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Team 10-K 2008
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0001193125-08-161503.txt : 20080730
0001193125-08-161503.hdr.sgml : 20080730
20080730171713
ACCESSION NUMBER: 0001193125-08-161503
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20080531
FILED AS OF DATE: 20080730
DATE AS OF CHANGE: 20080730

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: TEAM INC
CENTRAL INDEX KEY: 0000318833
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS REPAIR SERVICES [7600]
IRS NUMBER: 741765729
STATE OF INCORPORATION: TX
FISCAL YEAR END: 0531

FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08604
FILM NUMBER: 08979735

BUSINESS ADDRESS:
STREET 1: 200 HERMANN DRIVE
CITY: ALVIN
STATE: TX
ZIP: 77056
BUSINESS PHONE: 2813316154

MAIL ADDRESS:
STREET 1: 1019 SOUTH HOOD STREET
CITY: ALVIN
STATE: TX
ZIP: 77551


10-K
1
d10k.htm
FORM 10-K


Form 10-K


Table of Contents


Index to Financial Statements


 

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UNITED STATES

STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center">SECURITIES AND EXCHANGE COMMISSION

SIZE="3">Washington D.C. 20549

 

 


FORM 10-K

 





xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ALIGN="center">For the fiscal year ended May 31, 2008

OR

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 





¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ALIGN="center">For the transition period from                      to
                    

Commission File
Number 001-08604

 

 

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">TEAM, INC.

(Exact name of registrant
as specified in its charter)

 



























TEXAS 74-1765729
(State of incorporation) (I.R.S. Employer Identification No.)
200 Hermann Drive Alvin, Texas 77511
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (281) 331-6154

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 

 

ALIGN="center">Securities registered pursuant to Section 12(b) of the Act:

 
















Title of each Class

 

Name of Each Exchange on which Registered

Common Stock, $.30 par value

 The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 

 

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes  ¨    No  x

FACE="Times New Roman" SIZE="2">Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  FACE="WINGDINGS">¨    No  x

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.  FACE="WINGDINGS">¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

SIZE="2">(Check one):            Large accelerated filer  ¨            Accelerated
filer  x            Non-accelerated filer  ¨

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  FACE="WINGDINGS">¨    No  x

As of July 23, 2008, 18,640,667
shares of the registrant’s common stock were outstanding, of which 14,268,753 were held by non-affiliates. The aggregate market value of common stock held by non-affiliates of the registrant (based upon the closing sales price of $35.44 per
share on The NASDAQ Global Select Market on such date) was $505,684,606. For purposes of the foregoing calculation only, all directors, executive officers and known 5% beneficial owners have been deemed affiliates.

STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center">Documents Incorporated by Reference

SIZE="2">Portions of our definitive proxy statement for the 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. These will be filed no later than September 28, 2008.

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Table of Contents


Index to Financial Statements


FORM 10-K INDEX

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PART I

  1

ITEM 1.

 

BUSINESS

  1
 

General Description of Business

  1
 

Acquisitions and Dispositions

  1
 

Description of Segments and Divisions

  2
 

Narrative Description of Business

  2
 

Service Lines

  3
 

Available Information

  5

ITEM 1A.

 

RISK FACTORS

  5

ITEM 1B.

 

UNRESOLVED STAFF COMMENTS

  8

ITEM 2.

 

PROPERTIES

  8

ITEM 3.

 

LEGAL PROCEEDINGS

  8

ITEM 4.

 

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  9

PART II

  10

ITEM 5.

 

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES

  10

ITEM 6.

 

SELECTED FINANCIAL DATA

  13

ITEM 7.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  14

ITEM 7A.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  23

ITEM 8.

 

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  23

ITEM 9.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

  24

ITEM 9A.

 

CONTROLS AND PROCEDURES

  24

ITEM 9B.

 

OTHER INFORMATION

  24
 

Management’s Annual Report on Internal Control Over Financial Reporting

  25

PART III

  26

ITEM 10.

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

  26

ITEM 11.

 

EXECUTIVE COMPENSATION

  26

ITEM 12.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  26

ITEM 13.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

  26

ITEM 14.

 

PRINCIPAL ACCOUNTING FEES AND SERVICES

  26

PART IV

  27

ITEM 15.

 

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

  27

SIGNATURES

  55





Table of Contents


Index to Financial Statements


Certain items required in Part III of this Form 10-K can be found in our 2008 Proxy Statement and are incorporated
herein by reference. A copy of the 2008 Proxy Statement will be provided, without charge, to any person who receives a copy of this Form 10-K and submits a written request to TEAM, Inc., Attn: Corporate Secretary, 200 Hermann Drive, Alvin, Texas,
77511.

PART I

 





ITEM 1.BUSINESS

General Description of
Business

Introduction.    Unless otherwise indicated, the terms “Team, Inc.,”
“Team,” “the Company,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of our consolidated subsidiaries or to all of them taken as a whole. We are incorporated in
the State of Texas and our company website can be found at www.teamindustrialservices.com. Our corporate headquarters is located at 200 Hermann Drive, Alvin, Texas, 77511 and our telephone number is (281) 331-6154. Our stock is traded on
the NASDAQ Global Select Market (“NASDAQ”) under the symbol “TISI” and our fiscal year ends on May 31 of each calendar year.

FACE="Times New Roman" SIZE="2">We are a leading provider of specialty maintenance and construction services required in maintaining high temperature and high pressure piping systems and vessels that are utilized extensively in heavy industries. We
offer an array of complementary services including:

 







  

leak repair,

 







  

hot tapping,

 







  

fugitive emissions control,

 







  

field machining,

 







  

technical bolting,

 







  

field valve repair,

 







  

non-destructive testing, and

 







  

field heat treating.

We offer these
services in over 100 locations throughout the United States and international markets including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.

FACE="Times New Roman" SIZE="2">Acquisitions and Dispositions

On January 9, 2008 we acquired all the
stock of Leak Repairs Specam (“LRS”), a specialty industrial services company. LRS currently provides a range of services similar to those offered by our TMS division, including on-stream leak sealing, hot tapping, fugitive emissions
monitoring, field machining and bolting services. LRS is headquartered near Vlissingen, The Netherlands and has four service locations in The Netherlands and Belgium. The purchase price of the acquisition was $18.6 million plus working capital
adjustments, professional fees and net of cash acquired. Financing for the acquisition was obtained through our bank syndicate. (Please see Note 2 to our Audited Consolidated Financial Statements).

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">On June 1, 2007, we acquired all of the stock of Aitec, Inc. (“Aitec”) for $33.8 million, plus working capital adjustments, professional
fees, and net of cash acquired. The final purchase price of $34.7 million includes working capital adjustments of $0.1 million and professional fees of $0.8 million. Aitec, is a non-destructive testing and inspection services company headquartered
near Toronto, Ontario with 13 service locations across Canada. Financing for the acquisition was obtained through our bank syndicate. We believe the Aitec acquisition makes Team the second-largest inspection service provider in
Canada (Please see Note 2 to our Audited Consolidated Financial Statements).

 


1







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Index to Financial Statements


In November 2005, we sold all of the outstanding stock of our wholly-owned subsidiary, Climax
Portable Machine Tools, Inc. (“Climax”) for approximately $14.5 million and recognized subsequent sale price adjustments of approximately $0.2 million. Climax was engaged in the sale and rental of equipment and was a designer and
manufacturer of portable metal cutting machinery used for industrial maintenance (Please see Note 2 to our Audited Consolidated Financial Statements).


Description of Segments and Divisions

Prior to the sale of Climax on November 30, 2005, we operated as two reportable business
segments, industrial services and equipment sales and rentals. As a result of the sale of Climax, we now operate in only one segment—industrial services. Significant prior acquisitions within the industrial services segment have led to the
creation of two divisions. Our TMS division provides the services of leak repair, hot tapping, fugitive emissions control, field machining, technical bolting and field valve repair. Our TCM division provides the services of non-destructive testing
and field heat treating.

Narrative Description of Business

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">Our industrial services are available 24 hours a day, 7 days a week, 365 days a year. We market our services to companies in a diverse array of
industries which include the petrochemical, refining, power, pipeline, pulp and paper, and steel industries as well as some of the world’s largest engineering and construction firms, shipbuilding, original equipment manufacturers
(“OEMs”), distributors and end users. Our services are also provided across a broad geographic reach. For our fiscal year ended May 31, 2008, our revenues by geographic region originated in the United States (72%), Canada
(22%) and other locations outside of North America (6%).

Employees.    At May 31, 2008, we had
approximately 3,700 employees and contractors in our worldwide operations. Our employees in the United States are not unionized. Our Canadian employees and certain of our employees outside of North America, predominantly Europe, are unionized. There
have been no employee work stoppages to date and we believe our relations with our employees are good.

SIZE="2">Insurance.    We carry insurance that we believe to be appropriate for the business in which we are engaged. Under our insurance policies, we have per occurrence self-insured retention limits of $150,000
per individual claimant, determined on an annual basis, for medical liability and $250,000 per occurrence for general liability, automobile and workers’ compensation. The insurance policies are subject to terms, conditions, limitations, and
exclusions that may not fully compensate us for all losses.

Regulation.    A significant portion of our
business activities are subject to foreign, federal, state and local laws and regulations. These regulations are administered by various foreign, federal, state and local health and safety and environmental agencies and authorities, including the
Occupational Safety and Health Administration of the U.S. Department of Labor and the U.S. Environmental Protection Agency (“EPA”). From time to time, we are also subject to a wide range of reporting requirements, certifications and
compliance as prescribed by various federal and state governmental agencies that include, but are not limited to, the Nuclear Regulatory Commission, Chemical Safety Board, Department of Transportation and Federal Aviation Administration.
Expenditures relating to such regulations are made in the normal course of our business and are neither material nor place us at any competitive disadvantage. We do not currently expect compliance with such laws will require us to make material
expenditures.

From time to time, in the operation of our environmental consulting and engineering services, the assets of which were sold
in 1996, we handled small quantities of certain hazardous wastes or other substances generated by our customers. Under the Comprehensive Environmental Response, Compensation and Liability Act of 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

 


2







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Index to Financial Statements



participate in such a clean up or funding thereof. Responsible parties include anyone who owns or operates the facility where the release occurred (either
currently and/or at the time such hazardous substances were disposed of), or who by contract arranges for disposal, treatment, or transportation for disposal or treatment of a hazardous substance, or who accepts hazardous substances for transport to
disposal or treatment facilities selected by such person from which there is a release. We believe that our risk of liability is minimized since our handling consisted solely of maintaining and storing small samples of materials for laboratory
analysis that are classified as hazardous. Due to its prohibitive costs, we accordingly do not currently carry insurance to cover liabilities which we may incur under the Superfund Act or similar environmental statutes.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Intellectual Property.    While we are the holder of various patents, trademarks, trade secrets and licenses, we do not
consider any single intellectual property to be material to our consolidated business operations.

Marketing and
Customers.
    Our industrial services are marketed principally by personnel based at our service locations. We believe that these service locations are situated to facilitate timely responses to customer needs, which is
an important feature of selling and providing our services. No customer accounted for 10% or more of consolidated revenues during any of the last three years.

FACE="Times New Roman" SIZE="2">Generally, customers are billed on a time and materials basis although some work may be performed pursuant to a fixed-price bid. Services are usually performed pursuant to purchase orders issued under written customer
agreements. While most purchase orders provide for the performance of a single job, some provide for services to be performed on a run and maintain basis. Substantially all our agreements and contracts may be terminated by either party on short
notice. The agreements generally specify the range of services to be performed and the hourly rates for labor. While many contracts cover specific plants or locations, we also enter into multiple-site regional or national contracts, which cover
multiple plants or locations.

We frequently provide various limited warranties for certain of our repair services. To date, there have
been no significant warranty claims filed against us.

Seasonality.    We experience some seasonal
fluctuations. Historically, the refining industry has scheduled plant shutdowns (commonly referred to as “turnarounds”) for the fall and spring seasons. Large turnarounds can, to a lesser degree, significantly impact our revenues.

Competition.    In general, competition stems from a large number of other outside service contractors.
More than 100 different competitors are currently active in our markets. We believe we have a competitive advantage over most service contractors due to the quality, training and experience of our technicians, our nationwide and increasingly
international service capability, and our broad range of services, as well as our technical support and manufacturing capabilities supporting the service network. However, there are other competitors that may offer a similar range of coverage or
services and include, but are not limited to, Furmanite Corporation, T.D. Williamson, Inc., Acuren Group, Inc. and JV Industrial Companies.


Service Lines

We continue to develop different types of services and products which meet the demanding needs of our customers’
operations. The following discussion describes the services we currently offer:

Leak Repair
Services.
    Our leak repair services consist of on-stream repairs of leaks in pipes, valves, flanges and other parts of piping systems and related equipment. Our on-stream repairs utilize both standard and
custom-designed clamps and enclosures for piping systems. We use specially developed techniques, sealants and equipment for repairs. Many of our repairs are furnished as interim measures which allow plant systems to continue operating until more
permanent repairs can be made during turnarounds. Our leak repair services involve inspection of the leak by our field crew who record pertinent information about the faulty part of the

 


3







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Index to Financial Statements



system and transmit the information to our engineering department for determination of appropriate repair techniques. Repair materials such as clamps and
enclosures are custom designed and manufactured at our ISO-9001 certified manufacturing center and delivered to the job site. We maintain an inventory of raw materials and semi-finished clamps and enclosures to reduce the time required to
manufacture the finished product.

Hot Tapping
Services.
    Our hot tapping services consist of providing a full range of hot tapping, Line-stop® and Freeze-stopSIZE="1">® services with capabilities for up to 48” diameter pipelines. Hot tapping services involve utilizing special equipment to cut a hole in a pressurized pipeline so that a new branch pipe can be connected onto the
existing pipeline without interrupting operations. Line-stop® services permit the line to be depressurized downstream so that maintenance work can be performed on the piping system. We
typically perform these services by mechanically cutting into the pipeline similar to a hot tap and installing a special plugging device to stop the process flow. The Hi-stop® is a
proprietary and patented procedure that allows stopping of the process flow in extreme pressures and temperatures. In some cases, we may use a line freezing procedure by injecting liquid nitrogen into installed special external chambers around the
pipe to stop the process flow.

Emissions Control Services.    We provide fugitive volatile organic
chemical (“VOC”) emission leak detection services that include identification, monitoring, data management and reporting primarily for the chemical, refining and natural gas processing industries. These services are designed to monitor and
record VOC emissions from specific process equipment and piping components as required by environmental regulations and customer requests, typically assisting the customer in enhancing an ongoing maintenance program and/or complying with present
and/or future environmental regulations. We provide specialty trained technicians in the use of portable organic chemical analyzers and data loggers to measure potential leaks at designated plant components maintained in customer or our proprietary
databases. The measured data is used to prepare standard reports in compliance with EPA and local regulatory requirements. We also provide enhanced custom-designed reports to customer specifications.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Field Machining Services.    We use portable machining equipment to repair or modify machinery, equipment,
vessels and piping systems not easily removed from a permanent location. As opposed to conventional machining processes where the work piece rotates and the cutting tool is fixed, in field machining, the work piece remains fixed in position and the
cutting tool rotates. Other common descriptions for this service are on-site or in-place machining. Field machining services include flange facing, pipe cutting, line boring, journal turning, drilling, and milling. We provide customers technical
bolting as a complimentary service to field machining during turnaround or maintenance activities. These services involve the use of hydraulic or pneumatic equipment with industry standard bolt tightening techniques to achieve reliable and leak-free
connections following plant maintenance turnarounds, following repairs and as part of expansion projects. Additional services include bolt disassembly and hot bolting which is a process to remove and replace a bolt as the process is operating.

Field Valve Repair Services.    We perform on-site repairs to manual and control valves, pressure and
safety relief valves as well as specialty valve actuator diagnostics and repair. We are certified and authorized to perform testing and repairs to pressure and safety relief valves by The National Board of Boiler and Pressure Vessel Inspectors. This
certification requires specific procedures, testing and documentation to maintain the safe operation of these essential plant valves. We provide special transportable trailers to the plant site which contain specialty machines to manufacture valve
components without removing the valve from the piping system. In addition, we provide preventive maintenance programs for VOC specific valves and valve data management programs.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Non-destructive Testing Services.    We offer inspection and evaluation of piping, piping components and equipment to
determine the present condition and predict remaining operability. Our inspection services use all the common methods of non-destructive testing, including radiography, ultrasound, magnetic particle and dye penetrate, as well as, higher end robotic
and newly developed advanced technology systems. Many of the visual inspection programs we provide require specialized training to industry and regulatory standards. Inspection services are marketed to the same industrial customer base as our other
services as well as outside our traditional

 


4







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Index to Financial Statements



customer base such as the aerospace and automotive industries. Inspection services frequently require industry recognized training and certification
processes. We maintain training and certification programs which are designed to meet or exceed industry standards.

