<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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, 2000
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)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (281) 331-6154
---------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $.30 par value American Stock Exchange, Inc.
</TABLE>
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 18, 2000, 8,138,904 shares of the registrant's common stock
were outstanding, and the aggregate market value of common stock held by
non-affiliates of the registrant (based upon the closing sales price of common
stock on the American Stock Exchange, Inc. on such date) was $23,399,349.
DOCUMENTS INCORPORATED BY REFERENCE
Part III. Portions of the Definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders of Team, Inc. to be held October 5, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
FORM 10-K INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II
Item 5. Market for Team's Common Equity and Related Stockholder
Matters................................................... 7
Item 6. Selected Financial Data..................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of
Operations................................................ 9
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 11
Item 8. Consolidated Financial Statements and Supplementary Data.... 12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial
Disclosure................................................ 30
PART III
Item 10. Directors and Executive and Other Officers of Team.......... 30
Item 11. Executive Compensation...................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 30
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 30
</TABLE>
1
<PAGE> 3
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 industrial repair services including leak repair, hot
tapping, field machining, emissions control monitoring, concrete repair, energy
management and technical bolting. These services are provided throughout the
United States in approximately 40 locations. In April of 1999, the Company added
mechanical inspection services to its industrial service offerings through the
acquisition of X Ray Inspection, Inc. ("XRI"), which primarily serves the
Louisiana Gulf Coast market.
In August of 1998, the Company entered a new business segment -- equipment
sales and rental -- through the acquisition of Climax Portable Machine Tools,
Inc. ("Climax") of Newberg, Oregon. 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 11 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
from each segment in the three years ended May 31:
<TABLE>
<CAPTION>
SEGMENT 2000 1999 1998
------- ------- ------- -------
<S> <C> <C> <C>
Industrial Services..................................... $56,053 $47,282 $45,457
Equipment Sales and Rentals............................. 10,583 7,350
------- ------- -------
Total......................................... $66,636 $54,632 $45,457
======= ======= =======
</TABLE>
(Note: 1999 Equipment sales and rentals includes third party revenues for nine
months only -- since the date of Climax acquisition effective September 1,
1998).
INDUSTRIAL SERVICES
The Company provides industrial services for approximately 3000 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 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
2
<PAGE> 4
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 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. Field machining services are offered to the Company's
existing customer base through its extensive branch operations. Team has
invested approximately $1.25 million in portable machining equipment over the
past two fiscal years to equip six regional service centers for this service
line. In contrast to Team's other traditional industrial services which are
performed while plant units
3
<PAGE> 5
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 mechanical 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. Inspection
operations are located in the Louisiana and Texas Gulf Coast region.
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
are typically 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. 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 over the past few years, the Company has entered
into several 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. The Company believes that the aging of its customers'
plants and pipelines should result in increasing demand for its industrial
services. However, a variety of risks are inherent in this: 1) Marketing efforts
may not generate increases in revenues as expected; 2) although management
believes sufficient qualified personnel are available in most areas, no
assurance can be made that such personnel will be available when needed; 3)
growth may require additional capital that the Company may be unable to obtain;
and 4) the Company may be unable to develop profitable new services and
technologies or acquire companies that provide such services on terms that
permit an acceptable rate of return. Additionally, weakness in the markets
served by the Company may constrain market demand. Although the Company has a
diversified customer base, a substantial portion of its business is dependent
upon the chemical and refining industry sectors.
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 regionally-based companies that compete
within a certain geographical area.
4
<PAGE> 6
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' 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 7 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. The Company utilizes an inside
sales force to market its machines, as well as sales personnel located in Team's
industrial service branches. 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 2000 or fiscal 1999.
GENERAL
Employees. As of May 31, 2000, the Company and its subsidiaries had
approximately 700 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
5
<PAGE> 7
or treatment facilities selected by such person from which there is a release.
Management believes that its risk 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 $24 million bank credit agreement. (See Note 7 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 18 states.
In addition, the Company owns real property and office facilities in Houston,
Texas previously used in its discontinued operations, which are currently being
leased to a third party pursuant to a long-term lease agreement.
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 9 of
Notes to Consolidated Financial Statements for information regarding lease
obligations on these properties.
ITEM 3. LEGAL PROCEEDINGS
The Company and certain subsidiaries are involved in various lawsuits and
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 affect 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 2000.
6
<PAGE> 8
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, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
SALES PRICE
---------------
HIGH LOW
---- -----
<S> <C> <C>
FISCAL 2000
Quarter Ended:
August 31................................................. $3 7/8 $2 1/2
November 30............................................... 3 2
February 29............................................... 3 3/16 1 1/2
May 31.................................................... 2 15/16 2
FISCAL 1999
Quarter Ended:
August 31................................................. $5 7/8 $3 5/8
November 30............................................... 4 1/8 3 1/8
February 28............................................... 4 7/8 3
May 31.................................................... 3 5/8 2 1/4
</TABLE>
(b) Holders
There were 392 holders of record of Team's common stock as of August 18,
2000, excluding beneficial owners of stock held in street name. Although exact
information is unavailable, the Company estimates there are approximately 1000
additional beneficial owners based upon information gathered in connection with
proxy solicitation.
(c) Dividends
No dividends were declared or paid in fiscal 2000 or fiscal 1999. 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
On July 13, 2000, the Board of Directors approved a stock repurchase plan
of up to 10% of the outstanding common stock of the Company. Stock repurchases
(which will be limited to a maximum of $2,000,000) must be made on the open
market and are subject to certain regulatory restrictions which, generally,
limit the number of shares that can be acquired on a daily basis and limits the
price per share that can be paid. As of August 18, 2000, 133,350 shares of
common stock had been reacquired at an average price of $2.82 per share.
