Shares under such outstanding and unexercised stock options in a manner not inconsistent with the provisions of this Agreement such that the total price applicable to the unexercised portion of the Option does not change. (d) The term "Reorganization" as used in subparagraph (c) of this Paragraph 4 shall mean any statutory merger, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, of securities of the Company pursuant to which the Company is or becomes a wholly owned subsidiary of another company after the effective date of the Reorganization. (e) Adjustments and determinations under this Paragraph 4 shall be made by the Board, whose decisions shall be final, binding, and conclusive. 3 5. EXPIRATION AND TERMINATION OF THE OPTION. This Option shall expire at 5:00 p.m. Houston, Texas time on July 4, 2011 or prior to such time as hereafter provided (the period from the Effective Date to the date of the expiration of the Option is defined herein as the Option Period): a. Upon termination of the employment of the Option Holder for any reason other than death or termination by the Company without cause, , the Option exercisable (i.e.,to the extent vested) as of the date of termination may be exercised by Option Holder within three months after the date of the termination of employment of the Option Holder. If, as of the date of termination of employment, the Option Holder has completed at least five full years of continuous service with the Company, the three month period provided for in the preceding sentence shall be increased to six months. The reasonable determination of whether the Option Holder has completed such period of service shall be made by the Company's Board of Directors; provided, however, it is acknowledged that the Option Holder commenced his employment with the Company on April 9, 1999. b. Upon termination of the employment of the Option Holder by reason of the death of the Option Holder, all the shares under the Option without regard to whether exercisable (i.e.,vested) as of the date of the Option Holder's death, may be exercised by the personal representative of the deceased Option Holder within 12 months of the date of the Option Holder's death. c. Upon termination of the employment of the Option Holder by the Company without cause, the Option exercisable (i.e., to the extent vested) as of the date of termination may be exercised by Option Holder within twelve (12) months after the date of termination of employment of Option Holder by the Company. 6. TRANSFERABILITY. The Option may not be transferred except by will or pursuant to the laws of descent and distribution, and it shall be exercisable during the Option Holder's life only by him, and after his death, only by those entitled to do so under his will or the applicable laws of descent and distribution. 7. COMPLIANCE WITH SECURITIES LAWS. Upon the acquisition of any Shares pursuant to the exercise of the Option herein granted, the Option Holder or any person acting under Section 5(b) will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 8. LEGENDS ON CERTIFICATES. The Certificates representing the Shares purchased by exercise of an Option will be stamped or otherwise imprinted with legends in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer and the stock transfer records of the Company will reflect stock-transfer instructions with respect to such shares. 9. TAX LIABILITY. Option Holder covenants that he shall be solely responsible for the payment of any and all federal, state and local taxes that are hereafter determined to be due at any time with respect to the grant and/or exercise of the Option and the issuance of the Shares. Option 4 Holder further covenants that he will pay all taxes as the same become due with respect to the grant and/or exercise of the Option and the issuance of the Shares and Option Holder further covenants that he shall indemnify and hold Team harmless from and against any and all claims that may hereafter be asserted by any party including any federal, state or local taxing authorities for taxes, interest and/or penalties with respect to the grant and/or exercise of the Option and or the issuance of the Shares covered by the Option, excluding taxes due by Team to a taxing authority related to an income tax liability of Team related to termination of the Earn Out and/or the grant of the Option. 10. ACKNOWLEDGMENT OF OPTION HOLDER. The Option Holder acknowledges having received and read this Agreement and agrees to comply with all laws, rules and regulations applicable to the grant and exercise of the Option and the sale or other disposition of the Shares covered by this Option Agreement. Option Holder further represents that he has conferred with and relied exclusively upon the advise of his own attorneys and accountants in making his decision to enter into this Option Agreement. 11. MISCELLANEOUS. a. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be given by first class registered or certified mail, postage prepaid, or by personal delivery to the appropriate party, addressed: i. If to the Company, to the Company at its principal place of business at Alvin, Texas (Attention: Corporate Secretary) or at such other address as may have been furnished to the Option Holder in writing by the Company; or ii. If to the Option Holder, to the Option Holder at his address on file with the Company, or at such other address as may have been furnished to the Company by the Option Holder. Any such notice shall be deemed to have been given as of the fourth day after deposit in the United States Postal Service, postage prepaid, properly addressed as set forth above, in the case of mailed notice, or as of the date delivered in the case of personal delivery. b. Amendment. The Board of Directors may make any adjustments that differ from the terms and conditions of this Option; provided, however, THE BOARD OF DIRECTORS CAN NOT, ADVERSELY AFFECT THE RIGHTS OF THE OPTION HOLDER WITHOUT THE CONSENT OF THE OPTION HOLDER. If such action is made by amendment, the effective date of such amendment will be the date of the original grant of this Option. Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Option Holder. c. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. 5 d. Waiver. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Company. e. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Option Holder and their respective heirs, executors, administrators, legal representatives, successors and assigns. f. Rights to Employment. Nothing contained in this Agreement shall be construed as giving the Option Holder any right to be retained in the employ of the Company and this Agreement is limited solely to governing the rights and obligations of the Option Holder with respect to the Shares and the Option. g. Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. h. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. i. Change of Control Transaction shall for purposes of Section 2 of this Option Agreement mean the occurrence of any of the following: (i) the consummation of any "Business Combination", as such term is defined in the Restated Articles of Incorporation of Team filed with the Secretary of State of Texas on November 15, 1989; (ii) Team merges or consolidates with any other entity other than a merger or consolidation of Team which would result in the voting stock of Team outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity ) at least 70% of the total voting power represented by the voting securities of Team or such surviving entity immediately thereafter; (iii) Team sells all or substantially all of its assets to any other person or entity or group of persons acting in concert, or (iv) Team is liquidated or dissolved, or (v) if any third person or entity together with its affiliated or subsidiary entities shall become, directly or indirectly, the beneficial owner of at least 30% of the voting stock of Team, or if (vi) the individuals who constitute the members of Team's Board of Directors as of the Effective Date (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director whose election or nomination for election by Team's shareholders was approved by a vote of 80% of the directors compromising the Incumbent Board (either by specific vote or by approval of the proxy statement of Team in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (vi), considered as though such person were a member of the Incumbent Board. j. "Adjusted EBIT from Team's Mechanical Inspection Services Segment shall for purposes of Section 2 of this Option Agreement mean the amount of the consolidated earnings before interest, taxes and goodwill that arise directly in connection with all of Team's Mechanical Inspection Services that are conducted through Team's branch operations including X Ray Inc. for which Miller has direct management responsibility plus the positive amount of the earnings before interest, taxes and goodwill that arise directly in connection with Team's Mechanical Inspections Services for which Miller does not have direct management responsibility. The determination of the 6 amount of Adjusted EBIT from Team's Mechanical Inspection Services will be determined in the following manner: as promptly as practical after the close of each of its fiscal years ending May 31, 2002 and May 31, 2003, Team shall deliver to Miller and to Team's outside independent auditors ("Team's Auditors") a statement ("Team's EBIT Calculation") setting forth Team's calculation of Adjusted EBIT from Team's Mechanical Inspection Services Segment for such fiscal year along with Team's direction for Team's Auditors to review Team's EBIT Calculation. As promptly as practical thereafter but not later than August 31 following the end of each such fiscal year, Team will deliver to Miller, Team's audit report for such fiscal year along with an agreed upon procedure report issued by Team's Auditors with respect to Team's EBIT Calculation. IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set forth below to be effective as of the 5th day of July, 2001. TEAM, INC. By: /s/ PHILIP J. HAWK ------------------------------------- Philip J. Hawk, Chairman and Chief Executive Officer OPTION HOLDER /s/ B. DAL MILLER ----------------------------------------- B. Dal Miller 7 EXHIBIT A Vesting Schedule
CONDITIONS TO VESTING AMOUNT EXERCISABLE - ------------------------------------------------------------------------------- Upon the continuous employment Cumulative proportion of the Common by Option Holder through the Stock as to all or part of which the applicable date indicated below: Option can be exercised after satisfaction of the respective conditions to vesting: 1. May 31, 2002 25% 2. May 31, 2003 50% 3. May 31, 2004 75% 4. May 31, 2005 100% - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
8 EX-23.1 7 h99461exv23w1.txt CONSENT OF INDEPENDENT AUDITOR - KPMG LLP EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Team, Inc.: We consent to the incorporation by reference in the registration statements (No. 33-74382, No. 33-88684, No. 333-30003, No. 333-72329, No. 333-74060, No. 333-72331, No. 333-74070, No. 333-74062, No. 333-29997 and No. 333-74068) on Form S-8 of Team, Inc. of our report dated July 16, 2002, relating to the consolidated balance sheet of Team, Inc. and Subsidiaries as of May 31, 2002, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for the year then ended, which report appears in the May 31, 2002 annual report on Form 10-K of Team, Inc.. KPMG LLP Houston, Texas August 23, 2002 EX-23.2 8 h99461exv23w2.txt CONSENT OF INDEPENDENT AUDITOR - DELOITTE & TOUCHE EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statement No. 333-74060, Registration Statement No. 333-74062, Registration Statement No. 333-74068, Registration Statement No. 333-74070, Registration Statement No. 333-72331, Registration Statement No. 333-72329, Registration Statement No. 333-30003, Registration Statement No. 333-29997, Registration Statement No. 333-74382, and Registration Statement No. 333-88684 of Team, Inc. on Form S-8 of our report dated July 12, 2001, appearing in this Annual Report on Form 10-K of Team, Inc. for the year-ended May 31, 2002. DELOITTE & TOUCHE LLP Houston, Texas August 27, 2002 EX-99.1 9 h99461exv99w1.txt WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER OF TEAM, INC. PURSUANT TO 18 U.S.C. SECTION 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, and subject to the knowledge standard contained therein, I, the undersigned Chief Executive Officer of Team, Inc. (the "Company"), hereby certify that the Annual Report on Form 10-K of the Company for the year ended May 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ PHILIP J. HAWK ------------------ Philip J. Hawk August 28, 2002 EX-99.2 10 h99461exv99w2.txt WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER EXHIBIT 99.2 WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER OF TEAM, INC. PURSUANT TO 18 U.S.C. SECTION 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, and subject to the knowledge standard contained therein, I, the undersigned Vice President and Chief Financial Officer of Team, Inc. (the "Company"), hereby certify that the Annual Report on Form 10-K of the Company for the year ended May 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ TED W. OWEN --------------- Ted W. Owen August 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----