Field Heat
Treating Services.
    Our field heat treating services include electric resistance and gas-fired combustion, primarily utilized by industrial users to enhance the metallurgical properties of their process piping and
equipment. Electric resistance heating is the transfer of high energy power sources through attached heaters to the plant component to preheat weld joints, to remove contaminates and moisture prior to welding and post-weld heat treatments to relieve
metal thermal stresses induced by the welding process. Specialty heat treating processes are performed using gas fired combustion on large pressure vessels for stress relieving, to bake specialty paint coatings, and controlled drying of abrasion and
temperature resistant refractories. Special high frequency heating commonly called induction heating is used to expand metal parts for assembly or disassembly, expansion of large bolting for industrial turbines and stress relieving projects which is
cost prohibitive for electric resistance or gas-fired combustion.

Available Information

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">As a public company, we are required to file periodic reports with the Securities and Exchange Commission (“SEC”) within established deadlines.
Any document we file with the SEC may be viewed or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Additional information regarding the Public Reference Room can be obtained by calling the SEC at
(800) SEC-0330. Our SEC filings are also available to the public through the SEC’s website located at http://www.sec.gov.

SIZE="2">Our internet website address is http://www.teamindustrialservices.com. Information contained on our website is not part of this report on Form 10-K. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, Proxy
Statements and current reports on Form 8-K filed with (or furnished to) the SEC are available on our website, free of charge, as soon as reasonably practicable after we file or furnish such material. We also post our code of business conduct and
ethics, our governance principles and the charters of our board’s committees on our website. Our governance documents are available in print to any stockholder that makes a written request to TEAM, Inc., Attn: Corporate Secretary, 200 Hermann
Drive, Alvin, Texas, 77511.

 





ITEM 1A.RISK FACTORS

The risk
factors described below should be carefully considered in addition to other information contained or incorporated by reference herein. We operate in a continually changing business environment, and new risk factors emerge from time to time. We
cannot predict such risk factors, nor can we assess the impact, if any, of such risk factors on our business or the extent to which any factors may cause actual results to differ materially from those projected. The following risks and
uncertainties, should be considered in evaluating our outlook of future Company performance.

We sell our services in highly
competitive markets, which places pressure on our profit margins and limits our ability to maintain or increase the market share of our services.
Our competition generally stems from other outside service contractors, many of whom offer a
similar range of services. No assurances can be made that we will continue to maintain our pricing model and our profit margins or increase our market share.

FACE="Times New Roman" SIZE="2">No assurances can be made that we will be successful in maintaining or renewing our contracts with our customers.    A significant portion of our contracts and agreements with
customers may be terminated by either party on short notice. Although we actively pursue the renewal of our contracts, we can not assure that we will be able to renew these contracts or that the terms of the renewed contracts will be as favorable as
the existing contracts. If we are unable to renew or replace these contracts, or if we renew on less favorable terms, we may suffer a material reduction in revenue and earnings.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">No assurances can be made that we will be successful in hiring or retaining members of a skilled technical
workforce.
    We have a skilled technical workforce and an industry recognized technician training

 


5







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Index to Financial Statements



program for each of our service lines that prepares new employees as well as further trains our existing employees. The competition for these individuals is
intense. The loss of the services of a number of these individuals or failure to attract new employees could adversely affect our ability to perform our obligations on our customers’ projects or maintenance and consequently could negatively
impact the demand for our products and services and consequently our financial condition and operating results.

Unsatisfactory
safety performance can affect customer relationships, result in higher operating costs, and negatively impact our ability to hire and retain a skilled technical workforce.
    Our workers are subject to the normal hazards
associated with providing services at industrial facilities. Even with proper safety precautions, these hazards can lead to personal injury, loss of life, damage to, or destruction of, property, plant and equipment, lower employee morale and
environmental damage. We are intensely focused on maintaining a strong safety environment and reducing the risk of accidents to the lowest possible level. Poor safety performance may limit or eliminate potential revenue streams from many of our
largest customers and may materially increase our future insurance and other operating costs. Our growth strategy requires that we increase the size of our workforce. While we normally target experienced personnel for employment, we also hire
inexperienced employees. Even with thorough training, inexperienced employees have a higher likelihood of injury which could lead to higher operating costs and insurance rates. Although we maintain insurance coverage, such coverage may be inadequate
to protect us from all expenses related to these risks.

Our operations and properties are subject to extensive governmental
regulation under environmental laws.
    These laws and regulations can impose substantial sanctions for violations or operational changes that may limit our services. We must conform our operations to applicable
regulatory requirements and adapt to changes in such requirements in all locations in which we operate. These actions may increase the overall costs of providing our services. Some of our services involve handling or monitoring highly regulated
materials, including hazardous wastes. Environmental laws and regulations generally impose limitations and standards for regulated materials and require us to obtain permits and comply with various other requirements. The improper characterization,
handling, disposal or monitoring of regulated materials or any other failure by us to comply with increasingly complex and strictly enforced federal, state and local environmental laws and regulations or associated environmental permits could
subject us to the assessment of administrative, civil and criminal penalties, the imposition of investigatory or remedial obligations, or the issuance of injunctions that could restrict or prevent our ability to operate our business and complete
contracted services. A defect in our services or faulty workmanship could result in an environmental liability if, as a result of the defect or faulty workmanship, a contaminate is released into the environment. We currently maintain liability
insurance with pollution coverage to limit any potential loss, but there can be no assurance that our insurance will fully protect us against a valid claim or loss.

FACE="Times New Roman" SIZE="2">We are involved and are likely to continue to be involved in legal proceedings, which will increase our costs and, if adversely determined, could have a material effect on our financial condition and results of
operations.
    We are currently a defendant in legal proceedings arising from the operation of our business and it is reasonable to expect that we will be named in future actions. Most of the legal proceedings against us
arise out of the normal course of performing services at customer facilities, and include claims for workers’ compensation, personal injury and property damage. Legal proceedings can be expensive to defend and can divert the attention of
management and other personnel for significant periods of time, regardless of the ultimate outcome. An unsuccessful defense of a liability claim could have an adverse affect on our business, results of operations and financial condition and cash
flows (Please see Note 12 to our Audited Consolidated Financial Statements).

Economic, political and other risks associated with
international operations could adversely affect our business.
    A significant portion of our operations are conducted and located outside the United States and, accordingly, our business is subject to risks associated
with doing business internationally, including changes in foreign currency exchange rates, instability in political or economic conditions, differing employee relations, trade protection measures, and difficulty in administering and enforcing
corporate policies which may be different than the normal business practices of local cultures.

 


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Our business depends on the levels of capital investment and maintenance expenditures by our
customers, which in turn are affected by the cyclical nature of their markets and their liquidity.
    The ability of our customers to finance capital investment and maintenance expenditures, and therefore, hire us for
projects, may be affected by factors independent of those conditions such as liquidity constraints or postponing projects until favorable financial capital markets are present.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Our growth strategy entails risk for investors.    We intend to continue to pursue acquisitions in
the specialty maintenance and construction services industry to complement and diversify our existing business. We may not be able to continue to expand our market presence through attractive acquisitions, and any future acquisitions may present
unforeseen integration difficulties or costs. From time to time, we make acquisitions of other business that enhance our services or the geographic scope of our Company. No assurances can be made that we will realize the cost savings, synergies or
revenue enhancements that we may anticipate from any acquisition, or that we will realize such benefits within the time frame that we expect. If we are not able to address the challenges associated with acquisitions and successfully integrate
acquired businesses, or if our integrated product and service offerings fail to achieve market acceptance, our business could be adversely affected. The consideration paid in connection with an acquisition may also affect our financial results. To
the extent we issue stock or other rights to purchase stock, including options or other rights, existing shareholders may be diluted and earnings per share may decrease. In addition, acquisitions may result in the incurrence of additional debt.

Our level of indebtedness could have important consequences to us.    Our level of indebtedness may make
it more difficult for us to satisfy our obligations with respect to our indebtedness, increase our vulnerability to general adverse economic conditions, industry conditions and rising interest rates, limit our ability to take advantage of business
opportunities as a result of various restrictive covenants in our debt agreements, place us at a competitive disadvantage compared to our competitors that have less debt or limit our ability to borrow money or sell stock to fund our working capital,
capital expenditures, acquisitions or other corporate requirements.

The price of our outstanding securities may suffer if we cannot
control fluctuations in our sales and operating results.
    Historically, our quarterly and annual sales and operating results have fluctuated. We expect fluctuations to continue in the future. In addition to general
economic and political conditions, the following factors affect our sales: the timing of significant customer orders, the timing of planned maintenance projects at customer facilities, changes in competitive pricing, wide variations in profitability
by product line, variations in operating expenses, rapid increases in raw material and labor costs, the timing of announcements or introductions of new products or services by us, our competitors or our respective customers, the acceptance of those
services, our ability to adequately meet staffing requirements with qualified personnel, relative variations in manufacturing efficiencies and costs, and the relative strength or weakness of international markets. Since our quarterly and annual
sales and operating results vary, we believe that period-to-period comparisons are not necessarily meaningful, and you should not rely on those comparisons as indicators of our future performance. Due to the foregoing factors, it is possible that in
some future quarter or quarters our revenues or operating results will not meet the expectations of public stock market analysts or investors, which could cause the price of our outstanding securities to decline or be volatile.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Our business may be adversely impacted by work stoppages, staffing shortages, and other labor matters.    At May 31,
2008, we had approximately 3,700 employees and contractors, approximately 700 of whom were located in Canada and Europe where employees predominantly are represented by unions. Although we believe that our relations with our employees are good and
we have had no strikes or work stoppages, no assurances can be made that we will not in the future experience these and other types of conflicts with labor unions, works councils, other groups representing employees, or our employees generally, or
that any future negotiations with our labor unions will not result in significant increases in the cost of labor.

 


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Other risk factors include, but are not limited to:

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

the effects of extreme weather conditions such as hurricanes;

 







  

acts of terrorism aimed at either our facilities or our customer facilities that could impair our ability to conduct business;

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

rulings, judgments or settlements in litigation or other legal or regulatory matters including unexpected environmental remediation costs in excess of any reserves
or insurance coverage;

 







  

legislation or regulatory action, including the introduction or enactment of federal, state or foreign legislation or rulemakings, which may adversely affect our
business or operations including changes in tax laws in the United States or in foreign countries; and

 







  

overall economic conditions.

Any
one of these factors, or a combination of these factors, could materially affect our future results of operations and whether any forward-looking statements in this Form 10-K ultimately prove to be accurate.

STYLE="font-size:18px;margin-top:0px;margin-bottom:0px"> 





ITEM 1B.UNRESOLVED STAFF COMMENTS

SIZE="2">None.

 





ITEM 2.PROPERTIES

We own real
estate and office facilities in the Alvin, Texas area totaling approximately 88,000 square feet. These facilities are comprised of a corporate office and training building and a manufacturing facility for clamps, enclosures and sealants.
Additionally, we own facilities in, or near, Houston, Texas, Milwaukee, Wisconsin, and Edmonton, Alberta, which are utilized in the industrial services operations. We also lease office and/or plant and shop facilities at separate locations in
thirty-one states within the United States, and in Puerto Rico, Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.

SIZE="2">On October 9, 2007, we completed a $5 million purchase of nearly 50 acres of land in the Houston area that will become the home of a new multi-use facility encompassing our corporate headquarters, TMS manufacturing, equipment center, and
global training activities. We expect to complete the new facility in 2009.

We believe that our property and equipment are adequate for
our current needs, although additional investments are expected to be made in property and equipment for expansion, replacement of assets at the end of their useful lives and in connection with corporate development activities.

STYLE="font-size:18px;margin-top:0px;margin-bottom:0px"> 





ITEM 3.LEGAL PROCEEDINGS

In
August 2005, we were served in a lawsuit styled Paulette Barker, as named Executor for the Estate of Robert Barker, et. al. v. Emmett J. Lescroart, Michael Urban, Team, Inc. et. al., Case Number 355868-402 in the Probate Court #1, Harris County,
Texas. The dispute arises out of the sale by Mr. Barker to Mr. Lescroart of stock in Thermal Solutions, Inc. (“TSI”). Subsequently, we acquired all of the outstanding stock of TSI in April 2004 allegedly for a much higher price
than Mr. Lescroart paid Mr. Barker in July 2003. The plaintiff claims damages in excess of $1,000,000. We intend to continue our vigorous defense of this action. We believe the outcome of this matter will not have a material adverse effect
on our consolidated financial position, results of operations or cash flows.

We have, from time to time, provided temporary leak repair
services for the steam operations of Consolidated Edison of New York (“Con Ed”) located in New York City. In July 2007, a Con Ed steam main

 


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located in midtown Manhattan ruptured causing one death and other injuries and property damage. Five separate lawsuits have been filed against Con Ed and us
in the Supreme Courts of New York located in Kings, New York and Bronx County, alleging that our temporary leak repair services may have contributed to the cause of the rupture. The lawsuits seek generally unspecified compensatory damages for
personal injury, property damage and business interruption. Additionally, on March 31, 2008 we received a letter from Con Ed alleging that our contract with Con Ed requires us to indemnify and defend Con Ed for additional claims filed against
Con Ed as a result of the rupture. Subsequently, Con Ed filed an action to join Team and the city of New York as defendants in more than 40 separate lawsuits previously filed against Con Ed. We intend to vigorously defend the lawsuits and Con
Ed’s claim for indemnification. We are unable to estimate the amount of liability to us, if any, associated with these lawsuits and the claim for indemnification. We maintain insurance coverage, subject to a deductible limit of $250,000, for
these losses should they be incurred and have notified our insurers of the incident. We do not believe the final resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash
flows.

In February 2007, one of our employees sustained serious injuries as a result of a fire at the Valero McKee Refinery in Sunray,
Texas. The employee and his family have made a demand on Valero for compensation related to his injuries. We have received a letter from Valero demanding that, pursuant to the terms of our contract, we indemnify Valero for any losses they may incur
as a result of the claims by our employee. We maintain insurance coverage, subject to a deductible limit of $150,000, for any losses should they be incurred and have placed our insurers on notice. We do not believe the outcome of this matter will
have a material adverse effect on our consolidated financial position, results of operations or cash flows.

 





ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

FACE="Times New Roman" SIZE="2">None

 


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PART II

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 





ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
STYLE="margin-top:6px;margin-bottom:0px">Market Information

On December 28, 2006 we
transferred the listing of our common stock from the American Stock Exchange (“AMEX”) to the NASDAQ, at which time we began trading on the NASDAQ under the ticker symbol “TISI”. The table below reflects the high and low closing
sales prices of our common stock on the AMEX and NASDAQ by quarter for the fiscal years ended May 31, 2008 and 2007, respectively.

 


























































































































   Sales Price
   High  Low

2008

    

Quarter Ended:

    

August 31, 2007

  $24.19  $20.26

November 30, 2007

   34.35   22.46

February 29, 2008

   38.00   27.46

May 31, 2008

   34.52   27.22

2007

    

Quarter Ended:

    

August 31, 2006

  $16.00  $11.91

November 30, 2006

   16.00   12.00

February 28, 2007

   18.38   14.93

May 31, 2007

   19.83   16.19

 


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Performance Graph

FACE="Times New Roman" SIZE="2">The following performance graph compares the performance of our common stock to the NASDAQ Composite Index and a Peer Group Index. The comparison assumes $100 was invested on May 31, 2003 in our common stock, the
NASDAQ Composite Index and in the Peer Group Index. The values of each investment are based on share price appreciation, with reinvestment of all dividends, assuming any were paid. For each graph, the investments are assumed to have occurred at the
beginning of each period presented. The following companies are included in the Peer Group Index used in the graph: Furmanite Corporation, Matrix Service Company, T-3 Energy Services Warrants D, and Versar Inc.

STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center">

LOGO

 





*$100 invested on 5/31/03 in stock or index-including reinvestment of dividends.




Fiscalyear ending May 31.

 










































































    5/03  5/04  5/05  5/06  5/07  5/08

Team, Inc.

  100.00  201.28  243.59  403.21  502.44  821.54

NASDAQ Composite

  100.00  126.84  132.55  142.34  171.47  165.82

Peer Group

  100.00  124.37  80.32  211.24  356.45  461.73

Notes: The above information was provided by Research Data Group, Inc.

STYLE="margin-top:18px;margin-bottom:0px">Holders

There were 14.3 million holders of
record of our common stock as of July 23, 2008, excluding beneficial owners of stock held in street name. Although exact information is unavailable, we estimate there are approximately 4.3 million additional beneficial owners.

STYLE="margin-top:0px;margin-bottom:0px"> 


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Dividends

SIZE="2">No cash dividends were declared or paid during the fiscal years ended May 31, 2008, 2007 and 2006. We are not permitted to pay cash dividends without the consent of our bank syndicate. Accordingly, we have no present intention to pay
cash dividends in the foreseeable future. Additionally, any future dividend payments will continue to depend on our financial condition, market conditions and other matters deemed relevant by the Board of Directors.