7
<PAGE> 9
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, 2000:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues............................. $66,636 $54,632 $45,457 $43,655 $47,449
Income (loss) from continuing
operations, net of income taxes.... $ 1,484 $ 276 $ 1,393 $ 759 $(8,744)
Income (loss) from discontinued
operations, net of income taxes.... -- -- -- 1 (534)
------- ------- ------- ------- -------
Net income (loss).................... $ 1,484 $ 276 $ 1,393 $ 760 $(9,278)
======= ======= ======= ======= =======
Income (loss) per common share: basic
Income (loss) from continuing
operations...................... $ 0.18 $ 0.04 $ 0.23 $ 0.15 $ (1.70)
Income (loss) from discontinued
operations...................... -- -- -- -- (0.10)
------- ------- ------- ------- -------
Net income (loss).................... $ 0.18 $ 0.04 $ 0.23 $ 0.15 $ (1.80)
======= ======= ======= ======= =======
Income (loss) per common share:
diluted
Income (loss) from continuing
operations...................... $ 0.18 $ 0.04 $ 0.23 $ 0.15 $ (1.70)
Income (loss) from discontinued
operations...................... -- -- -- -- (0.10)
------- ------- ------- ------- -------
Net income (loss).................... $ 0.18 $ 0.04 $ 0.23 $ 0.15 $ (1.80)
======= ======= ======= ======= =======
Weighted average shares outstanding:
basic.............................. 8,238 7,547 5,947 5,162 5,160
Weighted average shares outstanding:
diluted............................ 8,283 7,741 6,112 5,162 5,160
Cash dividend declared, per common
share.............................. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
MAY 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets....................... $48,488 $47,877 $27,080 $24,068 $28,926
Long-term debt and other
liabilities..................... $17,682 $20,518 $ 5,966 $ 7,601 $11,754
Stockholders' equity............... $22,968 $21,344 $15,581 $11,963 $11,045
Working capital.................... $15,013 $15,848 $13,049 $11,509 $10,644
</TABLE>
8
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Earnings before income taxes were $2.5 million for the year ended May 31,
2000 compared to $897 thousand in 1999 and $2.5 million in 1998. The following
table identifies certain percentage relationships of costs with consolidated
revenues:
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Operating expenses.......................................... (57.4) (58.3) (57.0)
----- ----- -----
Gross margin.............................................. 42.6 41.7 43.0
Selling, general and administrative expenses................ (36.7) (36.2) (36.5)
Severance and other charges................................. -- (2.3) --
Gain on sale of property.................................... 0.3 -- --
----- ----- -----
Earnings before interest and taxes........................ 6.2 3.2 6.4
Interest expense............................................ (2.4) (1.6) (1.0)
----- ----- -----
Earnings before income taxes.............................. 3.8 1.6 5.5
Income taxes................................................ (1.6) (1.1) (2.4)
----- ----- -----
Net income................................................ 2.2% 0.5% 3.1%
===== ===== =====
</TABLE>
FISCAL 2000 COMPARED TO FISCAL 1999
Revenues in 2000 were $66.6 million compared to $54.6 million in 1999, an
increase of 22%. $6.6 million of the increase, or 12%, is a result of the
inclusion of the results of X Ray Inspection, Inc. for the full fiscal year
2000. XRI was only included for two months of 1999. Additionally, 2000 includes
a full year of operations of Climax, which accounts for $3.2 million of the
increased revenues, or 5.9%. Climax results are included for nine months in
1999. The industrial services segment of the business (excluding XRI) grew by
$2.5 million in 2000, with virtually all of the increase occurring in the fourth
quarter.
Operating margins improved to 42.6% of revenues in 2000, compared to 41.7%
in 1999. The improvement reflects the strong operating leverage occurring in the
fourth quarter as a result of significantly increased revenues in that quarter.
As discussed below, 1999 margins were negatively impacted by a softening in the
market for the Company's services that began in the last half of Fiscal 1999 and
continued through the first quarter of Fiscal 2000.
Selling, general and administrative expense were 36.7% of revenues in
Fiscal 2000, up slightly from 36.2% in Fiscal 1999. Headquarters support costs
were significantly reduced in fiscal 2000 as a result of staffing reductions
implemented in January and August of 1999. These support cost reductions were
offset, however, by increased selling and promotion costs associated with
increased industrial service revenues, including the introduction of new service
offerings -- field machining and inspection.
As a result of additional borrowings associated with business acquisitions
in August, 1999 and April 2000, as well as general increases in interest rates,
interest expense increased to $1.57 million (2.4% of revenues) as compared to
$868 thousand (1.6%) in 1999. See the discussion of liquidity and capital
resources below.
FISCAL 1999 COMPARED TO FISCAL 1998
Revenues in 1999 were $54.6 million compared to $45.5 million in 1998, an
increase of 20%. The significant portion of the increase, $7.4 million or 16.3%,
is a result of the Company's entry into a new business segment -- equipment
sales and rentals -- through the Climax acquisition effective September 1998.
The industrial services segment of the business experienced modest revenue
growth of 4%, which is attributable to the introduction of new service lines in
1999 -- field machining and inspection. Inspection services contributed
9
<PAGE> 11
$1.3 million in 1999 revenues in only two months of operations since the XRI
acquisition in April 1999, while field machining added $1.1 million since its
introduction in February 1999.
Operating margins were 41.7% of revenues in 1999 compared to 43.0% in 1998.
Substantially all of the margin decline occurred in the fourth quarter of the
year, primarily as a result of a softening in the market for the Company's
traditional industrial services particularly in the refining and petrochemical
industries. The impact of declining margins was mitigated by the additions of
inspection services and by the equipment sales and rental segment.
Selling, general and administrative expenses ("SG&A") as a percentage of
revenues were slightly improved in 1999 versus 1998 -- 36.2% compared to 36.5%.
In January 1999 the Company implemented a reduction in headquarters staffing in
Alvin and at Climax involving approximately 20% of support personnel. The impact
of that reduction was somewhat offset by an increase in field operations SG&A
and by start-up costs associated with the Company's international operations in
Singapore.
In connection with the January 1999 staffing reduction, the Company
incurred severance and related separation costs of $436 thousand. At the same
time, management decided to expense $816 thousand of remaining payments due
under consulting agreements with two former officers, since the Company does not
expect to continue to utilize the services of those individuals in the future.
The aggregate of those costs, $1.25 million, represented 2.3% of revenues in
fiscal 1999.
As a result of additional borrowings associated with business acquisitions
in 1999, interest expense increased to $868 thousand (1.6% of revenues) as
compared to $450 thousand (1.0%) in 1998. See the discussion of liquidity and
capital resources below.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2000, the Company's liquid working capital (cash and accounts
receivable, less current liabilities) totaled $6.2 million, an increase of $200
thousand since May 31, 1999. The Company utilizes excess operating funds to
automatically reduce the amount outstanding under the revolving credit facility.
At May 31, 2000, the outstanding balance under the revolving credit facility was
$6.6 million and approximately $5.2 million was available to borrow under the
facility.
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.
YEAR 2000 COMPLIANCE
The Company, like other businesses, faced the Year 2000 issue. Effective
February 1, 1999, the Company substantially completed a comprehensive project to
upgrade its information, technology and manufacturing facilities, hardware and
software to programs that address the Year 2000 problem. The new hardware and
software were purchased from large vendors who represented that the systems were
Year 2000 Compliant. The Company has experienced no problems with the Year 2000
rollover.
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.
10
<PAGE> 12
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, 2000, the Company has floating-rate obligations
totaling $17.1 million outstanding under its credit facility (see Note 7 to the
Company's Consolidated Financial Statements). The exposure of these obligations
to increases in short-term interest rates is limited in part by interest rate
swap agreements entered into by the Company. These swap agreements effectively
fix the interest rate on $8.3 million of the Company's variable rate debt. Under
these swap agreements, payments are made based on a fixed rate ($6.5 million at
5.19% and $1.8 million at 5.24%) 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 $8.8 million of floating-rate debt not covered by swap
agreements, a 1% increase in interest rates could result in a $0.1 million
annual increase in interest expense.
11
<PAGE> 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 sheets of Team, Inc.
and subsidiaries as of May 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended May 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
July 13, 2000
12
<PAGE> 14
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 327,000 $ 1,035,000
Receivables............................................... 13,580,000 10,726,000
Inventories............................................... 7,821,000 8,566,000
Income tax receivable..................................... 87,000
Deferred income taxes..................................... 516,000 709,000
Prepaid expenses and other current assets................. 501,000 512,000
------------ ------------
Total Current Assets.............................. 22,745,000 21,635,000
Property, Plant and Equipment:
Land and buildings........................................ 9,649,000 10,601,000
Machinery and equipment................................... 18,676,000 17,100,000
------------ ------------
28,325,000 27,701,000
Less accumulated depreciation and amortization............ 15,076,000 13,715,000
------------ ------------
13,249,000 13,986,000
Goodwill, net of accumulated amortization of $373,000 and
$100,000.................................................. 10,616,000 10,769,000
Other assets, net........................................... 1,408,000 1,036,000
Restricted cash............................................. 470,000 451,000
------------ ------------
Total Assets...................................... $ 48,488,000 $ 47,877,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 1,611,000 $ 948,000
Accounts payable.......................................... 1,979,000 1,104,000
Other accrued liabilities................................. 3,040,000 3,735,000
Current income taxes payable.............................. 1,102,000 --
------------ ------------
Total Current Liabilities......................... 7,732,000 5,787,000
Deferred income taxes....................................... 106,000 228,000
Long-term debt and other liabilities........................ 17,682,000 20,518,000
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; 8,244,665 and 8,213,652 shares issued at
May 31, 2000 and 1999, respectively.................... 2,477,000 2,464,000
Additional paid-in capital.................................. 32,103,000 32,000,000
Accumulated deficit......................................... (11,488,000) (12,972,000)
Unearned stock compensation................................. (27,000) (51,000)
Treasury stock at cost, 9,700 shares at both dates.......... (97,000) (97,000)
------------ ------------
Total Stockholders' Equity........................ 22,968,000 21,344,000
------------ ------------
Total Liabilities and Stockholders' Equity........ $ 48,488,000 $ 47,877,000
============ ============
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 15
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $66,636,000 $54,632,000 $45,457,000
Operating expenses.................................... 38,270,000 31,872,000 25,933,000
----------- ----------- -----------
Gross Margin........................................ 28,366,000 22,760,000 19,524,000
Selling, general and administrative expenses.......... 24,478,000 19,743,000 16,610,000
Other expense (income):
Severance and other charges......................... -- 1,252,000 --
Gain on sale of property............................ (218,000) -- --
----------- ----------- -----------
Earnings before interest and taxes.................... 4,106,000 1,765,000 2,914,000
Interest.............................................. 1,572,000 868,000 450,000
----------- ----------- -----------
Earnings before income taxes.......................... 2,534,000 897,000 2,464,000
Provision for income taxes............................ 1,050,000 621,000 1,071,000
----------- ----------- -----------
Net income............................................ $ 1,484,000 $ 276,000 $ 1,393,000
=========== =========== ===========
Net income per common share
Basic............................................... $ 0.18 $ 0.04 $ 0.23
Diluted............................................. $ 0.18 $ 0.04 $ 0.23
Weighted average number of shares outstanding
Basic............................................... 8,238,000 7,547,000 5,947,000
=========== =========== ===========
Diluted............................................. 8,283,000 7,741,000 6,112,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 16
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year..................... $ 2,464,000 $ 1,828,000 $ 1,578,000
Shares issued.................................... 4,800 625,000 195,000
Exercise of stock options........................ 8,200 11,000 55,000
------------ ------------ ------------
Balance at end of year........................... $ 2,477,000 $ 2,464,000 $ 1,828,000
============ ============ ============
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year..................... $ 32,000,000 $ 27,098,000 $ 25,123,000
Shares issued.................................... 55,000 4,838,000 1,633,000
Exercise of stock options........................ 48,000 64,000 342,000
------------ ------------ ------------
Balance at end of year........................... $ 32,103,000 $ 32,000,000 $ 27,098,000
============ ============ ============
ACCUMULATED DEFICIT:
Balance at beginning of year..................... $(12,972,000) $(13,248,000) $(14,641,000)
Net income....................................... 1,484,000 276,000 1,393,000
------------ ------------ ------------
Balance at end of year........................... $(11,488,000) $(12,972,000) $(13,248,000)
============ ============ ============
UNEARNED STOCK COMPENSATION:
Balance at beginning of year..................... $ (51,000) $ -- $ --
Restricted stock grant........................... (67,000) --
Compensation expense............................. 24,000 16,000 --
------------ ------------ ------------
Balance at end of year........................... $ (27,000) $ (51,000) $ --
============ ============ ============
TREASURY STOCK:
Balance at beginning of year..................... $ (97,000) $ (97,000) $ (97,000)
------------ ------------ ------------
Balance at end of year........................... $ (97,000) $ (97,000) $ (97,000)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 17
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------------------
2000 1999 1998
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 1,484,000 $ 276,000 $ 1,393,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 2,957,000 2,230,000 1,467,000
Provision for doubtful accounts........................... (46,000) 50,000 195,000
(Gain) loss on disposal of assets......................... (218,000) (101,000) 89,000
Provision for amount due to former officers............... -- 816,000 --
Deferred income taxes..................................... 71,000 331,000 564,000
Changes in assets and liabilities, net of effects from
business acquisitions
(Increase) decrease:
Accounts receivable..................................... (2,443,000) 1,153,000 (2,548,000)
Inventories............................................. 745,000 359,000 (491,000)
Prepaid expenses and other current assets............... 11,000 159,000 (42,000)
Income tax receivable................................... 87,000 (87,000) --
Increase (decrease):
Accounts payable........................................ 875,000 (597,000) 676,000
Other accrued liabilities............................... (695,000) (1,032,000) 185,000
Income taxes payable.................................... 1,102,000 (348,000) 182,000
----------- ------------ -----------
Net cash provided by operating activities............... 3,930,000 3,209,000 1,670,000
----------- ------------ -----------
Cash Flows From Investing Activities:
Capital expenditures...................................... (1,525,000) (2,454,000) (2,045,000)
Rental and demonstration equipment, net................... (787,000)
Proceeds from disposal of property and equipment.......... 478,000 202,000 --
Additions to goodwill..................................... (120,000)
Business acquisitions, net of cash acquired............... (15,468,000) --
Payment of Climax notes payable at acquisition date....... (2,893,000) --
Other..................................................... (651,000) (451,000) (175,000)
----------- ------------ -----------
Net cash used in investing activities................... (2,605,000) (21,064,000) (2,220,000)
----------- ------------ -----------
</TABLE>
(Continued)
See notes to consolidated financial statements.