STYLE="margin-top:18px;margin-bottom:0px">Stock Split

On July 25, 2007 we announced a
two-for-one stock split in the form of a 100 percent dividend payable on August 29, 2007 to all shareholders of record on August 15, 2007. To fund the requirement of new shares, we utilized approximately 1 million shares of treasury
stock and issued an additional 8 million shares of common stock. All share and per share information has been retroactively adjusted to reflect the stock split.

FACE="Times New Roman" SIZE="2">Equity Compensation Plans

This information has been omitted from this report on Form 10-K as we
intend to file such information in our definitive proxy statement no later than 120 days following the close of our fiscal year ended May 31, 2008. The information required regarding equity compensation plans is hereby incorporated by
reference.

 


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ITEM 6.SELECTED FINANCIAL DATA

The following is a summary
of selected financial information for the five years ended May 31, 2008 (amounts in thousands, except per share data):

 



































































































































































































































































































































































































































































































































   Twelve Months Ended May 31,
   2008  2007  2006  2005  2004

Revenues

  $478,475  $318,348  $259,838  $193,035  $94,546

Net income from continuing operations

   23,623   15,515   10,630   4,284   5,263

Net income from discontinued operations (1)

   —     —     6   504   513
                    

Net income

  $23,623  $15,515  $10,636  $4,788  $5,776
                    

Net income per share: Basic

          

From continuing operations

  $1.30  $0.88  $0.63  $0.26  $0.34

From discontinued operations (1)

   0.00   0.00   0.00   0.03   0.03
                    

Total

  $1.30  $0.88  $0.63  $0.29  $0.37
                    

Net income per share: Diluted

          

From continuing operations

  $1.20  $0.82  $0.58  $0.24  $0.31

From discontinued operations (1)

   0.00   0.00   0.00   0.03   0.03
                    

Total

  $1.20  $0.82  $0.58  $0.27  $0.34
                    

Weighted averages shares outstanding

          

Basic

   18,226   17,540   16,826   16,280   15,418

Diluted

   19,676   18,866   18,398   17,964   16,858

Cash dividend declared, per common share

  $0.00  $0.00  $0.00  $0.00  $0.00
   May 31,
   2008  2007  2006  2005  2004

Balance Sheet data:

          

Total assets

  $280,461  $171,054  $139,971  $143,326  $74,396

Long-term debt and other long-term liabilities

  $102,955  $49,260  $40,208  $62,089  $18,308

Stockholders’ equity

  $120,762  $84,203  $63,885  $48,942  $42,299

Working capital

  $100,179  $70,229  $49,219  $49,089  $27,712

 





(1)Discontinued operations consist of the operating results of Climax and interest on debt allocated to such operations.
STYLE="margin-top:0px;margin-bottom:0px"> 


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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">The following review of our results of operations and financial condition should be read in conjunction with Item 1 “Business,”
Item 1A “Risk Factors,” Item 2 “Properties,” and Item 8, “Consolidated Financial Statements and Supplementary Data,” included in this Form 10-K. Our consolidated balance sheets, consolidated
statements of operations, and consolidated statements of cash flows have been recast to present the operating results of Climax as discontinued operations for all periods presented.

ALIGN="center">CAUTIONARY STATEMENT FOR THE PURPOSE OF

SAFE HARBOR PROVISIONS OF THE

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

FACE="Times New Roman" SIZE="2">This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, other written or oral
statements that constitute forward-looking statements may be made by us or on behalf of the Company in other materials we release to the public. You can identify our forward-looking statements by the words “anticipate,”
“believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,”
“target,” “will,” “could,” “should,” “may” and similar expressions.

We based our
forward-looking statements on our reasonable beliefs and assumptions, and our current expectations, estimates and projections about ourselves and our industry. We caution that these statements are not guarantees of future performance and involve
risks, uncertainties and assumptions that we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. We wish to ensure that such statements are accompanied by
meaningful cautionary statements, so as to obtain the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, you should carefully consider the statements under “Risk Factors,” which
address factors that could cause our actual results to differ materially from those set forth in forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future
events, or otherwise.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a
supplement to the accompanying consolidated financial statements and notes to help provide an understanding of our financial condition, changes in financial condition, and results of operations.

STYLE="margin-top:18px;margin-bottom:0px">Overview

We are a leading provider of specialty
maintenance and construction services required in maintaining high temperature and high pressure piping systems and vessels that are utilized extensively in heavy industries. We offer an array of complimentary services including:

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

leak repair,

 







  

hot tapping,

 







  

fugitive emissions control,

 







  

field machining,

 







  

technical bolting,

 







  

field valve repair,

 







  

non-destructive testing, and

 







  

field heat treating.

 


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We offer these services in over 100 locations throughout the United States and international markets
including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.

Our industrial services are available 24 hours
a day, 7 days a week, 365 days a year. We market our services to companies in a diverse array of industries which include the petrochemical, refining, power, pipeline, pulp and paper, and steel industries as well as some of the world’s
largest engineering and construction firms, shipbuilding, OEMs, distributors and end users. Our products and services are provided across a broad geographic reach. For fiscal year ending May 31, 2008, our revenues by geographic region
originated in the United States (72%), Canada (22%) and other locations outside of North America (6%).

Year Ended May 31, 2008 Compared
to Year Ended May 31, 2007

The following table sets forth the components of revenue and operating income from our continuing
operations for fiscal 2008 and 2007 (in thousands):

 


















































































































































































































































































   Year ended
May 31, 2008
  Year ended
May 31, 2007
  Increase 
       $      %     

Revenues:

        

TCM Division

  $274,531  $171,030  $103,501  61%

TMS Division

   203,944   147,318   56,626  38%
                

Total revenues

   478,475   318,348   160,127  50%

Gross margin:

        

TCM Division

   84,145   54,478   29,667  54%

TMS Division

   71,520   55,684   15,836  28%
                

Total gross margin

   155,665   110,162   45,503  41%

S, G&A expenses:

        

Field Operations

   91,390   65,377   26,013  40%

Corporate costs

   18,402   14,448   3,954  27%
                

Total S, G&A

   109,792   79,825   29,967  38%

Operating income

  $45,873  $30,337  $15,536  51%

Revenues.    Our revenues from continuing operations for the
year ended May 31, 2008 were $478.5 million compared to $318.3 million for the year ended May 31, 2007, an increase of $160.1 million or 50%. Our revenues for the year ended May 31, 2008 include revenues associated with the recent Aitec
and LRS acquisitions of $53.9 million and $11.6 million, respectively. Organic revenue growth also continues to be broad based across all service lines and geographic regions. Revenues for our TCM division (inclusive of Aitec) for the year ended
May 31, 2008 were $274.5 million compared to $171.0 million for the year ended May 31, 2007, an increase of $103.5 million or 61%. Revenues for our TMS division (inclusive of LRS) for the year ended May 31, 2008 were $203.9 million
compared to $147.3 million for the year ended May 31, 2007, an increase of $56.6 million, or 38%.

Gross
Margin.
    Our gross margin from continuing operations for the year ended May 31, 2008 was $155.7 million compared to $110.2 million for the year ended May 31, 2007, an increase of $45.5 million or 41%. Gross
margin as a percentage of revenue was 33% for the year ended May 31, 2008 compared to 35% for the year ended May 31, 2007. This margin decline reflects the impact of the acquired businesses which currently have lower gross margins and a small net
reduction in legacy business gross margins where a decrease in TMS division gross margins was partially offset by an increase in legacy TCM division margins. Gross margin for our TCM division (inclusive of Aitec) for the year ended May 31, 2008
was $84.1 million compared to $54.5 million for the year ended May 31, 2007, an increase of $29.7 million or 54%. TCM division gross margin as a percentage of revenue was 31% for the year ended May 31, 2008 and 32% for the year ended
May 31, 2007. Gross margin for our TMS division (inclusive of LRS) was $71.5 million for the year ended May 31, 2008

 


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compared to $55.7 million for the year ended May 31, 2007, an increase of $15.8 million or 28%. TMS division gross margin as a percentage of revenue was 35%
for the year ended May 31, 2008 and 38% for the year ended May 31, 2007.

Selling, General, and Administrative
Expenses
.    Our SG&A from continuing operations for the year ended May 31, 2008 was $109.8 million compared to $79.8 million for the year ended May 31, 2007, an increase of $30.0 million
or 38%. This reflects investments in our network of over 100 locations. Approximately $26.0 million of the increase in SG&A was due to field operations and $4.0 million of the increase was due to centralized corporate support costs. The $4.0
million increase in corporate support costs in the current period included $3.3 million of stock based employee compensation expense. SG&A as a percentage of revenue was 23% for the year ended May 31, 2008 compared to 25% for the year ended
May 31, 2007.

Interest.    Interest expense was $6.5 million for the year ended May 31,
2008 compared to $4.2 million for the year ended May 31, 2007. This increase is the result of higher levels of outstanding borrowings during the year (Please see the discussion of liquidity and capital resources below).

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Taxes.    The provision for income taxes was $15.8 million on pretax income of $39.4 million for the year ended
May 31, 2008. The provision for income taxes was $10.6 million on pretax income of $26.1 million for the year ended May 31, 2007. The effective tax rate for fiscal 2008 was 40% compared to 41% for fiscal 2007. The rate differential is due to the
mixture of non-deductible expenses in relation to taxable income and the mixture of state and foreign taxes to which the income is subject.

Year Ended
May 31, 2007 Compared to Year Ended May 31, 2006

The following table sets forth the components of revenue and operating
income from our continuing operations for fiscal 2007 and 2006 (in thousands):
















































































































































































































































































   Year ended
May 31, 2007
  Year ended
May 31, 2006
  Increase 
       $      %     

Revenues:

        

TCM Division

  $171,030  $143,233  $27,797  19%

TMS Division

   147,318   116,605   30,713  26%
                

Total revenues

   318,348   259,838   58,510  23%

Gross margin:

        

TCM Division

   54,478   42,918   11,560  27%

TMS Division

   55,684   46,211   9,473  20%
                

Total gross margin

   110,162   89,129   21,033  24%

S, G&A expenses:

        

Field Operations

   65,377   56,662   8,715  15%

Corporate costs

   14,448   11,090   3,358  30%
                

Total S, G&A

   79,825   67,752   12,073  18%

Operating income

  $30,337  $21,377  $8,960  42%

Revenues.    Our revenues from continuing operations for the
year ended May 31, 2007 were $318.3 million compared to $259.8 million for the year ended May 31, 2006, an increase of $58.5 million or 23%. Revenue growth was broad based across all service lines and geographic regions. Revenues for our
TCM division for the year ended May 31, 2007 were $171.0 million compared to $143.2 million for the year ended May 31, 2006, an increase of $27.8 million or 19%. Revenues for our TMS division for the year ended May 31, 2007 were
$147.3 million compared to $116.6 million for the year ended May 31, 2006, an increase of $30.7 million, or 26%. Both divisions benefited from increases in demand and increases in pricing on newly quoted jobs, with approximately half of the
overall increase attributable to large national accounts.

 


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Gross Margin.    Our gross margin from continuing operations for the
year ended May 31, 2007 was $110.2 million compared to $89.1 million for the year ended May 31, 2006, an increase of $21.1 million or 24%. Gross margin as a percentage of sales was relatively consistent with the prior year as improvements
in TCM divisional gross margin percentages during the current year offset decreases in TMS divisional gross margin percentages. Gross margin for our TCM division for the year ended May 31, 2007 was $54.5 million compared to $42.9 million for
the year ended May 31, 2006, an increase of $11.6 million or 27%. TCM division gross margins as a percentage of revenue was 32% for the year ended May 31, 2007 and 30% for the year ended May 31, 2006 and improved as a result of our increased
focus on underperforming branches acquired in the Cooperheat MQS acquisition. Gross margin for our TMS division was $55.7 million for the year ending May 31, 2007 compared to $46.2 million for the year ending May 31, 2006, an increase of
$9.5 million or 20%. TMS gross margin as a percentage of revenue was 38% for the year ended May 31, 2007 and 40% for the year ended May 31, 2006 down slightly from the Katrina/Rita hurricane influenced prior year period in which there was an
abundance of high margin projects.

Selling, General, and Administrative Expenses.    Our SG&A from
continuing operations for the year ended May 31, 2007 was $79.8 million compared to $67.8 million for the year ended May 31, 2006, an increase of $12.1 million or 18%. This reflects investments in our network of over 80 service locations.
Approximately $8.6 million of the increase in SG&A was due to field operations and $3.4 million of the increase was due to centralized corporate support costs. The $3.4 million increase in corporate support costs in the current period included
$1.4 million of stock based employee compensation expense and approximately $1.0 million of costs incurred for an internal investigation (Please see Note 15 to our Audited Consolidated Financial Statements). SG&A as a percentage of revenue was
25% for the year ended May 31, 2007 compared to 26% for the year ended May 31, 2006.

SIZE="2">Interest.    Interest expense was $4.2 million for the year ended May 31, 2007 as compared to $4.0 million for the year ended May 31, 2006. This increase is the result of higher interest rates on
our LIBOR based debt and higher levels of outstanding borrowings during the year.

Taxes.    The
provision for income taxes was $10.6 million on pretax income of $26.1 million for the year ended May 31, 2007. The provision for income taxes was $6.8 million on pretax income of $17.4 million for the year ended May 31, 2006. The
effective tax rate for the year ended May 31, 2007 was 41% compared to 39% for the year ended May 31, 2006. The rate differential is due to the mixture of non-deductible expenses in relation to taxable income and the mixture of state and foreign
taxes to which the income is subject.

Liquidity and Capital Resources

FACE="Times New Roman" SIZE="2">Financing for our operations consists primarily of vendor financing and leasing arrangements, a bank facility and cash flows attributable to our operations, which we believe are sufficient to fund our capital
expenditures, debt maturities and other business needs.

Vendor Financing.     In January 2006, we
entered into a three year enterprise agreement with Microsoft for server and desktop volume licensing with software assurance. Financing for the agreement was provided under a three year non-interest bearing note (the “Software Licensing
Note”) with monthly payments of $28,998. The Software Licensing Note has been discounted at 7.3%, which approximated our effective borrowing rate at the time we entered into the agreement. At May 31, 2008, the outstanding principal balance
of the Software Licensing Note was $0.2 million.

 


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Leasing Arrangements.    We also enter into operating leases to obtain
equipment for our field operations and administrative functions. Our obligations under non-cancellable operating leases, primarily consisting of facility and auto leases, were approximately $28.0 million at May 31, 2008 and are as follows
(in thousands):

 


























































Twelve Months Ended May 31,

  Operating
Leases

2009

  $8,511

2010

   5,336

2011

   3,836

2012

   3,312

2013

   2,532

Thereafter

   4,439
    

Total

  $27,966
    

Bank Facility.     On May 31, 2007 we amended and
restated our existing banking facility comprised of a term loan and a revolving credit facility (collectively, the “Credit Facility”). The Credit Facility provides us with a revolving line of credit and a $15 million term loan through a
banking syndicate. On January 29, 2008 we amended our Credit Facility to allow us to borrow in Euros or United States dollars. To finance construction of new facilities, on June 13, 2008, subsequent to our year end, we further amended our
Credit Facility to increase the revolving line of credit to $145 million. The Credit Facility bears interest based on a variable Eurodollar rate option (currently LIBOR plus 1.5%) and the margin is set based on our financial covenants as set forth
in the Credit Facility. The Credit Facility matures in May 2012 and is secured by virtually all of our domestic assets and a majority of the stock of our foreign subsidiaries. It also contains financial covenants and restrictions on the creation of
liens on assets, the acquisition or sale of subsidiaries and the incurrence of certain liabilities. At May 31, 2008 there are $1.2 million of capitalized loan costs which are being amortized over the life of the Credit Facility. At May 31,
2008 we were in compliance with all financial covenants of the Credit Facility.

On May 31, 2007 we entered into an interest rate swap
with our bank to hedge at a fixed pay rate of 4.97%, a portion of the variable cash flows associated with the variable Eurodollar interest expense on our Credit Facility. The portion of the Credit Facility hedged begins with a notional value of $30
million effective June 1, 2007 and decreases to $16.3 million by March 1, 2010. Changes in the cash flows of the interest rate swap are expected to be highly effective in offsetting the changes in cash flows attributable to fluctuations in
the variable LIBOR rate on the notional amounts of the Credit Facility. The interest rate swap agreement is designated as a cash flow hedge, with the changes in fair value, to the extent the swap agreement is effective, recognized in other
comprehensive income until the hedged interest expense is recognized in earnings.

On February 12, 2008 we borrowed
€12.3 million under the Credit Facility to serve as an economic hedge of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset
translation gains or losses attributable to our investment in our European operations.