16
<PAGE> 18
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------------------
2000 1999 1998
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Payments under debt agreements and other long-term
obligations............................................. (2,173,000) (5,035,000) (3,040,000)
Proceeds from issuance of debt............................ 19,034,000 1,048,000
Issuance of common stock.................................. 140,000 3,536,000 2,225,000
----------- ------------ -----------
Net cash (used in) provided by financing activities..... (2,033,000) 17,535,000 233,000
----------- ------------ -----------
Net decrease in cash and cash equivalents................... (708,000) (320,000) (317,000)
Cash and cash equivalents at beginning of year.............. 1,035,000 1,355,000 1,672,000
----------- ------------ -----------
Cash and cash equivalents at end of year.................... $ 327,000 $ 1,035,000 $ 1,355,000
=========== ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 1,555,000 $ 632,000 $ 475,000
=========== ============ ===========
Income taxes............................................ $ 327,000 $ 806,000 $ 618,000
=========== ============ ===========
Income taxes refunded..................................... $ -- $ -- $ 40,000
=========== ============ ===========
</TABLE>
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.
During 1999, the Company issued 795,000 shares of the Company's common
stock valued at $1,951,000 in connection with business acquisitions.
During 1998, equipment and software acquired under capital lease
obligations was $343,000.
See notes to consolidated financial statements.
17
<PAGE> 19
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 United States
generally accepted accounting principles 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:
<TABLE>
<CAPTION>
CLASSIFICATION LIFE
-------------- ----
<S> <C>
Buildings................................................... 20-30 years
Machinery and equipment..................................... 2-10 years
</TABLE>
Machinery and equipment includes rental and demonstration machining tools
used in the equipment sales and rental business segment totaling $1,160,000 and
$621,000 (before accumulated depreciation of $127,000 and $115,000) at May 31,
2000 and 1999, 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, 2000 and 1999 was approximately $273,000 and
$100,000, respectively.
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.
18
<PAGE> 20
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 1999 amounts have been reclassified to conform to the 2000
presentation.
Earnings Per Share
In 1998 the Company 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.
Options to purchase 747,000, 80,000, and 314,000 shares of common stock
were outstanding during the years ended May 31, 2000, 1999, and 1998,
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 Company enters into interest rate swap agreements which effectively
exchange variable interest rate debt for fixed interest rate debt. The
agreements are used to reduce the exposure to possible increases in interest
rates. The Company enters into these agreements with major financial
institutions. The differential to be paid or received as interest rates change
is accrued and recognized as an adjustment to interest expense.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, receivables and accounts
payable approximate their carrying amounts because of the short maturity of
those instruments. The fair value of the Company's long-term debt is estimated
based on the current rates available to the Company for instruments with similar
terms and maturities.
New Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement
19
<PAGE> 21
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 133 -- an amendment of FASB No. 133", which effectively delays the
application of SFAS No. 133 for one year, to fiscal years beginning after June
15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -- an amendment of FASB
Statement No. 133" which amends and supercedes various sections of SFAS No. 133.
Management is currently studying SFAS No. 133 and its amendments for their
possible impact on the consolidated financial statements when they are adopted
in June 2001.
2. ACQUISITIONS
Effective August 31, 1998, the Company acquired all of the outstanding
capital stock of Climax Portable Machine Tools, Inc., an Oregon corporation
("Climax"), in exchange for cash in the amount of $6.4 million and 200,000
newly-issued shares of the Company's common stock, $0.30 par value per share
(the "Common Stock"). Additionally, at the acquisition date, the Company
refinanced the majority of Climax's notes payable in the amount of $2.9 million.
A value of $3.696 per share was assigned to the Common Stock issued to the
former shareholders of Climax, based on the market value of the Common Stock,
discounted to reflect certain restrictions placed on the Common Stock. In order
to finance the acquisition of the Climax shares, the Company borrowed $8.5
million under a new credit facility (See note 7). Climax designs and
manufactures portable, metal cutting machine tools for on-site maintenance and
repair purposes.
Effective March 31, 1999, the Company acquired 100% of the outstanding
capital stock of X-Ray Inspection, Inc., ("X-Ray"), a Louisiana corporation, in
consideration for the payment to the sellers of an aggregate of $8.4 million in
cash and 595,000 shares of newly issued Company Common Stock, valued at $2.037
per share based on the market value discounted to reflect certain restrictions
placed on the common stock. The cash component included $7.7 million paid at
closing and an additional $700,000 paid subsequent to closing for excess working
capital conveyed in the transaction. Additional consideration of up to $2.5
million in cash could be payable to the sellers over the next three years if
certain high growth operating results are achieved by X-Ray. (No additional
consideration was earned in the first fourteen months after acquisition). In
order to finance the purchase, the Company borrowed $8.4 million under its
existing credit facilities. X-Ray is in the business of providing mechanical
inspection services consisting primarily of non-destructive inspections of
pipelines and piping systems in industrial plants, using radiographic testing,
ultrasonic testing, magnetic particle testing, and visual inspection.
The acquisitions were accounted for using the purchase method of
accounting. Accordingly, the consolidated financial statements subsequent to the
effective dates of the acquisitions reflect the purchase price, including
transaction costs. As the acquisition of Climax was effective August 31, 1998,
the consolidated results of operations for the Company for the year ended May
31, 1999, include the results for Climax for the period from September 1, 1998,
to May 31, 1999. As the acquisition of X-Ray was effective March 31, 1999, the
consolidated results of operations for the Company include the results of X-Ray
for the period April 1, 1999, to May 31, 1999. The purchase price of Climax and
X-Ray was allocated to the assets and liabilities of the respective companies
based on their estimated fair values. The goodwill associated with the Climax
acquisition approximated $3.6 million, which is being amortized on a
straight-line basis over forty years. The goodwill associated with the X-Ray
acquisition approximated $7.3 million, which is also being amortized on a
straight-line basis over forty years.
20
<PAGE> 22
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma consolidated results of operations of the Company
are shown below as if the acquisitions had occurred at the beginning of the
fiscal periods indicated. These results are not necessarily indicative of the
results which would actually have occurred if the purchases had taken place at
the beginning of the periods, nor are they necessarily indicative of future
results.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales.................................................. $64,799,000 $65,547,000
Net income................................................. $ 653,000 $ 2,814,000
Earnings per share
Basic.................................................... $ 0.08 $ 0.42
Diluted.................................................. $ 0.08 $ 0.41
</TABLE>
3. RECEIVABLES
Receivables consist of:
<TABLE>
<CAPTION>
MAY 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Trade accounts receivable.................................. $12,994,000 $10,632,000
Real estate note, (see below).............................. 365,000
Other receivables.......................................... 472,000 391,000
Allowance for doubtful accounts............................ (251,000) (297,000)
----------- -----------
Total............................................ $13,580,000 $10,726,000
=========== ===========
</TABLE>
In May 2000, the Company sold a building previously utilized in the Climax
operations for $765,000, consisting of $400,000 in cash and a one year note for
$365,000 bearing interest at 10%. A gain of $218,000 was recognized in the
transaction.
4. INVENTORIES
Inventories consist of :
<TABLE>
<CAPTION>
MAY 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Raw materials............................................... $ 947,000 $1,081,000
Finished goods and work in progress......................... 6,874,000 7,485,000
---------- ----------
Total............................................. $7,821,000 $8,566,000
========== ==========
</TABLE>
21
<PAGE> 23
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of:
<TABLE>
<CAPTION>
MAY 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Payroll and other compensation expenses..................... $1,224,000 $1,734,000
Insurance accruals.......................................... 833,000 603,000
Accrued interest............................................ 246,000 225,000
Current payments due to former officers..................... 341,000 371,000
Other....................................................... 396,000 802,000
---------- ----------
Total............................................. $3,040,000 $3,735,000
========== ==========
</TABLE>
6. INCOME TAXES
The provision for income taxes attributable to pre-tax earnings from
continuing operations are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------------
2000 1999 1998
---------- -------- ----------
<S> <C> <C> <C>
Federal income taxes:
Current......................................... $ 843,000 $282,000 $ 609,000
Deferred........................................ 38,000 277,000 270,000
State income taxes:
Current......................................... 136,000 8,000 171,000
Deferred........................................ 33,000 54,000 21,000
---------- -------- ----------
Total................................... $1,050,000 $621,000 $1,071,000
========== ======== ==========
</TABLE>
A reconciliation between income taxes related to earnings from continuing
operations before income taxes and income taxes computed by applying the
statutory federal income tax rate to such earnings follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------------
2000 1999 1998
---------- -------- ----------
<S> <C> <C> <C>
Earnings from continuing operations before federal
income taxes.................................... $2,534,000 $897,000 $2,464,000
========== ======== ==========
Computed income taxes at statutory rate........... $ 862,000 $305,000 $ 838,000
Goodwill amortization............................. 93,000 32,000 --
State income taxes, net of federal tax benefit.... 111,000 41,000 127,000
Other............................................. (16,000) 243,000 106,000
---------- -------- ----------
Total................................... $1,050,000 $621,000 $1,071,000
========== ======== ==========
</TABLE>
22
<PAGE> 24
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:
<TABLE>
<CAPTION>
MAY 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Property, plant and equipment............................... $ (755,000) $ (845,000)
Other....................................................... (83,000) (98,000)
---------- ----------
Gross deferred liabilities.................................. (838,000) (943,000)
---------- ----------
Receivables................................................. 40,000 106,000
Accrued expenses and other liabilities...................... 972,000 1,089,000
Inventory................................................... 236,000 229,000
---------- ----------
Gross deferred assets....................................... 1,248,000 1,424,000
---------- ----------
Net deferred taxes................................ $ 410,000 $ 481,000
========== ==========
</TABLE>
No valuation account is required for the deferred tax assets as the Company
is projecting profitable fiscal years in the future. Most of the assets
represent temporary differences on certain accruals that will reverse over a
period of less than 10 years.
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of:
<TABLE>
<CAPTION>
MAY 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revolving loan............................................. $ 6,620,000 $ 7,470,000
Term and mortgage notes.................................... 10,504,000 11,307,000
Capital lease obligations.................................. 215,000 238,000
Agreements with former officers............................ 1,316,000 1,657,000
Deferred compensation due former officer................... 470,000 451,000
Other...................................................... 168,000 343,000
----------- -----------
19,293,000 21,466,000
Less current portion....................................... 1,611,000 948,000
----------- -----------
Total............................................ $17,682,000 $20,518,000
=========== ===========
</TABLE>
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
-------------------
<S> <C>
2001................................................... $ 1,611,000
2002................................................... 8,497,000
2003................................................... 1,810,000
2004................................................... 5,141,000
2005................................................... 391,000
Thereafter............................................. 1,843,000
-----------
Total........................................ $19,293,000
===========
</TABLE>
Long-term debt:
Effective August 26, 1998, the Company entered into a new credit facility
with a bank in the amount of $24,000,000. The facility provided for (i) a
$12,500,000 revolving loan, which matures September 30, 2001,
23
<PAGE> 25
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) $9,500,000 in term loans for business acquisitions and (iii) a $2,000,000
mortgage loan to refinance previously existing real estate indebtedness. Amounts
borrowed against the term loans are due in quarterly installments in the amount
of $339,000 beginning December 31, 1999, with the remaining principal balance to
be paid on the term loans maturity date of September 30, 2003. Amounts borrowed
against the mortgage loan are to be repaid in quarterly installments in the
amount of $31,000 beginning December 31, 1998, with the remaining principal
balance to be paid on the mortgage loan maturity date of September 30, 2008.