In order to secure our insurance programs we are
required to post letters of credit generally issued by a bank as collateral. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that we failed to meet our obligations under the letter of
credit. If this were to occur, we would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. At May 31, 2008 we were contingently liable for outstanding stand-by letters
of credit totaling $5.7 million. Outstanding letters of credit reduce amounts available under our Credit Facility and are considered as having been funded for purposes of calculating our financial covenants under the Credit Facility.

Cashflows Attributable to Our Operations.     For the year ended May 31, 2008, cash provided
by operating activities was $24.7 million. Net income from continuing operations of $23.6 million, when adjusted for non-cash items such as depreciation and amortization, deferred financing costs, allowance for doubtful accounts and deferred
tax charges, was $42.0 million, of which, $17.3 million was used to fund our working capital requirements.

 


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Cashflows Attributable to Our Investing Activities.     For the
year ended May 31, 2008, cash used in investing activities was $81.1 million, consisting primarily of $53.3 million to fund business acquisitions and $25.6 million of capital expenditures. We incurred approximately $25.6 million,
$16.5 million, and $7.1 million for capital expenditures during fiscal years 2008, 2007 and 2006, respectively. Capital expenditures can vary depending upon specific customer needs that may arise unexpectedly. We anticipate capital
expenditures for the next twelve months to be approximately $20 million for equipment and $25 million for facilities.

Cashflows
Attributable to Our Financing Activities.
     For the year ended May 31, 2008, cash provided by financing activities was $55.9 million. Borrowings under the Credit Facility provided $53.1 million of
cash and $3.4 million was provided by the issuance of our common stock in connection with our stock option compensation plans and was offset by $4.9 million in principal payments under our Credit Facility and other financings.

STYLE="margin-top:18px;margin-bottom:0px">Critical Accounting Policies

The process of
preparing financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”) requires our management to make estimates and judgments. It is possible that materially different amounts could be recorded if these
estimates and judgments change or if actual results differ from these estimates and judgments. We have identified the following six critical accounting policies that require a significant amount of estimation and judgment and are considered to be
important to the portrayal of our financial position and results of operations:

 







  

Revenue Recognition,

 







  

Valuation of Intangible Assets,

 







  

Income Taxes,

 







  

Workers Compensation, Auto, Medical and General Liability Accruals,

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 







  

Allowance for Doubtful Accounts Receivable, and

 







  

Estimated Useful Lives.

SIZE="2">Revenue Recognition.     We determine our revenue recognition guidelines for our operations based on guidance provided in applicable accounting standards and positions adopted by the Financial
Accounting Standards Board (“FASB”) or the SEC. Most of our projects are short-term in nature and we predominantly derive revenues by providing a variety of industrial services on a time and material basis. For all of these services our
revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer. However, due to various contractual terms with our customers, at the end of any reporting period there may be earned but
unbilled revenue that is accrued to properly match revenues with related costs. At May 31, 2008 and 2007, the amount of earned but unbilled revenue was $7.5 million and $6.6 million, respectively. For services performed pursuant to a fixed
price bid, revenues are recognized upon completion of the job. Costs associated with such jobs are deferred until completion, resulting in deferred costs of $0.4 million and $0.4 million at May 31, 2008 and 2007, respectively.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Valuation of Intangible Assets.     Intangible assets primarily consists of goodwill. Goodwill represents the
excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are instead tested for impairment at
least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets (“FASB No. 142”). Intangible assets with estimated useful lives are amortized over their respective estimated
useful lives to their estimated residual values and reviewed for impairment in accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (“FASB No. 144”).

STYLE="margin-top:0px;margin-bottom:0px"> 


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Our annual goodwill impairment test is conducted by first comparing the estimated fair value of the
reporting unit to which the intangible asset is attributable and then comparing the ‘implied fair value’ of goodwill with its carrying amount. The estimated fair value of the reporting unit is determined by using discounted future cash
flow estimates. The reporting units used for purposes of computing the annual impairment test of goodwill, pursuant to FASB No. 142, are the TCM and TMS divisions, both of which comprise our industrial services segment. All goodwill assigned to
those reporting units is attributable to business acquisitions that are part of those units. There was $62.9 million and $26.5 million of goodwill at May 31, 2008 and 2007, respectively. Based upon results of the annual impairment testing, last
conducted in May 2008, there have been no impairments of goodwill.

Income Taxes.     We follow
the guidance in FASB Statement No. 109, Accounting for Income Taxes (“FASB No. 109”) which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for
all significant temporary differences. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our
actual current tax payable and related tax expense together with assessing temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and accounting purposes. These differences can result in deferred tax
assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than
not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance. We consider all available evidence, both positive and negative, to determine whether, based on the
weight of the evidence, a valuation allowance is needed. Evidence used includes information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about
future years, including our anticipated future performance, the reversal of deferred tax liabilities and tax planning strategies.

SIZE="2">Management believes future sources of taxable income, reversing temporary differences and other tax planning strategies will be sufficient to realize assets for which no reserve has been established. While we have considered these factors
in assessing the need for a valuation allowance, there is no assurance that a valuation allowance would not need to be established in the future if information about future years change. Any change in the valuation allowance would impact our income
tax provision and net income in the period in which such a determination is made. As of May 31, 2008 we believe that it is more likely than not that we will have sufficient future taxable income to allow us to realize the benefits of the
net deferred tax assets. Our belief is based upon our track record of consistent earnings growth over the past five years and projections of future taxable income over the periods in which the deferred tax assets are deductible. Accordingly, no
valuation allowance has been recorded.

Workers Compensation, Auto, Medical and General Liability
Accruals. 
    In accordance with FASB Statement No. 5, Accounting for Contingencies (“FASB No. 5”), we record a loss contingency when it is probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims
incurred but not received, estimates and judgments made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant. For workers’ compensation and automobile liability claims, our self-insured
retention is $250,000 per occurrence. For medical claims, our self-insured retention is $150,000 per individual claimant determined on an annual basis. For general liability claims, our self-insured retention is $250,000 per occurrence. We
maintain insurance for claims that exceed such self-retention limits. The insurance is subject to terms, conditions, limitations and exclusions that may not fully compensate us for all losses. Our estimates and judgment could change based on new
information, changes in laws or regulations, changes in management’s plans or intentions, or the outcome of legal proceedings, settlements or other factors. If different estimates and judgments were applied with respect to these matters, it is
likely that reserves would be recorded for different amounts.

Allowance for Doubtful
Accounts.
     In the ordinary course of business, a percentage of our accounts receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we

 


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performed and other various reasons. To account for those accounts receivable that will eventually be deemed uncollectible we establish an allowance. The
allowance for doubtful accounts is based on a combination of our historical experience and management’s review of long outstanding accounts receivable. The allowance for doubtful accounts was $3.6 million and $2.3 million at
May 31, 2008 and 2007, respectively.

Estimated Useful Lives.     The estimated useful lives of
our long-lived assets are used to compute depreciation expense, future asset retirement obligations and are also used in impairment testing. Estimated useful lives are based, among other things, on the assumption that we provide an appropriate level
of associated capital expenditures and maintenance while the assets are still in operation. Without these continued associated capital expenditures and maintenance, the useful lives of these assets could decrease significantly. Estimated useful
lives could be impacted by such factors as future energy prices, environmental regulations, various legal factors and competition. If the useful lives of these assets were found to be shorter than originally estimated, depreciation expense may
increase, liabilities for future asset retirement obligations may be insufficient and impairments in carrying values of tangible and intangible assets may result.

SIZE="2">Accounting Principles Not Yet Adopted

FASB No. 157.    In September 2006, the
FASB issued FASB No. 157, Fair Value Measurements (“FASB No. 157”). FASB No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements regarding fair value
measurement. Where applicable, this statement simplifies and codifies fair value related guidance previously issued within GAAP. FASB No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. However , FSP FAS 157-2, Effective date of FASB Statement No. 157 (“FSP FAS 157-2”), delays the effective date of FASB No. 157 for certain nonfinancial assets and liabilities until
fiscal years beginning after November 15, 2008. We do not anticipate FASB No. 157 or FSP FAS 157-2 will have a material effect on our results of operations, financial position or cash flows.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">FASB No. 159.    In February 2007, the FASB issued FASB No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities—including an amendment to FASB Statement No. 115
(“FASB No. 159”). FASB No. 159 permits entities to choose to measure certain financial instruments and other
items at fair value that are not currently required to be measured at fair value. It also creates presentation and disclosure requirements that will enhance comparability between entities that choose different measurement attributes for similar
types of assets and liabilities. FASB No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We do not anticipate FASB No. 159 will have a material effect on our results of operations,
financial position or cash flows.

FASB No. 141R.    In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FASB No. 141R”) which replaces FASB No. 141, “Business Combinations”. FASB No. 141R applies to all business combinations,
including combinations among mutual entities and combinations by contract alone. FASB No. 141R requires that all business combinations will be accounted for by applying the acquisition method. FASB No. 141R is effective for business combinations
consummated in periods beginning on or after December 15, 2008. Early application is prohibited. We do not anticipate FASB No. 141R will have a material effect on our results of operations, financial position, or cash flows.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">FASB No. 161.    In March 2008, the FASB issued FASB No. 161, Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB Statement No. 133
(“FASB No. 161”). FASB No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for, and how such derivative instruments affect an entity’s financial position, financial performance and cash flows. FASB No. 161 is effective for fiscal years beginning after November 15, 2008. We do not
anticipate FASB No. 161 will have a material effect on our results of operations, financial position or cash flows.

 


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Newly Adopted Accounting Principles

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">FASB No. 151.    In November 2004, the FASB issued FASB No. 151, Inventory Costs—an amendment of ARB
43, Chapter 4
(“FASB No. 151”). FASB No. 151 clarifies the accounting for excessive amounts of idle facility expense, freight, handling costs and wasted material and requires that the allocation of fixed production overheads
to the costs of conversion of inventory be based on the normal capacity of the production facilities. The adoption of this statement on June 1, 2006 did not have a material effect on our results of operations, financial position or cash flows.

FASB No. 154.     In May 2005, the FASB issued FASB No. 154, Accounting Changes and Error
Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3
(“FASB No. 154”). FASB No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle and
applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. FASB No. 154 requires
retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of FASB
No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement on June 1, 2006 did not have a material effect on our results of operations,
financial position or cash flows.

SAB No. 108.     In September 2006, the SEC staff issued Staff
Accounting Bulletin No. 108 (“SAB No. 108”). SAB No. 108 addresses how the effects of prior year uncorrected financial statement misstatements should be considered in current year financial statements. SAB No. 108
requires registrants to quantify misstatements using both balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material after all of the relevant quantitative and qualitative
factors are considered. SAB No. 108 was effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The adoption of SAB No. 108 effective May 31, 2007 did not have a material effect on
our results of operations, financial position or cash flows.

FIN No. 48.     In June 2006, the FASB
issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes . The interpretation prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">In May 2007, the FASB issued FIN 48-1, Definition of “Settlement” in FASB Interpretation No. 48, which provides guidance on
how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

FACE="Times New Roman" SIZE="2">We adopted the provisions of FIN 48 on June 1, 2007. The adoption of FIN 48 did not have a material impact on our consolidated financial condition, results of operations or cash flows. At May 31, 2008 we
have established liabilities for tax uncertainties of $2.2 million, which includes $0.5 million of interest. These liabilities are associated with a prior acquisition. To the extent these uncertainties are ultimately resolved favorably, the
resultant reduction of recorded liabilities would be applied to reduce the balance of goodwill or deferred taxes and would have no effect on our effective tax rate. We believe that in the next 12 months, all $2.2 million of liabilities recorded for
tax uncertainties will be effectively settled. In accordance with FIN 48, paragraph 19, our policy is to recognize interest and penalties related to unrecognized tax benefits through the tax provision. Our adoption of FIN 48 was consistent with FIN
48-1.

We file income tax returns in the U.S. with federal and state jurisdictions as well as various foreign jurisdictions. With few
exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income

 


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tax examinations by tax authorities for fiscal years prior to fiscal year 2005. We are currently undergoing an examination by the Internal Revenue Service
with an anticipated closing date in the first quarter of fiscal year 2009. We believe there is appropriate support for the income tax positions taken and to be taken on our tax returns and that our accruals for tax liabilities are adequate for all
open tax years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

SIZE="2">EITF 06-3.     In June 2006, the FASB’s Emerging Issues Task Force (the “Task Force”) issued consensus 06-3 , How Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)
(“EITF 06-3”). In EITF 06-3, the Task Force reached a consensus that the presentation of tax assessed by a governmental authority that is both imposed
on and concurrent with a specific revenue-producing transaction between a seller and a customer and disclosed on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that
should be disclosed. In addition, for any such taxes that are reported on a gross basis, an entity should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if
those amounts are significant. EITF 06-3 is effective for reporting periods beginning after December 15, 2006. The adoption of EITF 06-3 on June 1, 2007 did not have a material effect on our results of operations, financial position or
cash flows.

 





ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SIZE="2">We have operations in foreign countries with a functional currency that is not the United States Dollar. We are exposed to market risk, primarily related to foreign currency fluctuations related to these operations.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">We hold certain floating-rate obligations. We are exposed to market risk, primarily related to potential increases in interest rates related to our debt.

We carry Euro based debt to serve as an economic hedge of our net investment in our European operations as fluctuations in the fair value
of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our European operations. We are exposed to market risk, primarily related to foreign currency fluctuations
related to the unhedged portion of our investment in our European operations.

From time to time, we have utilized, and expect to utilize,
derivative financial instruments with respect to a portion of our interest rate risks to achieve a more predictable cash flow by reducing our exposure to interest rate fluctuations. These transactions generally are interest rate swap agreements and
are entered into with major financial institutions. Derivative financial instruments related to our interest rate risks are intended to reduce our exposure to increases in the LIBOR-based interest rates underlying our floating rate Credit Facility.
We do not enter into derivative financial instrument transactions for speculative purposes.

At May 31, 2007 we entered into an
interest rate swap agreement with a fixed pay rate of 4.97% that has a notional value of $30 million beginning on June 1, 2007 and decreasing to $16.3 million by March 1, 2010. The interest rate swap agreement is designated as a cash flow
hedge, with the changes in fair value, to the extent the swap agreement is effective, recognized in other comprehensive income until the hedged interest expense is recognized in earnings.

STYLE="font-size:18px;margin-top:0px;margin-bottom:0px"> 





ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SIZE="2">Our financial statements and financial statement schedules, found at the end of this annual report on Form 10-K, and are incorporated herein by reference.

 


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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">There have been no disagreements concerning accounting and financial disclosures with our independent accountants during any of the periods presented.

 





ITEM 9A.CONTROLS AND PROCEDURES

Limitations on
Effectiveness of Control.
    Our management, including the principal executive and financial officers, does not expect that our disclosure controls and procedures or our internal control over financial reporting will
prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of our control system reflects
the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control failures and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about
the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of management’s assessments of the current effectiveness of our
disclosure controls and procedures and its internal control over financial reporting are subject to risks. However, our disclosure controls and procedures are designed to provide reasonable assurance that the objectives of our control system are
met.

Evaluation of Disclosure Controls and Procedures.    As of the end of the period covered by
this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). This evaluation included consideration of the various processes carried out under the direction of our disclosure
committee in an effort to ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified by the SEC. This evaluation also considered the work completed relating
to our compliance with Section 404 of the Sarbanes-Oxley Act of 2002, which is further described below.

Based on this evaluation, our
CEO and CFO concluded that, as of May 31, 2008, our disclosure controls and procedures were operating effectively to ensure that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within
the requisite time periods and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Changes in Internal Control Over Financial Reporting.    There were no changes in our internal control over
financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the fourth quarter of fiscal 2008.

 





ITEM 9B.OTHER INFORMATION

None

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Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for
external purposes in accordance with U.S. generally accepted accounting principles.

Internal control over financial reporting cannot
provide absolute assurance of achieving financial objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected
on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not
eliminate, this risk.

As permitted by the rules and regulations of the Securities and Exchange Commission, the scope of management’s
assessment of the effectiveness of internal control over our financial reporting includes all of our consolidated subsidiaries except for a company we acquired on January 9, 2008. Included in our consolidated net sales of $478.5 million for the year
ended May 31, 2008 were net sales attributable to this acquired business of $11.6 million. Included in our consolidated total assets of $280.5 million as of May 31, 2008 were assets attributable to this acquired business of $9.0 million.


We have used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. We have concluded that our internal control over financial reporting was effective as of May 31, 2008.