Amounts outstanding under this facility bear interest at a marginal rate over
either the LIBOR rate or the prime rate. The marginal rate is based on the
Company's level of funded debt to cash flow, and ranges from 1.50% to 2.50% over
the LIBOR rate and from 0.00% to 0.50% over the prime rate. The weighted average
rate on outstanding borrowings at May 31, 2000 is approximately 8.45%. The
Company also pays a commitment fee of .25% per quarter on the average amount of
the unused availability under the revolving loan.
In October and December of 1998, the Company entered into interest rate
swap transactions covering $8.3 million of outstanding term loans, exchanging a
floating LIBOR rate (5.3% at the time of the swaps) for fixed rates ranging from
5.19% to 5.24%. $3.8 million of the swap agreements mature on December 31, 2001
and $4.5 million mature September 30, 2003.
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
fair value of approximately $333,000 and $162,000 at May 31, 2000 and 1999,
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, 2000 and 1999, the Company was in
compliance with all credit facility covenants.
At May 31,2000, the Company was contingently liable for $692,000 in
outstanding stand-by letters of credit.
Agreements with former officers:
During the years ended May 31, 1999 and 1996, the Company accrued for
payments to be made to former employees of the Company beyond the period in
which services are expected to be rendered. At May 31, 2000 and 1999, these
long-term obligations totaled $1,316,000 and $1,657,000, respectively.
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 Rabbi Trust and
Invested," the accounts of the trust have been consolidated into the Company's
financial statements for fiscal 2000 and 1999. 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 $470,000 and $451,000 at May 31,
2000 and 1999, respectively, have been classified as restricted cash in the
balance sheet.
24
<PAGE> 26
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS AND SHAREHOLDER RIGHTS PLAN
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 recognized.
Pursuant to 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.
Effective as of November 3, 1998, the Company's Board of Directors amended
the 1998 Incentive Stock Option Plan to increase the number of authorized grants
in the plan to 1,000,000 shares from the previously authorized 500,000 shares.
Transactions under all plans are summarized below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-----------------------------------
2000 1999 1998
---------- ---------- ---------
<S> <C> <C> <C>
Shares under option, beginning of year........... 1,029,200 692,600 516,000
Changes during the year:
Granted.......................................... 226,000 394,000 379,000
Exercised........................................ (27,300) (36,400) (166,900)
Canceled......................................... (116,900) (21,000) (35,500)
---------- ---------- ---------
Shares under option, end of year................. 1,111,000 1,029,200 692,600
========== ========== =========
Average option price per share................... $ 3.11 $ 3.03 $ 2.76
========== ========== =========
Exercisable at end of year....................... 704,796 655,900 481,500
========== ========== =========
Available for future grant....................... 413,000 30,300 259,000
========== ========== =========
</TABLE>
At May 31, 2000, the exercise prices of options outstanding range from
$2.125 per share to $4.125 per share and the weighted-average remaining
contractual life is 7.3 years.
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 2000, 1999, and 1998, respectively: risk-free
interest rate of 6.6%, 6.5%, and 5.9%; volatility factor of the expected market
price of the Company's common stock of 47.6%, 62.3%, and 67.4%; 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.
25
<PAGE> 27
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:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
---------------------------------
2000 1999 1998
---------- ------- ----------
<S> <C> <C> <C>
Pro forma net income............................... $1,197,000 $24,000 $1,255,000
========== ======= ==========
Pro forma earnings per share -- diluted............ $ 0.14 $ 0.00 $ 0.21
========== ======= ==========
</TABLE>
In addition to the options granted under the option plans as discussed
above, an officer of the Company has been granted options to purchase 200,000
shares of common stock at a price of $3.625 per share, subject to a vesting
schedule based on stock performance measures. As of May 31, 2000, none of these
options had vested as the target share prices detailed in the vesting schedule
had not been obtained.
Restricted Stock Awards:
During fiscal 1999, 18,000 shares of restricted common stock were granted
to certain officers of the Company. Vesting of the shares occurs over a
three-year period of time. Accordingly, at the grant date, the value of the
shares ($3.75 per share) was recorded as unearned compensation and reflected as
a contra-equity account in the balance sheet. Compensation expense is recognized
as the officers provide services to the Company and become vested in the shares.
At May 31, 2000 and 1999, the unearned compensation balance was $27,000 and
$51,000, respectively.
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 2000, 1999, and 1998
were $259,000, $242,000, and $210,000, respectively.
Employer contributions for the Team, Inc. Employee Stock Ownership Plan are
determined at the discretion of the Company's Board of Directors. The Plan does
not allow for employee contributions. No contributions were made in 2000, 1999
or 1998.
Shareholder Rights Plans:
On October 24, 1990, the Board of Directors of the Company adopted a
Shareholder Rights Plan ("Rights Plan"). Pursuant to the Rights Plan, the Board
of Directors declared a dividend distribution of one right ("Right") for each
outstanding share of the Company's common stock ("Common Stock"), and on each
share subsequently issued until separate Rights are distributed, or the Rights
expire or are redeemed. On June 15, 1998, the Company redeemed the Rights at a
total cost of approximately $60,000.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company's capital leases relate to certain computer equipment and
software. Property, plant and equipment include assets under capital lease in
the amount of $844,000 and $930,000 at May 31, 2000 and 1999, before accumulated
amortization of $508,000 and $414,000, respectively. 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 $1,991,000, $1,936,000, and $1,790,000 in
2000, 1999, and 1998, respectively.