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 




















/s/    PHILIP J. HAWK

 

/s/    TED W. OWEN

Philip J. Hawk Ted W. Owen
Chairman and Chief Executive Officer Principal Financial Officer and Principal Accounting Officer

 


25







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Index to Financial Statements


PART III

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">The information for the following items of Part III has been omitted from this Report on Form 10-K since we will file, not later than 120 days
following the close of our fiscal year ended May 31, 2008, our definitive proxy statement. The information required by Part III will be included in that proxy statement and such information is hereby incorporated by reference, with the
exception of the information under the headings “Compensation Committee Report” and “Comparison of Total Shareholders’ Return.”

 





Item 10.Directors, Executive Officers and Corporate Governance

 





Item 11.Executive Compensation

 





Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 





Item 13.Certain Relationships and Related Transactions, and Director Independence

 





Item 14.Principal Accountant Fees and Services

 


26







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Index to Financial Statements


PART IV

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 





ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

SIZE="2">(a) 1. Financial Statements

The financial statements and notes thereto can be found on the following
pages:

 




































Reports of Independent Registered Public Accounting Firm

  28

Consolidated Balance Sheets as of May 31, 2008 and 2007

  30

Consolidated Statements of Operations for the Years Ended May 31, 2008, 2007 and 2006

  31

Consolidated Statements of Comprehensive Income for the Years Ended May 31, 2008, 2007 and 2006

  32

Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2008, 2007 and
2006

  33

Consolidated Statements of Cash Flows for the Years Ended May 31, 2008, 2007 and 2006

  34

Notes to Consolidated Financial Statements

  35

 


27







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Index to Financial Statements


Report of Independent Registered Public Accounting Firm

STYLE="margin-top:12px;margin-bottom:0px">The Board of Directors and Stockholders

Team, Inc. and Subsidiaries:

We have audited Team, Inc. and Subsidiaries’ internal control over financial reporting as of May 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Team, Inc. and Subsidiaries management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">In our opinion, Team, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of May 31, 2008,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

FACE="Times New Roman" SIZE="2">The Company acquired Leak Repair Specam on January 9, 2008, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of May 31, 2008,
Leak Repair Specam’s internal control over financial reporting associated with total assets of $9.0 million and total revenues of $11.6 million included in the consolidated financial statements of Team Inc. and Subsidiaries as of and for the
year ended May 31, 2008. Our audit of internal control over financial reporting of Team, Inc. and Subsidiaries also excluded an evaluation of the internal control over financial reporting of Leak Repair Specam.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets
of Team, Inc. and Subsidiaries as of May 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended May 31,
2008, and our report dated July 30, 2008 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG
LLP

Houston, Texas

July 30, 2008

STYLE="margin-top:0px;margin-bottom:0px"> 


28







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Index to Financial Statements


Report of Independent Registered Public Accounting Firm

STYLE="margin-top:12px;margin-bottom:0px">The Board of Directors and Stockholders

Team, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Team, Inc. and Subsidiaries as of May 31, 2008 and 2007, and the
related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2008. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

FACE="Times New Roman" SIZE="2">In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Team, Inc. and Subsidiaries as of May 31, 2008 and 2007, and the results of
their operations and their cash flows for each of the years in the three-year period ended May 31, 2008, in conformity with U.S. generally accepted accounting principles.

FACE="Times New Roman" SIZE="2">As discussed in Note 9 to the consolidated financial statements, effective June 1, 2006 the Company changed its method of accounting for share-based payments.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Team, Inc. and
Subsidiaries’ internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated July 30, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

SIZE="2">/s/    KPMG LLP

Houston, Texas

SIZE="2">July 30, 2008

 


29







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Index to Financial Statements


TEAM, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">CONSOLIDATED BALANCE SHEETS

(in
thousands, except share and per share data)

 














































































































































































































































































































































































































































   May 31, 
   2008  2007 
ASSETS    

Current Assets:

    

Cash and cash equivalents

  $6,600  $4,335 

Receivables, net of allowance of $3,586 and $2,348

   125,563   84,496 

Inventory

   16,408   11,518 

Income tax receivable

   834   —   

Deferred income taxes

   687   —   

Prepaid expenses and other current assets

   6,831   7,164 
         

Total Current Assets

   156,923   107,513 

Property, plant and equipment, net

   56,138   35,166 

Intangible assets, net of accumulated amortization of $1,308 and $792

   1,276   458 

Goodwill

   62,904   26,452 

Other assets, net

   3,220   1,465 
         

Total Assets

  $280,461  $171,054 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY    

Current Liabilities:

    

Current portion of long-term debt

  $6,249  $4,862 

Accounts payable

   21,462   10,560 

Other accrued liabilities

   25,636   15,906 

Insurance note payable

   3,397   4,734 

Deferred income taxes

   —     1,222 
         

Total Current Liabilities

   56,744   37,284 

Deferred income taxes

   6,137   486 

Long-term debt

   96,818   48,774 
         

Total Liabilities

   159,699   86,544 
         

Minority interest

   —     307 

Commitments and contingencies

    

Stockholders’ Equity:

    

Preferred stock, 500,000 shares authorized, none issued

   —     —   

Common stock, par value $.30 per share, 30,000,000 shares authorized; 18,580,171 and 19,896,438 shares issued

   5,573   2,984 

Treasury stock at cost, 1,018,308 shares

   —     (5,032)

Additional paid-in capital

   55,251   49,159 

Retained earnings

   57,367   36,447 

Accumulated other comprehensive income

   2,571   645 
         

Total Stockholders’ Equity

   120,762   84,203 
         

Total Liabilities and Stockholders’ Equity

  $280,461  $171,054 
         

See notes to consolidated financial statements.

STYLE="margin-top:0px;margin-bottom:0px"> 


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TEAM, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">CONSOLIDATED STATEMENTS OF OPERATIONS

SIZE="2">(in thousands, except per share data)

 

















































































































































































































































































































































































































   Twelve Months Ended May 31,
   2008  2007  2006

Revenues

  $478,475  $318,348  $259,838

Operating expenses

   322,810   208,186   170,709
            

Gross margin

   155,665   110,162   89,129

Selling, general and administrative expenses

   109,792   79,825   67,752
            

Operating income

   45,873   30,337   21,377

Interest expense, net

   6,491   4,204   3,992
            

Earnings before income taxes

   39,382   26,133   17,385

Provision for income taxes

   15,759   10,618   6,755
            

Income from continuing operations

   23,623   15,515   10,630
            

Discontinued operations:

      

Income from discontinued operations, net of tax

   —     —     6
            

Net income

  $23,623  $15,515  $10,636
            

Net income per share: Basic

      

From continuing operations

  $1.30  $0.88  $0.63

From discontinued operations

   0.00   0.00   0.00
            

Total

  $1.30  $0.88  $0.63
            

Net income per share: Diluted

      

From continuing operations

  $1.20  $0.82  $0.58

From discontinued operations

   0.00   0.00   0.00
            

Total

  $1.20  $0.82  $0.58
            

Weighted averages shares outstanding

      

Basic

   18,226   17,540   16,826

Diluted

   19,676   18,866   18,398

See notes to consolidated financial statements.

STYLE="margin-top:0px;margin-bottom:0px"> 


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TEAM, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

SIZE="2">(in thousands)

 


















































































































































   Twelve Months Ended May 31, 
   2008  2007  2006 

Net income

  $23,623  $15,515  $10,636 

Foreign currency translation adjustment

   4,935   429   302 

Interest rate swap

   (665)  —     —   

Foreign currency hedge

   (1,163)  —     —   

Tax provision

   (1,181)  (148)  (114)
             

Comprehensive income

  $25,549  $15,796  $10,824 
             

 

 

ALIGN="center">See notes to consolidated financial statements.

 


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TEAM, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FACE="Times New Roman" SIZE="2">(in thousands)

 































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































  Common
Shares
  Treasury
Shares
  Common
Stock
 Treasury
Stock
  Additional
Paid in
Capital
  Retained
Earnings
  Accumulated
Other
Comprehensive
Income
  Total
Stockholders’
Equity
 

Balance at June 1, 2005

 18,519  (1,018) $2,778 $(5,032) $40,724  $10,296  $176  $48,942 

Net income

 —    —     —    —     —     10,636   —     10,636 

Foreign currency translation adjustment, net of tax

 —    —     —    —     —     —     188   188 

Shares issued

 37  —     5  —     118   —     —     123 

Non-cash compensation

 —    —     —    —     385   —     —     385 

Exercise of stock options

 762  —     115  —     2,034   —     —     2,149 

Tax benefit from exercise of stock options

 —    —     —    —     1,462   —     —     1,462 
                             

Balance at May 31, 2006

 19,318  (1,018)  2,898  (5,032)  44,723   20,932   364   63,885 

Net income

 —    —        15,515    15,515 

Foreign currency translation adjustment, net of tax

 —    —     —    —     —     —     281   281 

Shares issued

 4  —     1  —     59   —     —     60 

Non-cash compensation

 —    —     —    —     1,425   —     —     1,425 

Exercise of stock options

 574  —     85  —     1,626   —     —     1,711 

Tax benefit from exercise of stock options

 —    —     —    —     1,326   —     —     1,326 
                             

Balance at May 31, 2007

 19,896  (1,018)  2,984  (5,032)  49,159   36,447   645   84,203 

Net income

 —    —     —    —     —     23,623   —     23,623 

Foreign currency translation adjustment, net of tax

 —    —     —    —     —     —     3,052   3,052 

Foreign currency hedge, net of tax

 —    —     —    —     —     —     (716)  (716)

Interest rate swap, net of tax

 —    —     —    —     —     —     (410)  (410)

Non-cash compensation

 —    —     —    —     3,329   —     —     3,329 

Shares issued

 1  —     1  —     59   —     —     60 

Stock split

 (2,035) 1,018   2,397  5,032   (4,726)  (2,703)  —     —   

Exercise of stock options

 718  —     191  —     3,117   —     —     3,308 

Tax benefit of exercise of stock options

 —    —     —    —     4,313   —     —     4,313 
                             

Balance at May 31, 2008

 18,580  —    $5,573 $—    $55,251  $57,367  $2,571  $120,762 
                             

See notes to consolidated financial statements.

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TEAM, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">CONSOLIDATED STATEMENTS OF CASH FLOWS

SIZE="2">(in thousands)

 
















































































































































































































































































































































































































































































































































































































































































































































































































































































































































































   Twelve Months Ended
May 31,
 
   2008  2007  2006 

Cash Flows From Operating Activities:

    

Net income

  $23,623  $15,515  $10,636 

Less income attributable to discontinued operations

   —     —     (6)
             

Income attributable to continuing operations

   23,623   15,515   10,630 

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization of intangible assets

   11,285   7,777   6,345 

Amortization of deferred loan costs

   278   446   415 

Allowance for doubtful accounts

   1,238   1,094   1,183 

Minority interest in earnings and other

   (8)  (303)  (107)

Deferred income taxes

   2,299   2,085   (482)

Non-cash compensation cost

   3,329   1,425   235 

Changes in assets and liabilities, net of effects from business acquisitions:

    

(Increase) decrease:

    

Accounts receivable

   (23,292)  (17,103)  (10,747)

Inventory

   (3,929)  (993)  (667)

Prepaid expenses and other current assets

   1,172   30   (452)

Increase (decrease):

    

Accounts payable

   5,780   2,582   (3,536)

Other accrued liabilities

   2,960   (992)  3,986 

Income taxes payable

   —     (4,837)  1,047 
             

Net cash provided by operating activities

   24,735   6,726   7,850 
             

Cash Flows From Investing Activities:

    

Capital expenditures

   (25,612)  (16,497)  (7,081)

Proceeds from sale of Equipment Rental Segment

   —     —     14,689 

Proceeds from sale of assets

   47   262   196 

(Increase) decrease in other assets, net

   (1,934)  465   (55)

Acquisition of minority interest

   (297)  —     —   

Business acquisitions, net of cash acquired

   (53,261)  —     —   
             

Net cash provided by (used in) investing activities

   (81,057)  (15,770)  7,749 
             

Cash Flows From Financing Activities:

    

Borrowings (payments) under revolving credit agreement

   53,120   12,250   (15,062)

Payments related to term loans and financing arrangements

   (4,852)  (4,317)  (3,831)

Tax benefit of stock option exercises

   4,313   1,326   1,462 

Loan financing fees

   (99)  (510)  (189)

Issuance of common stock

   3,368   1,771   2,272 
             

Net cash provided by (used in) financing activities

   55,850   10,520   (15,348)
             

Cash Flows of Discontinued Operations:

    

Operating cash flows

   —     —     (1,939)

Investing cash flows

   —     —     (223)

Financing cash flows

   —     —     308 
             

Net cash used in discontinued operations

   —     —     (1,854)
             

Effect of exchange rate changes on cash

   2,737   281   188 

Net increase (decrease) in cash and cash equivalents

   2,265   1,757   (1,415)

Cash and cash equivalents at beginning of year

   4,335   2,578   3,993 
             

Cash and cash equivalents at end of year

  $6,600  $4,335  $2,578 
             

Supplemental disclosure of cash flow information:

    

Cash paid during the period for:

    

Interest

  $5,720  $4,034  $4,471 
             

Income taxes

  $8,952  $13,078  $5,928 
             

Significant non-cash transactions:

    

Software Licensing Note

  $—    $—    $854 
             

See notes to consolidated financial statements.

STYLE="margin-top:0px;margin-bottom:0px"> 


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Index to Financial Statements


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STYLE="margin-top:12px;margin-bottom:0px">1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

SIZE="2">Introduction.    Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “the Company,” “we,” “our” and “us” are used in this report to refer
to Team, Inc., to one or more of our consolidated subsidiaries or to all of them taken as a whole. We are incorporated in the State of Texas and our company website can be found at www.teamindustrialservices.com . Our corporate headquarters
is located at 200 Hermann Drive, Alvin, Texas, 77511 and our telephone number is (281) 331-6154. Our stock is traded on the NASDAQ under the symbol “TISI” and our fiscal year ends on May 31 of each calendar year.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">We are a leading provider of specialty maintenance and construction services required in maintaining high temperature and high pressure piping systems
and vessels that are utilized extensively in heavy industries. We offer an array of complimentary services including:

 







  

leak repair,

 







  

hot tapping,

 







  

fugitive emissions control,

 







  

field machining,

 







  

technical bolting,

 







  

field valve repair,

 







  

non-destructive testing, and

 







  

field heat treating.

We offer these
services in over 100 locations throughout the United States and international markets including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Consolidation.    Our consolidated condensed financial statements include the financial statements of Team, Inc.
and our majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Minority interest is recognized for the portion not owned by us. Certain amounts in prior years have been reclassified
to conform to the current year presentation.

Use of Estimates.    Our accounting policies conform to
Generally Accepted Accounting Principles in the United States (“GAAP”). Our most significant accounting policies are described below. The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and judgments that affect our reported financial position and results of operations. We review significant estimates and judgments affecting our consolidated financial statements on a recurring basis and record the effect of any necessary
adjustments prior to their publication. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to
information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things, (1) aspects of revenue
recognition, (2) analyzing tangible and intangible assets for possible impairment, (3) assessing future tax exposure and the realization of tax assets, (4) estimating various factors used to accrue liabilities for workers
compensation, auto, medical and general liability, (5) establishing an allowance for uncollectible accounts receivable, and (6) estimating the useful lives of our assets.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Fair Value of Financial Instruments.    Our financial instruments consist primarily of cash, cash equivalents,
accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of
these instruments. The fair value of our Credit Facility is representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are
equivalent to that of the credit facility.

 


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Index to Financial Statements


Cash and Cash Equivalents.    Cash and cash equivalents consist
of all demand deposits and funds invested in highly liquid short-term investments with original maturities of three months or less.

SIZE="2">Inventories.    Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include material, labor and certain fixed overhead costs.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Property, Plant and Equipment.    Property, plant and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives of the assets:

 




































Classification

  Useful Life

Buildings

  20-40 years

Leasehold improvements

  2-10 years

Machinery and equipment

  2-10 years

Furniture and fixtures

  2-10 years

Computers and computer software

  2-5 years

Automobiles

  2-5 years

Goodwill and Other Intangible Assets.    Goodwill represents the
excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are instead tested for impairment at
least annually in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Statement No. 142, Goodwill and Other Intangible Assets . Intangible assets with estimated useful lives are amortized over
their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Our annual goodwill impairment test is conducted by first comparing the estimated fair value of the reporting unit to which the intangible asset is
attributable and then comparing the ‘implied fair value’ of goodwill with its carrying amount. The estimated fair value of the reporting unit is determined by using discounted future cash flow estimates. The reporting units used for
purposes of computing the annual impairment test of goodwill, pursuant to FASB No. 142, are the divisions one level below our industrial segment, which comprise our industrial services segment. All goodwill assigned to those reporting units is
attributable to business acquisitions that are part of those units. There was $62.9 million and $26.5 million of goodwill at May 31, 2008 and 2007, respectively. Based upon results of the annual impairment testing, last conducted in May 2008,
there have been no impairments of goodwill. A summary of goodwill as of May 31, 2008 and 2007 is as follows (in thousands):

 














































































   Twelve Months Ended
May 31,
   2008  2007

Balance at beginning of year

  $26,452  $26,452

Acquisitions and purchase price adjustments

   35,238   —  

Foreign currency adjustments

   1,214   —  

Impairments

   —     —  
        

Balance at end of year

  $62,904  $26,452
        

Income Taxes.    We follow the guidance in FASB No. 109,
Accounting for Income Taxes
which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. As part of the process of preparing our
consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax payable and related tax expense together with assessing
temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and

 


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accounting purposes. These differences can result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must
then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets
will not be realized, we must establish a valuation allowance. We consider all available evidence, both positive and negative, to determine whether, based on the weight of the evidence, a valuation allowance is needed. Evidence used includes
information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance, the reversal of
deferred tax liabilities and tax planning strategies.

Allowance for Doubtful Accounts.    In the
ordinary course of business, a percentage of our accounts receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we performed and other various reasons. To account for those accounts receivable
that will eventually be deemed uncollectible we establish an allowance. The allowance for doubtful accounts is based on a combination of our historical experience and management’s review of long outstanding accounts receivable.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Workers Compensation, Auto, Medical and General Liability Accruals.     In accordance with FASB Statement
No. 5, Accounting for Contingencies (“FASB No. 5”), we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review our loss
contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by management,
applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant. For workers’ compensation and automobile liability claims, our self-insured retention is $250,000 per occurrence. For medical claims, our
self-insured retention is $150,000 per individual claimant determined on an annual basis. For general liability claims, our self-insured retention is $250,000 per occurrence. We maintain insurance for claims that exceed such self-retention
limits. The insurance is subject to terms, conditions, limitations and exclusions that may not fully compensate us for all losses. Our estimates and judgment could change based on new information, changes in laws or regulations, changes in
management’s plans or intentions, or the outcome of legal proceedings, settlements or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different
amounts.

Revenue Recognition.    We determine our revenue recognition guidelines for our operations
based on guidance provided in applicable accounting standards and positions adopted by the FASB or the SEC. Most of our projects are short-term in nature and we predominantly derive revenues by providing a variety of industrial services, on a time
and material basis. For all of these services our revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer. However, due to various contractual terms with our customers, at the end of
any reporting period there may be earned but unbilled revenue that is accrued to properly match revenues with related costs. At May 31, 2008 and 2007, the amount of earned but unbilled revenue included in accounts receivable was $7.5 million
and $6.6 million, respectively.

Concentration of Credit Risk.    No single customer accounts for more
than 10% of consolidated revenues.

Earnings Per Share.    Basic earnings per share are computed by
dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share are computed by dividing net income by the sum of (1) the weighted-average number of shares of common stock
outstanding during the period and (2) the dilutive effect of the assumed exercise of stock options using the treasury stock method. There is no difference, for any of the years presented, in the amount of net income (numerator) used in the
computation of basic and diluted earnings per share. With respect to the number of weighted average shares outstanding (denominator), diluted shares reflects only the pro forma exercise of options to acquire common stock to the extent that the
options’ exercise prices are less than the average market price of common shares during the period.

Options to purchase 659,000
shares of common stock were outstanding during the twelve month period ended May 31, 2008 but were not included in the computation of diluted earnings per share because the options’

 


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exercise prices were greater than the average market price of common shares during the period.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Foreign Currency.    For subsidiaries whose functional currency is not the United States Dollar, assets and
liabilities are translated at period ending rates of exchange and revenues and expenses are translated at period average exchange rates. Translation adjustments for the asset and liability accounts are included as a separate component of accumulated
other comprehensive income in stockholders’ equity. There were no material transaction gains or losses in any periods presented.

Accounting
Principles Not Yet Adopted

FASB No. 157.    In September 2006, the FASB issued FASB
No. 157, Fair Value Measurements (“FASB No. 157”). FASB No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements regarding fair value measurement. Where
applicable, this statement simplifies and codifies fair value related guidance previously issued within GAAP. FASB No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. However, FSP FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”), delays the effective date of FASB No. 157 for certain nonfinancial assets and liabilities until fiscal years beginning
after November 15, 2008. We do not anticipate FASB No. 157 or FSP FAS 157-2 will have a material effect on our results of operations, financial position or cash flows.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">FASB No. 159.    In February 2007, the FASB issued FASB No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities—including an amendment to FASB Statement No. 115
(“FASB No. 159”). FASB No. 159 permits entities to choose to measure certain financial instruments and other items at fair
value that are not currently required to be measured at fair value. It also creates presentation and disclosure requirements that will enhance comparability between entities that choose different measurement attributes for similar types of assets
and liabilities. FASB No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We do not anticipate FASB No. 159 will have a material effect on our results of operations, financial
position or cash flows.

FASB No. 141R.    In December 2007, the FASB issued FASB No. 141 (revised 2007),
Business Combinations” (“FASB No. 141R”) which replaces FASB No. 141, “Business Combinations”. FASB No. 141R applies to all business combinations, including combinations among mutual entities and
combinations by contract alone. FASB No. 141R requires that all business combinations will be accounted for by applying the acquisition method. FASB No. 141R is effective for business combinations consummated in periods beginning on or after
December 15, 2008. Early application is prohibited. We do not anticipate FASB No. 141R will have a material effect on our results of operations, financial position, or cash flows.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">FASB No. 161.    In March 2008, the FASB issued FASB No. 161, Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB Statement No. 133
(“FASB No. 161”). FASB No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for, and how such derivative instruments affect an entity’s financial position, financial performance and cash flows. FASB No. 161 is effective for fiscal years beginning after November 15, 2008. We do not
anticipate FASB No. 161 will have a material effect on our results of operations, financial position or cash flows.

Newly Adopted Accounting
Principles

FASB No. 151.    In November 2004, the FASB issued FASB No. 151,
Inventory Costs—an amendment of ARB 43, Chapter 4 (“FASB No. 151”). FASB No. 151 clarifies the accounting for excessive amounts of idle facility expense, freight, handling costs and wasted material and requires that
the allocation of fixed production overheads to the costs of conversion of inventory be based on the normal capacity of the production facilities. The adoption of this statement on June 1, 2006 did not have a material effect on our results of
operations, financial position or cash flows.

 


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FASB No. 154.    In May 2005, the FASB issued FASB No. 154,
Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (“FASB No. 154”). FASB No. 154 changes the requirements for the accounting for and reporting of a change
in accounting principle and applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.
FASB No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.
The provisions of FASB No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement on June 1, 2006 did not have a material effect on our
results of operations, financial position or cash flows.

SAB No. 108.    In September 2006, the SEC
staff issued Staff Accounting Bulletin No. 108 (“SAB No. 108”). SAB No. 108 addresses how the effects of prior year uncorrected financial statement misstatements should be considered in current year financial statements. SAB
No. 108 requires registrants to quantify misstatements using both balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material after all of the relevant quantitative and
qualitative factors are considered. SAB No. 108 was effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The adoption of SAB No. 108 effective May 31, 2007 did not have a
material effect on our results of operations, financial position or cash flows.

FIN No. 48.    In
June 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income
taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes . The interpretation prescribes a recognition threshold and measurement criteria for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

In May 2007, the FASB issued FIN 48-1, Definition of “Settlement” in FASB Interpretation No. 48 (“FIN
48-1”), which provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">We adopted the provisions of FIN 48 on June 1, 2007. The adoption of FIN 48 did not have a material impact on our consolidated financial condition,
results of operations or cash flows. At May 31, 2008 we have established liabilities for tax uncertainties of $2.2 million, which includes $0.5 million of interest. These liabilities are associated with a prior acquisition. To the extent these
uncertainties are ultimately resolved favorably, the resultant reduction of recorded liabilities would be applied to reduce the balance of goodwill or deferred taxes and would have no effect on our effective tax rate. We believe that in the next 12
months, all $2.2 million of liabilities recorded for tax uncertainties will be effectively settled. In accordance with FIN 48, paragraph 19, our policy is to recognize interest and penalties related to unrecognized tax benefits through the tax
provision. Our adoption of FIN 48 was consistent with FIN 48-1.

We file income tax returns in the U.S. with federal and state
jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for fiscal years prior to fiscal year 2005. We are
currently undergoing an examination by the Internal Revenue Service with an anticipated closing date in the first quarter of fiscal year 2009. We believe there is appropriate support for the income tax positions taken and to be taken on our tax
returns and that our accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">EITF 06-3.    In June 2006, the FASB’s Emerging Issues Task Force (the “Task Force”) issued consensus
06-3 , How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). In EITF 06-3, the Task Force reached a consensus
that the presentation of tax assessed by a governmental authority that is both imposed on and

 


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concurrent with a specific revenue-producing transaction between a seller and a customer and disclosed on either a gross basis (included in revenues and
costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. In addition, for any such taxes that are reported on a gross basis, an entity should disclose the amounts of those taxes in interim and annual
financial statements for each period for which an income statement is presented if those amounts are significant. EITF 06-3 is effective for reporting periods beginning after December 15, 2006. The adoption of EITF 06-3 on June 1, 2007 did
not have a material effect on our results of operations, financial position or cash flows.

2. ACQUISITIONS AND DISPOSITIONS

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">On January 9, 2008 we acquired all the stock of LRS, a specialty industrial services company. LRS currently provides a range of services similar to
those offered by our TMS division including on-stream leak sealing, hot tapping, fugitive emissions monitoring, field machining and bolting services. LRS is headquartered near Vlissingen, The Netherlands and has four service locations in The
Netherlands and Belgium. The purchase price of the acquisition was $18.6 million plus working capital adjustments, professional fees and net of cash acquired. Financing for the acquisition was obtained through our banking syndicate. We are in the
early stages of determining the fair values of assets and liabilities assumed. Preliminary information regarding the allocation of the purchase price to our acquisition is set forth below (in thousands):

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 
























































































    (unaudited)

Accounts receivable

  $6,030

Inventory

   579

Prepaids and other current assets

   760

Property, plant and equipment

   818

Unallocated purchase price

   14,616
    

Total Assets

  $22,803
    

Accounts payable

  $1,871

Accrued liabilities and other

   2,412
    

Total Liabilities Assumed

   4,283
    

Net Assets Acquired

  $18,520
    

On June 1, 2007 we acquired all the stock of Aitec, Inc. (“Aitec”) for $33.8
million, plus working capital adjustments, professional fees and net of cash acquired. The purchase price of $34.7 million includes working capital adjustments of $0.1 million and professional fees of $0.8 million. Aitec is a non-destructive testing
and inspection services company headquartered near Toronto, Ontario with 13 service locations across Canada. Financing for the acquisition was obtained through our bank syndicate. Our allocation of the purchase price to our acquisition is set forth
below (in thousands):

 












































































































   (unaudited)

Accounts receivables

  $12,983

Inventory

   382

Prepaids and other current assets

   1,415
    

Total Current Assets

   14,780

Property, plant and equipment

   4,460

Intangible assets—Non-competes

   1,250

Goodwill

   20,622
    

Total Assets

  $41,112
    

Accounts payable

  $ 3,251

Accrued liabilities and other

   3,021

Deferred taxes

   99
    

Total Liabilities Assumed

   6,371
    

Net Assets Acquired

  $34,741
    

 


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Our unaudited pro forma consolidated results of operations are shown below as if the acquisition of Aitec
had occurred at the beginning of the year ended May 31, 2007. These results are not necessarily indicative of the results which would actually have occurred if the purchase had taken place at the beginning of the period, nor are they
necessarily indicative of future results (in thousands, except per share data).

 






































   Pro forma data
(unaudited)
Year ended
May 31, 2007

Revenues

  $365,424

Net income

  $16,872

Earnings per share:

  

Basic

  $0.96

Diluted

  $0.89

In November 2005, we sold all of the outstanding stock of our wholly-owned subsidiary, Climax, for
approximately $14.5 million plus subsequent purchase price adjustments of approximately $0.2 million. Climax was engaged in equipment sales and rental and was a designer and manufacturer of portable metal cutting machinery used for industrial
maintenance at customer locations. We recognized a pre-tax gain on the sale of Climax of $1.5 million, net of costs and expenses associated with the transaction of approximately $0.9 million, including approximately $0.2 million of cash bonuses paid
to certain Climax personnel.

The assets and liabilities of Climax at the time of sale were as follows (in thousands):

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 







































































































   Climax

Accounts receivables

  $2,618

Inventory

   2,785

Prepaids and other current assets

   97
    

Total Current Assets

   5,500

Property, plant and equipment

   4,498

Goodwill

   2,953

Other assets

   662
    

Total Assets

  $13,613
    

Accounts payable

  $675

Accrued liabilities and other

   802
    

Total Liabilities Assumed

   1,477
    

Net Assets Disposed

  $12,136
    

 


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The results of operations for Climax, presented as discontinued operations, include interest on our debt
that is required to be repaid with proceeds from the sale of Climax. The revenues, operating income, interest expense allocation and earnings before income tax, presented in discontinued operations for the fiscal year ended 2006 is as follows (in
thousands):



















































   2006 

Revenues

  $7,642 

Operating income

   394 

Interest expense allocation

   472 
     

Loss before income taxes

  $(78)
     

3. RECEIVABLES

FACE="Times New Roman" SIZE="2">A summary of accounts receivable as of May 31, 2008 and 2007 is as follows (in thousands):

 























































































   May 31, 
   2008  2007 

Trade accounts receivable

  $121,650  $80,277 

Unbilled revenues

   7,499   6,567 

Allowance for doubtful accounts

   (3,586)  (2,348)
         

Total

  $125,563  $84,496 
         

The allowance for doubtful accounts is our best estimate of the amount of probable credit losses
in our existing accounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is remote. The following summarizes the activity in the allowance for
doubtful accounts as of May 31, 2008 and 2007 (in thousands):

 























































































   May 31, 
   2008  2007 

Balance at beginning of year

  $2,348  $1,255 

Provision for doubtful accounts

   1,824   1,730 

Write-off of bad debt

   (586)  (637)
         

Balance at end of year

  $3,586  $2,348 
         

4. INVENTORY

FACE="Times New Roman" SIZE="2">A summary of inventory as of May 31, 2008 and 2007 is as follows (in thousands):

 






































































   May 31,
   2008  2007

Raw materials

  $2,817  $2,870

Work in progress

   498   358

Finished goods

   13,093   8,290
        

Total

  $16,408  $11,518
        

 


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5. PROPERTY, PLANT AND EQUIPMENT

FACE="Times New Roman" SIZE="2">A summary of property, plant and equipment as of May 31, 2008 and 2007 is as follows (in thousands):

 





























































































































































   May 31, 
   2008  2007 

Land

  $986  $955 

Buildings and leasehold improvements

   7,643   7,118 

Machinery and equipment

   74,063   53,670 

Furniture and fixtures

   1,508   1,400 

Computers and computer software

   4,596   3,884 

Automobiles

   2,273   2,106 

Construction in progress

   8,559   578 
         

Total

   99,628   69,711 

Accumulated depreciation and amortization

   (43,490)  (34,545)
         

Property, plant, and equipment, net

  $56,138  $35,166 
         

Included in property, plant and equipment is $0.2 million of capitalized interest at May 31, 2008.

6. OTHER ACCRUED LIABILITIES

A
summary of other accrued liabilities as of May 31, 2008 and 2007 is as follows (in thousands):

 






















































































   May 31,
   2008  2007

Payroll and other compensation expenses

  $15,111  $9,509

Insurance accruals

   4,087   2,583

Property, sales and other taxes

   1,770   527

Auto lease rebate

   992   1,366

Other

   3,676   1,921
        

Total

  $25,636  $15,906
        

7. INCOME TAXES

FACE="Times New Roman" SIZE="2">Income tax expense for the years ended May 31, 2008, 2007 and 2006 was as follows (in thousands):

 
































































































































































   Twelve Months Ended May 31, 
   2008  2007  2006 

Income tax expense attributable to income from continuing operations

  $15,759  $10,618  $6,755 

Income tax expense attributable to income from discontinued operations

   —     —     1,410 

Taxes allocated to stockholders’ equity, related to compensation expense recognized for tax purposes in excess of amounts recognized for
financial reporting purposes.