26
<PAGE> 28
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rental commitments for future periods are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
MAY 31, LEASES LEASES TOTAL
----------- -------- ---------- ----------
<S> <C> <C> <C>
2001.............................................. $148,000 $1,896,000 $2,044,000
2002.............................................. 49,000 1,453,000 1,502,000
2003.............................................. 32,000 1,063,000 1,095,000
2004.............................................. -- 464,000 464,000
2005.............................................. -- 114,000 114,000
-------- ---------- ----------
Total minimum payments............................ $229,000 $4,990,000 $5,219,000
========== ==========
Less: amount representing interest................ (14,000)
--------
Present value of lease payments................... $215,000
========
</TABLE>
Legal Proceedings
The Company and certain subsidiaries are involved in various 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 affect on
the Company's consolidated financial statements.
10. COMMON STOCK
On June 30, 1997, the Company issued 650,000 shares of Common Stock to
Armstrong International, Inc. in exchange for cash in the amount of $3.00 per
share for a total of $1,950,000. On June 19, 1998, the Company completed the
sale of 1,200,000 shares of Team's Common Stock for $2.75 per share to Houston
Post Oak Partners, Ltd. ("Houston Partners") for a total consideration of
$3,300,000. Houston Partners now owns approximately 15% of the Company's
outstanding common shares. On November 2, 1998 the Company issued 45,000 common
shares to Philip J. Hawk ("Hawk") in exchange for cash in the amount of $3.625
per share, for a total of $163,125. This sale was in accordance with the terms
and conditions of an employment agreement wherein Hawk became Chief Executive
Officer of the Company. Substantially all of the net proceeds of each of the
private placement transactions were used to repay long term debt or to repay the
Company's revolving credit facility.
Additionally, during fiscal 1999, 795,000 shares of Common Stock were
issued in connection with business acquisitions. See Note 2.
11. 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.
27
<PAGE> 29
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Prior to the acquisition of Climax in August 1998, the Company operated
solely in the industrial services segment. Therefore, the information below is
only provided for fiscal 2000 and 1999.
Fiscal Year ended May 31, 2000
<TABLE>
<CAPTION>
INDUSTRIAL EQUIPMENT CORPORATE
SERVICES SALES & RENTALS & OTHER TOTAL
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $56,053,000 $10,583,000 $ -- $66,636,000
----------- ----------- ----------- -----------
Earnings before interest and taxes...... 7,267,000 777,000 (3,938,000) 4,106,000
Interest................................ -- -- 1,572,000 1,572,000
----------- ----------- ----------- -----------
Earnings before income taxes............ $ 7,267,000 $ 777,000 $(5,510,000) $ 2,534,000
=========== =========== =========== ===========
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 $ 4,491,000 $48,488,000
=========== =========== =========== ===========
</TABLE>
Fiscal Year ended May 31, 1999
<TABLE>
<CAPTION>
INDUSTRIAL EQUIPMENT CORPORATE
SERVICES SALES & RENTALS & OTHER TOTAL
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $47,282,000 $ 7,350,000 $ -- $54,632,000
----------- ----------- ----------- -----------
Earnings before interest and taxes...... 5,374,000 470,000 (4,079,000) 1,765,000
Interest................................ -- -- 868,000 868,000
----------- ----------- ----------- -----------
Earnings before income taxes............ $ 5,374,000 $ 470,000 $(4,947,000) $ 897,000
=========== =========== =========== ===========
Depreciation and amortization........... $ 1,284,000 $ 457,000 $ 489,000 $ 2,230,000
=========== =========== =========== ===========
Capital expenditures.................... $ 1,232,000 $ 130,000 $ 1,092,000 $ 2,454,000
=========== =========== =========== ===========
Identifiable assets..................... $30,722,000 $12,378,000 $ 4,777,000 $47,877,000
=========== =========== =========== ===========
</TABLE>
12. SEVERANCE AND OTHER CHARGES
In fiscal 1999, the Company reduced headquarters support staff by
approximately 20% (19 individuals) which resulted in a charge of $436,000.
Additionally, a charge of $816,000 was made during fiscal 1999 to fully provide
for the future payments due to two former officers under deferred compensation
agreements that extend beyond the period in which services are expected to be
rendered. Payments pursuant to that charge will be made through 2004.
13. SUBSEQUENT EVENTS
On July 13, 2000, the Board of Directors approved a stock repurchase plan
of up to 10% of the outstanding common stock of the Company. Stock repurchases
must be made on the open market and are subject to certain regulatory
restrictions which, generally, limit the number of shares that can be acquired
on a daily basis and limits the price per share that can be paid.
28
<PAGE> 30
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's consolidated results of operations by quarter for the fiscal
years ended May 31, 2000, 1999 and 1998 were as follows: (in thousands except
per share amounts)
<TABLE>
<CAPTION>
FISCAL 2000
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................... $15,410 $16,337 $16,503 $18,386
======= ======= ======= =======
Gross margin........................................... $ 6,495 $ 7,251 $ 6,738 $ 7,882
======= ======= ======= =======
Net income............................................. $ 46 $ 356 $ 361 $ 721
======= ======= ======= =======
Net income per share -- basic.......................... $ 0.01 $ 0.04 $ 0.04 $ 0.09
======= ======= ======= =======
Net income per share -- diluted........................ $ 0.01 $ 0.04 $ 0.04 $ 0.09
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1999
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................... $11,368 $13,892 $14,419 $14,953
======= ======= ======= =======
Gross margin........................................... $ 4,876 $ 5,750 $ 5,805 $ 6,329
======= ======= ======= =======
Net income (loss)...................................... $ 292 $ 107 $ (557) $ 434
======= ======= ======= =======
Net income (loss) per share -- basic................... $ 0.04 $ 0.01 $ (0.07) $ 0.05
======= ======= ======= =======
Net income (loss) per share -- diluted................. $ 0.04 $ 0.01 $ (0.07) $ 0.05
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues............................................... $10,229 $11,717 $11,483 $12,028
======= ======= ======= =======
Gross margin........................................... $ 4,178 $ 5,130 $ 4,739 $ 5,477
======= ======= ======= =======
Net income............................................. $ 107 $ 528 $ 315 $ 443
======= ======= ======= =======
Net income per share -- basic.......................... $ 0.02 $ 0.09 $ 0.05 $ 0.07
======= ======= ======= =======
Net income per share -- diluted........................ $ 0.02 $ 0.09 $ 0.05 $ 0.07
======= ======= ======= =======
</TABLE>
29
<PAGE> 31
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, 2000, 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.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 12
Consolidated Balance Sheets -- May 31, 2000 and 1999........ 13
Consolidated Statements of Operations -- Years ended May 31,
2000, 1999 and 1998....................................... 14
Consolidated Statements of Stockholders' Equity -- Years
ended May 31, 2000, 1999 and 1998......................... 15
Consolidated Statements of Cash Flows -- Years ended May 31,
2000, 1999 and 1998....................................... 16
Notes to Consolidated Financial Statements.................. 18
</TABLE>
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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(a)* -- 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(b)* -- Bylaws of the Company (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-2, File No.
33-31663).
4(a)* -- 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).
4(b)* -- Statement of Relative Rights and Preferences of Series A
Participatory Preferred Stock of Team, Inc. (filed as
Exhibit 2.2 to the Company's Form 8-A with the Securities
and Exchange Commission on October 26, 1990).
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(a)*# -- 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(b)* -- Ninth Amendment and Restatement of the Team, Inc. Salary
Deferral Plan (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996).
10(c)*# -- Sixth Amendment and Restatement of the Team, Inc.
Employee Stock Ownership Plan (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended February 29, 1996).
10(d)*# -- 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(e)*# -- 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(f)*# -- 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(g)*# -- 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(h)*# -- 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(i)* -- Registration Rights Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(v) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997).
10(j)* -- Standstill and Voting Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the year ended May 31, 1997).
10(k)*# -- Employment Agreement by and between Philip J. Hawk and
Team, Inc. dated November 2, 1998 (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1998).
10(l)*# -- 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(m)*# -- 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).
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(n)*# -- Price Vested Restricted Stock Option Award Agreement by
and between Philip J. Hawk and Team, Inc. dated November
2, 1998 (filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30,
1998).
10(o)*# -- 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(p)*# -- Employment Termination and Consulting Agreement, by and
between Team, Inc. and William A. Ryan, dated effective
as of November 1, 1998 (filed as Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1998).
10(q)*# -- Restricted Stock Award, in the amount of 6,000 shares of
the Company's common stock to Kenneth M. Tholan, and
3,000 shares of common stock to each of Ted W. Owen,
Clark A. Ingram, and John P. Kearns, effective as October
26, 1998 (only the form of such Restricted Stock Award is
made an exhibit, as there are no particular provisions of
each such individual's Restricted Stock Award that vary
from the form, other than the amounts indicated
above--filed as Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
1999)
10(r)* -- 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(s)* -- 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(t)* -- 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(u)* -- Stock Purchase Agreement Among Team, Inc. (Buyer) and E.
Patrick Manuel and B. Dal Miller (Sellers) dated April 9,
1999 providing for the acquisition by Team, Inc. of 100%
of the outstanding capital stock of X-Ray Inspection,
Inc. (filed as Exhibit 2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28,
1999).
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).
27 -- Financial Data Schedule.
</TABLE>
---------------
* 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 has filed no reports on Form 8-K since the beginning of the fourth
quarter of fiscal 2000.
32
<PAGE> 34
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, 2000.
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.
<TABLE>
<C> <S> <C>
/s/ PHILIP J. HAWK Chief Executive Officer and August 28, 2000
----------------------------------------------------- Director
(Philip J. Hawk)
/s/ GEORGE W. HARRISON Director August 28, 2000
-----------------------------------------------------
(George W. Harrison)
/s/ JACK M. JOHNSON, JR. Director August 28, 2000
-----------------------------------------------------
(Jack M. Johnson, Jr.)
/s/ E. THEODORE LABORDE Director August 28, 2000
-----------------------------------------------------
(E. Theodore Laborde)
/s/ LOUIS A. WATERS Director August 28, 2000
-----------------------------------------------------
(Louis A. Waters)
/s/ SIDNEY B. WILLIAMS Director August 28, 2000
-----------------------------------------------------
(Sidney B. Williams)
/s/ TED W. OWEN Vice President August 28, 2000
----------------------------------------------------- Chief Financial Officer
(Ted W. Owen) (Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
33
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(a)* -- 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(b)* -- Bylaws of the Company (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-2, File No.
33-31663).
4(a)* -- 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).
4(b)* -- Statement of Relative Rights and Preferences of Series A
Participatory Preferred Stock of Team, Inc. (filed as
Exhibit 2.2 to the Company's Form 8-A with the Securities
and Exchange Commission on October 26, 1990).
10(a)*# -- 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(b)* -- Ninth Amendment and Restatement of the Team, Inc. Salary
Deferral Plan (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996).
10(c)*# -- Sixth Amendment and Restatement of the Team, Inc.
Employee Stock Ownership Plan (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended February 29, 1996).
10(d)*# -- 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(e)*# -- 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(f)*# -- 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(g)*# -- 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(h)*# -- 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(i)* -- Registration Rights Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(v) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997).
10(j)* -- Standstill and Voting Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the year ended May 31, 1997).
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(k)*# -- Employment Agreement by and between Philip J. Hawk and
Team, Inc. dated November 2, 1998 (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1998).
10(l)*# -- 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(m)*# -- 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(n)*# -- Price Vested Restricted Stock Option Award Agreement by
and between Philip J. Hawk and Team, Inc. dated November
2, 1998 (filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30,
1998).
10(o)*# -- 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(p)*# -- Employment Termination and Consulting Agreement, by and
between Team, Inc. and William A. Ryan, dated effective
as of November 1, 1998 (filed as Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1998).
10(q)*# -- Restricted Stock Award, in the amount of 6,000 shares of
the Company's common stock to Kenneth M. Tholan, and
3,000 shares of common stock to each of Ted W. Owen,
Clark A. Ingram, and John P. Kearns, effective as October
26, 1998 (only the form of such Restricted Stock Award is
made an exhibit, as there are no particular provisions of
each such individual's Restricted Stock Award that vary
from the form, other than the amounts indicated
above--filed as Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
1999)
10(r)* -- 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(s)* -- 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(t)* -- 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(u)* -- Stock Purchase Agreement Among Team, Inc. (Buyer) and E.
Patrick Manuel and B. Dal Miller (Sellers) dated April 9,
1999 providing for the acquisition by Team, Inc. of 100%
of the outstanding capital stock of X-Ray Inspection,
Inc. (filed as Exhibit 2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28,
1999).
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).
27 -- Financial Data Schedule.
</TABLE>
---------------
* 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.