   (4,313)  (1,326)  (1,462)

Taxes allocated to stockholders’ equity, related to foreign currency translation adjustments

   1,883   148   114 

Taxes allocated to stockholders’ equity, related to the interest rate swap

   (255)  —     —   

Taxes allocated to stockholders’ equity, related to the foreign currency hedge

   (447)  —     —   
             

Total

  $12,627  $9,440  $6,817 
             

 


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Income tax expense attributable to income from continuing operations for the years ended May 31,
2008, 2007 and 2006 was as follows (in thousands):

 





















































































































































































































































































   Current  Deferred  Total

Year ended May 31, 2008:

     

U.S. federal

  $7,608  $1,899  $9,507

State & local

   1,243   198   1,441

Foreign jurisdictions

   4,609   202   4,811
            
  $13,460  $2,299  $15,759
            

Year ended May 31, 2007:

     

U.S. federal

  $6,099  $1,900  $7,999

State & local

   854   164   1,018

Foreign jurisdictions

   1,566   35   1,601
            
  $8,519  $2,099  $10,618
            

Year ended May 31, 2006:

     

U.S. federal

  $4,776  $(284) $4,492

State & local

   584   (198)  386

Foreign jurisdictions

   1,877   —     1,877
            
  $7,237  $(482) $6,755
            

The components of pre-tax income for the years ended May 31, 2008, 2007 and 2006 were as
follows (in thousands):

 














































































   2008  2007  2006

Domestic

  $25,993  $21,661  $12,209

Foreign

   13,389   4,472   5,176
            
  $39,382  $26,133  $17,385
            

Income tax expense attributable to income from continuing operations differed from the amounts
computed by applying the U.S. Federal income tax rate of 35% to pretax income from continuing operations as a result of the following (in thousands):

 






























































































































   Twelve Months Ended May 31,
   2008  2007  2006

Income from continuing operations

  $39,382  $26,133  $17,385
            

Computed income taxes at statutory rate

  $13,784  $9,147  $6,085

State income taxes, net of federal benefit

   1,018   719   250

Foreign tax differential

   103   35   98

Stock options and other

   854   717   322
            

Provision for income tax

  $15,759  $10,618  $6,755
            

 


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The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below (in thousands):

 























































































































































































































































   May 31, 
   2008  2007 

Deferred tax assets:

   

Accrued compensation & benefits

  $807  $890 

Receivables

   1,053   828 

Inventory

   385   178 

Vendor rebates

   381   519 

Stock options

   560   —   

Other

   308   297 
         

Total gross deferred tax assets

   3,494   2,712 
         

Deferred tax liabilities:

   

Property, plant and equipment

   (3,613)  (949)

Goodwill and intangible costs

   (1,740)  (1,212)

Foreign currency translation and other equity adjustments

   (1,416)  (219)

Unremitted earnings of foreign subsidiaries

   (420)  (196)

Prepaids

   (1,725)  (1,844)

Other

   (30)  —   
         

Total gross deferred tax liabilities

   (8,944)  (4,420)
         

Net deferred liability

  $(5,450) $(1,708)
         

In assessing the realizability of deferred tax assets, we consider whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projection for future taxable
income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible temporary differences and therefore a valuation allowance is not necessary at
May 31, 2008.

We adopted the provisions of FIN 48 on June 1, 2007. The adoption of FIN 48 did not have a material impact on our
consolidated financial condition, results of operations or cash flows. At May 31, 2008 we have established liabilities for tax uncertainties of $2.2 million which includes $0.5 million of interest. These liabilities are associated with a prior
acquisition. To the extent these uncertainties are ultimately resolved favorably; the resultant reduction of recorded liabilities would be applied to reduce the balance of goodwill or deferred taxes and would have no effect on our effective tax
rate. Because of the status of the ongoing examinations it is not possible to estimate the impact, if any, to previously recorded uncertain tax positions within the next 12 months. In accordance with FIN 48, paragraph 19, our policy is to recognize
interest and penalties related to unrecognized tax benefits through the tax provision.

We file income tax returns in the U.S. with federal
and state jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for fiscal years prior to fiscal year 2003. We
are currently undergoing an examination by the Internal Revenue Service with an anticipated closing date by the end of first quarter fiscal year 2009. We believe there is appropriate support for the income tax positions taken and to be taken on our
returns and that our accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

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Set forth below is a reconciliation of the changes in the Company’s unrecognized tax benefits
associated with FIN 48 (in thousands):

 


































Balance at June 1, 2007

  $2,218

Increase in unrecognized tax benefits from current period tax positions

     —
    

Balance at May 31, 2008

  $2,218
    

We believe that in the next 12 months, all $2.2 million of liabilities recorded for tax
uncertainties will be effectively settled.

8. LONG-TERM DEBT

FACE="Times New Roman" SIZE="2">On January 25, 2006 we entered into a three-year enterprise agreement with a vendor for server and desktop volume licensing with software assurance. The Software Licensing Note for the agreement was provided by
the vendor under a three year non-interest bearing note. The note has been discounted at 7.3%, which was our effective borrowing rate. The discount of $0.1 million is amortizing to interest expense over the term of the note.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">On May 31, 2007 we amended and restated our existing banking facility comprised of a term loan and a revolving credit facility (collectively, the
“Credit Facility”). The Credit Facility, as amended on June 13, 2008, subsequent to our year end, provides us with a $145 million revolving line of credit and a $15 million term loan through a banking syndicate. On January 29, 2008 we
amended our Credit Facility to allow us to borrow in Euros or United States dollars. The Credit Facility bears interest based on a variable Eurodollar rate option (currently LIBOR plus 1.5%) and the margin is set based on our financial covenants as
set forth in the Credit Facility. The Credit Facility matures in May 2012 and is secured by virtually all of our domestic assets and a majority of the stock of our foreign subsidiaries. It also contains financial covenants and restrictions on the
creation of liens on assets, the acquisition or sale of subsidiaries and the incurrence of certain liabilities. At May 31, 2008 there are $1.2 million of capitalized loan costs which are being amortized over the life of the Credit Facility. At
May 31, 2008 we were in compliance with all financial covenants of the Credit Facility.

A summary of Long-term debt as of
May 31, 2008 and 2007 is as follows (in thousands):

 


































































































   2008  2007

Revolving loan portion of the Credit Facility

  $92,298  $38,015

Term loan portion of the Credit Facility

   10,500   15,000

Software Licensing Note

   232   554

Auto loans

   37   67
        
   103,067   53,636

Less current portion

   6,249   4,862
        

Long-term debt, excluding current installments

  $96,818  $48,774
        

FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(“FASB No. 133”), established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the balance sheet as assets or liabilities. The accounting for changes in the fair value
of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at the inception date of a derivative. Special accounting for derivatives qualifying as fair value hedges allows a
derivative’s gains and losses to offset related results on the hedged item in the statement of earnings. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in
other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative cumulative changes in fair value between the derivative contract and the hedged item over time.

 


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On May 31, 2007 we entered into an interest rate swap with our bank to hedge at a fixed pay rate of
4.97%, a portion of the variable cash flows associated with the variable Eurodollar interest expense on our Credit Facility. The portion of the Credit Facility hedged begins with a notional value of $30 million effective June 1, 2007 and
decreases to $16.3 million by March 1, 2010. Changes in the cash flows of the interest rate swap are expected to be highly effective in offsetting the changes in cash flows attributable to fluctuations in the variable LIBOR rate on the notional
amounts of the Credit Facility. The interest rate swap agreement is designated as a cash flow hedge, with the changes in fair value, to the extent the swap agreement is effective, recognized in other comprehensive income until the hedged interest
expense is recognized in earnings.

On February 12, 2008 we borrowed €12.3 million under the Credit Facility to serve as an
economic hedge of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our European
operations.

In order to secure our insurance programs we are required to post letters of credit generally issued by a bank as collateral.
A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that we failed to meet our obligations under the letter of credit. If this were to occur, we would be obligated to reimburse the issuer for
any payments the issuer was required to remit to the holder of the letter of credit. At May 31, 2008 we were contingently liable for outstanding stand-by letters of credit totaling $5.7 million. Outstanding letters of credit reduce amounts
available under our Credit Facility and are considered as having been funded for purposes of calculating our financial covenants under the Credit Facility.

 









































































Future maturities of long-term debt as of May 31, 2008 are as follows (in thousands):

2009

  $6,249  

2010

   4,517  

2011

   3  

2012

   92,298  

2013 and Thereafter

   0  
       
  $103,067  
       

9. SHARE BASED COMPENSATION

FACE="Times New Roman" SIZE="2">We have adopted various stock option plans pursuant to which the Board of Directors may grant stock options to officers and key employees. At May 31, 2008 there were approximately 2,627,000 stock options under
the plans outstanding to officers, directors, and key 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 our
plans are generally determined by the Compensation Committee of the Board of Directors at the time of grant of each option and may vary.

SIZE="2">Our share-based payments consist primarily of stock options. We recognize the fair value of our share-based payments over the vesting periods of the awards. The stock options generally have ten year terms and vest and become fully
exercisable after a period ranging from three to four years from the date of grant. Shares issued in connection with our stock option grants are issued out of authorized but unissued common stock. The governance of our stock option grants does not
directly limit the number of future stock options we may award so long as the total number of shares ultimately issued does not exceed the total number of shares cumulatively authorized which was 6,620,000 at May 31, 2008.

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In December 2004, the FASB issued FASB No. 123(R), Share-Based Payment (“FASB No.
123(R)”). FASB No. 123(R) requires all companies to expense the fair value of employee stock options and other forms of stock-based compensation. We adopted FASB No. 123(R) effective June 1, 2006, using the modified prospective transition
method permitted under this pronouncement. Our cumulative effect of implementing this statement, which consists entirely of a forfeiture adjustment, was immaterial. The application of FASB No. 123(R) had a material impact on the audited consolidated
financial statements and basic and diluted earnings per share for 2008 and 2007 compared to amounts that would have been reported pursuant to our previous accounting treatment. Had compensation cost for all stock options granted prior to
June 1, 2006 been determined on a fair value basis consistent with FASB No. 123(R), our net income and basic and diluted earnings per share amounts for the year ended May 31, 2006 would have been as follows (in thousands except per
share data):

 











































































   2006 

Income from continuing operations, as reported

  $10,630 

Add stock-based employee compensation expense included in reported net income, net of tax

   143 

Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax

   (542)
     

Pro forma net income from continuing operations

  $10,231 
     

Earnings per share, as reported—basic

  $0.63 

Pro forma earnings per share—basic

  $0.61 

Earnings per share, as reported—diluted

  $0.58 

Pro forma earnings per share—diluted

  $0.56 

Our share-based payments consist of stock options and restricted stock awards. For stock options,
we determine the fair value of each stock option at the grant date using a Black-Scholes model, with the following weighted-average assumptions used for grants made during the years ended May 31, 2008, 2007 and 2006:

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 






































































   2008  2007  2006 

Risk-free interest rate

  4.4% 4.7% 4.3%

Volatility factor of the expected market price of the Company’s common stock

  40.2% 39.2% 31.2%

Expected dividend yield percentage

  0.0% 0.0% 0.0%

Weighted average expected life

  7 Yrs  6 Yrs  4 Yrs 

We recognize the fair value of our share-based payments over the vesting periods of the awards.
The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the awards, usually the vesting period. The stock options generally have ten year terms and vest and become fully exercisable
after a period ranging from three to four years from the date of grant. Shares issued in connection with our stock option grants are issued out of authorized but unissued common stock. The governance of our stock option grants does not directly
limit the number of future stock options we may award so long as the total number of shares ultimately issued does not exceed the total number of shares cumulatively authorized, which was 6,620,000 shares at May 31, 2008.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">In September 2004, we executed a Restricted Stock Award Agreement with our President and Chief Operating Officer. The agreement awarded up to 30,000
shares of restricted stock (split adjusted) which vested upon the achievement of specific financial targets related to earnings before interest and taxes for the fiscal years 2005, 2006 and 2007. All shares are vested. For restricted stock awards,
we consider the fair value to be the closing price of the stock on the grant date.

We granted 736,000, 552,000 and 784,000 stock
options during the years ended May 31, 2008, 2007 and 2006, respectively. Compensation expense related to options granted and restricted stock awards totaled $3.3 million, $1.4 million and $0.2 million during the years ended May 31, 2008,
2007 and 2006, respectively. Tax benefits related to stock option exercises were $4.3 million, $1.3 million and $1.5 million for the year ended May 31, 2008, 2007 and 2006, respectively. As of May 31, 2008, $11.3 million of unrecognized
compensation expense related to options granted and restricted stock awarded is expected to be recognized over a remaining weighted-average period of 3 years.

SIZE="1"> 


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Transactions under all plans are summarized below:

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 


























































































































































































































































  Twelve Months Ended May 31,
  2008  2007  2006
  No. of
Options
  Weighted
Average
Price
  No. of
Options
  Weighted
Average
Price
  No. of
Options
  Weighted
Average
Price
  (in thousands)     (in thousands)     (in thousands)   

Shares under option, beginning of year

 2,822  $8.58  2,868  $6.33  2,988  $4.12

Changes during the year:

        

Granted

 736  $30.22  552  $14.67  784  $11.90

Exercised

 (718) $4.63  (574) $2.99  (782) $3.05

Canceled

 (213) $14.31  (24) $11.33  (122) $8.81
                    

Shares under option, end of year

 2,627  $15.37  2,822  $8.58  2,868  $6.33

Exercisable at end of year

 1,178  $8.34  1,754  $6.00  1,684  $3.44
                    

Options exercisable at May 31, 2008 had a weighted average remaining contractual life of 5.7
years. For total options outstanding at May 31, 2008, the range of exercise prices and remaining contractual lives are as follows:

 














































































































Range of Prices

  No. of
Options
  Weighted
Average
Price
  Weighted
Average
Remaining
Life (in
years)
   (in thousands)      

$0.00 to $3.21

  270  $2.10  2.36

$3.21 to $6.41

  103  $4.20  4.69

$6.41 to $9.62

  663  $8.30  6.25

$9.62 to $12.82

  204  $11.21  7.65

$12.82 to $16.03

  678  $15.00  8.13

$16.03 to $32.05

  709  $30.22  9.40
          
  2,627  $15.37  7.23
          

10. STOCK SPLIT

FACE="Times New Roman" SIZE="2">On July 25, 2007 we announced a two-for-one stock split in the form of a 100 percent stock dividend payable on August 29, 2007 to all shareholders of record on August 15, 2007. To fund the requirement
of new shares, we utilized approximately 1 million shares of treasury stock and issued an additional 8 million shares of common stock. All share and per share information has been retroactively adjusted to reflect the stock split.

11. EMPLOYEE BENEFIT PLANS

Under the
Team, Inc. Salary Deferral Plan (the “Plan”), contributions are made to the Plan by qualified employees at their election and our matching contributions to the Plan are made at specified rates. Our contributions to the Plan in fiscal years
2008, 2007 and 2006, were approximately $2.2 million, $1.2 million and $1.1 million, respectively, and are included in selling, general, and administrative expenses.

FACE="Times New Roman" SIZE="2">12. COMMITMENTS AND CONTINGENCIES

In August 2005, we were served in a lawsuit styled Paulette
Barker, as named Executor for the Estate of Robert Barker, et. al. v. Emmett J. Lescroart, Michael Urban, Team, Inc. et. al., Case Number 355868-402 in the Probate Court #1, Harris County, Texas. The dispute arises out of the sale by Mr. Barker
to Mr. Lescroart of stock in Thermal Solutions, Inc. (“TSI”). Subsequently, we acquired all of the outstanding stock of TSI in April 2004 allegedly for a much higher price than Mr. Lescroart paid Mr. Barker in July 2003. The
plaintiff claims damages in excess of $1.0 million. We intend to continue our vigorous defense of this action. We believe the outcome of this matter will not have a material adverse effect on our consolidated financial position, results of
operations or cash flows.

 


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We have, from time to time, provided temporary leak repair services for the steam operations of
Consolidated Edison of New York (“Con Ed”) located in New York City. In July 2007, a Con Ed steam main

located in midtown Manhattan ruptured
causing one death and other injuries and property damage. Five separate lawsuits have been filed against Con Ed and us in the Supreme Courts of New York located in Kings, New York and Bronx County, alleging that our temporary leak repair services
may have contributed to the cause of the rupture. The lawsuits seek generally unspecified compensatory damages for personal injury, property damage and business interruption. Additionally, on March 31, 2008 we received a letter from Con Ed
alleging that our contract with Con Ed requires us to indemnify and defend Con Ed for additional claims filed against Con Ed as a result of the rupture. Subsequently, Con Ed filed an action to join Team and the city of New York as defendants in more
than 40 separate lawsuits previously filed against Con Ed. We intend to vigorously defend the lawsuits and Con Ed’s claim for indemnification. We are unable to estimate the amount of liability to us, if any, associated with these lawsuits and
the claim for indemnification. We maintain insurance coverage, subject to a deductible limit of $250,000, for these losses should they be incurred and have notified our insurers of the incident. We do not believe the final resolution of these
matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

In February 2007,
one of our employees sustained serious injuries as a result of a fire at the Valero McKee Refinery in Sunray, Texas. The employee and his family have made a demand on Valero for compensation related to his injuries. We have received a letter from
Valero demanding that, pursuant to the terms of our contract, we indemnify Valero for any losses they may incur as a result of the claims by our employee. We maintain insurance coverage, subject to a deductible limit of $150,000, for any losses
should they be incurred and have placed our insurers on notice. We do not believe the outcome of this matter will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">We are involved in various other lawsuits and are subject to various claims and proceedings encountered in the normal conduct of business. In our
opinion, any uninsured losses that might arise from these lawsuits and proceedings will not have a materially adverse effect on our consolidated financial statements.

FACE="Times New Roman" SIZE="2">We also enter into operating leases to obtain equipment for our field operations and administrative functions. Our obligations under non-cancellable operating leases, primarily consisting of facility and auto leases,
were approximately $28.0 million at May 31, 2008 and are as follows (in thousands):

 


























































Twelve Months Ended May 31,

  Operating
Leases

2009

  $8,511

2010

   5,336

2011

   3,836

2012

   3,312

2013

   2,532

Thereafter

   4,439
    

Total

  $27,966
    

Total rent expense under operating leases, including rental expense under short term leases, was
approximately $18.7 million, $12.9 million and $10.8 million for the years ended May 31, 2008, 2007 and 2006, respectively.

13. INDUSTRY SEGMENT
INFORMATION

FASB Statement No. 131, Disclosure about Segments of an Enterprise and Related Information (“FASB
No. 131”), requires we disclose certain information about our operating segments where operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” 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.

 


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Prior to the sale of Climax on November 30, 2005, we operated as two reportable business segments,
industrial services and equipment sales and rentals. As a result of the sale of Climax, we now operate in only one segment—industrial services. Significant prior acquisitions within the industrial services segment have led to the creation of
two divisions. Our TMS division provides the services of leak repair, hot tapping, fugitive emissions control, field machining, technical bolting and field valve repair. Our TCM division provides the services of non-destructive testing and field
heat treating.

Revenues from continuing operations and total assets in the United States and other countries are as follows for the fiscal
years ended May 31, 2008, 2007 and 2006 (in thousands):

 


























































































































































































   Total
Revenues
  Total
Assets

FY 2008

    

United States

  $346,074  $169,491

Canada

   106,121   73,788

Other foreign countries

   26,280   37,182
        
  $478,475  $280,461
        

FY 2007

    

United States

  $276,188  $139,735

Canada

   26,142   17,051

Other foreign countries

   16,018   14,268
        
  $318,348  $171,054
        

FY 2006

    

United States

  $223,560  $124,135

Canada

   21,309   11,339

Other foreign countries

   14,969   4,497
        
  $259,838  $139,971
        

14. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">The following is a summary of selected quarterly financial data for the years ended May 31, 2008 and 2007 (in thousands, except per share data):

 








































































































































































































































































































































































   Year ended May 31, 2008
   First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  Total
Year

Revenues

  $103,488  $122,310  $108,823  $143,854  $478,475

Operating income

   7,771   14,553   6,505   17,044   45,873

Income from continuing operations

   3,512   7,816   2,934   9,361   23,623

Income (loss) from discontinued operations

   —     —     —     —     —  
                    

Net income

  $3,512  $7,816  $2,934  $9,361  $23,623
                    

Net income per share: Basic

          

From continuing operations

  $0.19  $0.43  $0.16  $0.51  $1.30

From discontinued operations

   —     —     —     —     —  
                    

Total

  $0.19  $0.43  $0.16  $0.51  $1.30
                    

Net income per share: Diluted

          

From continuing operations

  $0.18  $0.40  $0.15  $0.47  $1.20

From discontinued operations

   —     —     —     —     —  
                    

Total

  $0.18  $0.40  $0.15  $0.47  $1.20
                    

 


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   Year ended May 31, 2007
   First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  Total
Year

Revenues

  $65,739  $83,185  $73,291  $96,133  $318,348

Operating income

   3,702   10,262   5,050   11,323   30,337

Income from continuing operations

   1,522   5,467   2,442   6,084   15,515

Income (loss) from discontinued operations

   —     —     —     —     —  
                    

Net income

  $1,522  $5,467  $2,442  $6,084  $15,515
                    

Net income per share: Basic

          

From continuing operations

  $0.09  $0.31  $0.14  $0.34  $0.88

From discontinued operations

   —     —     —     —     —  
                    

Total

  $0.09  $0.31  $0.14  $0.34  $0.88
                    

Net income per share: Diluted

          

From continuing operations

  $0.08  $0.29  $0.13  $0.31  $0.82

From discontinued operations

   —     —     —     —     —  
                    

Total

  $0.08  $0.29  $0.13  $0.31  $0.82
                    

15. INVESTIGATION

FACE="Times New Roman" SIZE="2">In December 2006, our management was alerted that certain false sales entries were allegedly made to revenue and accounts receivable at one of our branch locations and, subsequently, our management determined that
such entries, totaling $0.4 million, were indeed made at that branch location in November 2005. In addition, our management became aware of certain instances of the unauthorized use of Company funds for personal expenses at the same branch location.
These matters were promptly reported to our audit committee, who initiated an independent investigation into these matters with the assistance of outside counsel and forensic accountants. The independent investigation was concluded in March 2007. In
their respective reports to the audit committee, our outside counsel and forensic accountants found no further false sales entries from this branch location. Based upon the findings of the outside counsel and forensic accountants, and our
management’s internal review of these matters, we have concluded that these matters did not have a material effect on any of our previously issued financial statements and that the wrong doing was limited to a single branch location. We
incurred costs with respect to the investigation of approximately $1.0 million.

 


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3. Exhibits

 


















































































































Exhibit
Number

   
  3.1  Second Restated Articles of Incorporation of the Company, as amended through August 31, 1999, (filed as Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended
May 31, 1999).
  3.2  Bylaws of the Company (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-2, File No. 33-31663).
  4.1  Certificate representing shares of common stock of Company (filed as Exhibit 4(1) to the Company’s Registration Statement on Form S-1, File No. 2-68928).
10.1  Team, Inc. Salary Deferral Plan (filed as Exhibit 99(a) to the Company’s Registration Statement on form S-8, File No. 333-74062).
10.2  Team, Inc. Restated Non-Employee Directors’ Stock Option Plan as amended through June 24, 2004 (filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the
year ended May 31, 2004).
10.3  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).
10.4  First Amendment to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).
10.5  Second Amendment dated July 11, 2002 to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc (filed as Exhibit 10.12 to the
Company’s Annual Report on Form 10-K for the year ended May 31, 2002).
10.6  1998 Incentive Stock Option Plan dated January 29, 1998 as amended through June 24, 2004 (filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K
for the year ended May 31, 2004).
10.7  Stock Purchase Agreement dated as of April 1, 2004, by and among Team, Inc., Team Industrial Services, Inc. (“Team Industrial”), Thermal Solutions, Inc. (“TSI”), the TSI
shareholders named therein and Michael J. Urban as the shareholder representative (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed April 16, 2004).
10.8  Escrow Agreement dated April 15, 2004 by and among Team, Inc., Team Industrial, TSI, the TSI shareholders named therein, Michael J. Urban as the shareholder representative and Compass
Bank (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 16, 2004).
10.9  Asset Purchase Agreement dated July 16, 2004 by and among International Industrial Services, Inc., Cooperheat-MQS, Inc., Team Acquisition Corp. and Team, Inc. (filed as Exhibit
99.1 to the Company’s Current Report on Form 8-K filed, dated July 16, 2004, filed July 20, 2004).
10.11  Team, Inc. 2004 Restricted Stock Option and Award Plan dated June 24, 2004 (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended
May 31, 2004).
10.12  Consulting agreement between Team, Inc. and Emmett J. Lescroart dated July 30, 2004 (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year
ended May 31, 2004).
10.13†  Restricted Stock Award Agreement by and between Kenneth M. Tholan and Team, Inc. dated September 23, 2004. (filed as Exhibit 10.1 to the Company Quarterly Report on Form 10-Q for the
quarter ended February 28, 2005).

 


53







Table of Contents


Index to Financial Statements



















































































































Exhibit
Number

   
10.14†  Employment Agreement by and between Philip J. Hawk and Team, Inc. dated January 31, 2005. (filed as Exhibit 10.2 to the Company Quarterly Report on Form 10-Q for the quarter ended
February 28, 2005).
10.16  Stock Purchase Agreement by and among Climax Technologies, Inc., Team Investment, Inc., Team, Inc. and Climax Portable Machine Tools, Inc. dated November 30, 2005 (filed as Exhibit 2.1 to
the Company’s Current Report on Form 8-K filed December 6, 2005).
10.19†  Cancellation Agreement Philip J. Hawk Employment Agreement with Team, Inc. (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended February 28,
2007).
10.20†  First Amended and Restated Team, Inc. 2006 Stock Incentive Plan (filed as Appendix A to the Company’s proxy statement filed August 23, 2007).
10.21  Share Purchase Agreement dated May 13, 2007 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 17, 2007).
10.22  Amended and Restated Credit Agreement dated as of May 31, 2007 among Team, Inc. as the Borrower, Bank of America, NA, as Administrative Agent, Swing Line Lender and L/C Issuer, and other
Lenders Party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 6, 2007).
10.23  First Amendment to Amended and Restated Credit Agreement dated January 29, 2008 among Team, Inc. as the Borrower, Bank of America, NA, as Administrative Agent, Swing Line Lender and L/C Issuer,
and other Lenders Party thereto (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2008).
10.24  Commitment Increase Agreement dated June 13, 2008 to the Amended and Restated Credit Agreement among Team, Inc. as the Borrower, Bank of America, NA, as Administrative Agent, Swing Line Lender
and L/C Issuer, and other Lenders Party thereto.
14.1  Code of Ethics (filed as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended May 31, 2003).
21  Subsidiaries of the Company.
23.1  Consent of Independent Registered Public Accounting Firm—KPMG LLP
31.1  Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2  Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1  Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2  Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 





Management contract or compensation plan or arrangement.

 


54







Table of Contents


Index to Financial Statements


SIGNATURES

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">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 July 30, 2008.

 





























TEAM, INC.
By: /S/    PHILIP J.
HAWK        
 Philip J. Hawk
 Chief Executive Officer
 (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.


























































































/S/    PHILIP J.
HAWK        

(Philip J. Hawk)

  Chief Executive Officer and Director July 30, 2008

/S/    VINCENT D.
FOSTER        

(Vincent D. Foster)

  Director July 30, 2008

/S/    JACK M. JOHNSON,
JR.        

(Jack M. Johnson, Jr.)

  Director July 30, 2008

/S/    EMMETT J.
LESCROART        

(Emmett J. Lescroart)

  Director July 30, 2008

/S/    ROBERT A.
PEISER        

(Robert A. Peiser)

  Director July 30, 2008

/S/    LOUIS A.
WATERS        

(Louis A. Waters)

  Director July 30, 2008

/S/    SIDNEY B.
WILLIAMS        

(Sidney B. Williams)

  Director July 30, 2008

/S/    TED W.
OWEN        

(Ted W. Owen)

  Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) July 30, 2008

 


55







EX-10.24
2
dex1024.htm
COMMITMENT INCREASE AGREEMENT


COMMITMENT INCREASE AGREEMENT




Exhibit 10.24

FACE="Times New Roman" SIZE="2">COMMITMENT INCREASE AGREEMENT

This Commitment Increase Agreement (this “Agreement”) dated
as of June 13, 2008, is entered into among Team, Inc., a Texas corporation (the “Borrower”), Bank of America, N.A., in its capacity as a Lender (“Bank of America”), Branch Banking & Trust Company
(“BB&T”), Compass Bank (“Compass”), JPMorgan Chase Bank, N.A. (“Chase”), (Bank of America, BB&T, Compass and Chase are hereafter sometimes referred to collectively as the “Increasing
Lenders
”), and Bank of America, N.A., in its capacity as Administrative Agent (the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the
Credit Agreement (as defined below).

PRELIMINARY STATEMENTS

FACE="Times New Roman" SIZE="2">Reference is made to that certain Amended and Restated Credit Agreement dated as May 31, 2007, by and among the Borrower, the Administrative Agent and the Lenders, as amended by that certain First Amendment to
Amended and Restated Credit Agreement, dated as of January 29, 2008 (the “Credit Agreement”).

Pursuant to
Section 2.15 of the Credit Agreement, the Borrower has requested an increase in the Aggregate Revolving Commitment from $120,000,000 to $145,000,000. Such increase in the Aggregate Revolving Commitment is to become effective on
June 13, 2008 (the “Increase Effective Date”), subject to satisfaction of the conditions to effectiveness set forth in Section 4 of this Agreement. In connection with such requested increase in the Aggregate Revolving
Commitment, the Borrower, the Administrative Agent and the Increasing Lenders hereby agree as follows:

AGREEMENT

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">1. AGGREGATE REVOLVING COMMITMENT INCREASE. On the Increase Effective Date and subject to the satisfaction of the conditions to effectiveness set
forth in Section 4 of this Agreement, (a) Bank of America agrees to increase its Revolving Commitment to $35,000,000, (b) BB&T agrees to increase its Revolving Commitment to $29,250,000, (c) Compass agrees to increase its
Revolving Commitment to $29,250,000, and (d) Chase agrees to increase its Revolving Commitment to $29,250,000.

2.
SCHEDULE 2.01. As of the Increase Effective Date and subject to the satisfaction of the conditions to effectiveness set forth in Section 4 of this Agreement, (a) Schedule 2.01 to the Credit Agreement shall be
replaced by the form of Schedule 2.01 to this Agreement and (b) the respective Revolving Commitment and Revolving Pro Rata Share of each Lender shall be in the amount and the percentage set forth on such Schedule 2.01.

3. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof, the Borrower represents and warrants that, as of the
Increase Effective Date, and after giving effect to the increase in the Aggregate Revolving Commitment provided for in this Agreement:

FACE="Times New Roman" SIZE="2">(a) the representations and warranties contained in Article V of the Credit Agreement and the other Loan Documents are true and correct on and as of the Increase

 


1










Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct
as of such earlier date, and except that the representations contained in subsections (a) and (b) of Section 5.05 of the Credit Agreement shall be deemed to refer to the most recent statements furnish pursuant to
subsections (a) and (b) Section 6.01 of the Credit Agreement;

(b) no event has occurred and is
continuing which constitutes a Default;

(c) (i) the Borrower has full power and authority to execute and deliver this
Agreement and the Revolving Loan Note payable to the order of each Increasing Lender in the amount of each such Increasing Lender’s Revolving Commitment as increased pursuant to this Agreement (collectively, the “Replacement
Notes
”), (ii) this Agreement and the Replacement Notes have been duly executed and delivered by the Borrower and (iii) this Agreement, the Replacement Notes, and the Credit Agreement, as amended hereby, constitute the legal, valid
and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws;

SIZE="2">(d) neither the execution, delivery and performance by the Borrower of this Agreement, the Replacement Notes, or the Credit Agreement, as amended hereby, nor the consummation of any transactions contemplated herein or therein, will violate
any Law or violate or conflict with any Organization Document of the Borrower or any indenture, agreement or other instrument to which the Borrower or any of it property is subject; and

STYLE="margin-top:12px;margin-bottom:0px; margin-left:4%; text-indent:4%">(e) no authorization, approval, consent, or other action by, notice to, or filing with, any Governmental Authority or other Person not
previously obtained is required for (i) the execution, delivery or performance by the Borrower of this Agreement or the Replacement Notes or (ii) the acknowledgement by each Guarantor of this Agreement.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">4. CONDITIONS TO EFFECTIVENESS. This Agreement shall be effective on the Increase Effective Date, subject to the satisfaction or completion of the
following:

(a) the Administrative Agent shall have received counterparts of this Agreement executed by the Increasing
Lenders;

(b) the Administrative Agent shall have received counterparts of this Agreement executed by the Borrower and
acknowledged by each Guarantor;

(c) the Administrative Agent shall have received a Certificate from a Responsible Officer
of each Loan Party certifying and attaching the resolutions of the Board of Directors (or similar governing body) of such Loan Party authorizing and approving the increase in the Aggregate Revolving Commitment provided for in this Agreement and the
execution, delivery and performance of this Agreement or the acknowledgement of this Agreement, as the case may be;

 


2









(d) the Administrative Agent shall have received from the Borrower in immediately
available funds fees for the account of each Increasing Lender in an amount equal to the product of (i) 0.15% and (ii) the amount of the increase of each such Increasing Lender’s Revolving Commitment;

STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%">(e) the Administrative Agent shall have received from the Borrower in immediately available funds payment of all outstanding legal fees
and expenses incurred by legal counsel to the Administrative Agent as of the Increase Effective Date; and

(f) the
Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall require.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">5. PREPAYMENT. On the Increase Effective Date and subject to the satisfaction of the conditions to effectiveness set forth in Section 4 of
this Agreement, each Lender shall, to the extent necessary as set forth in Section 2.14(b) of the Credit Agreement, make a payment to the Administrative Agent in an amount sufficient, upon the application of such payments by all such
Lenders to the outstanding Revolving Loans held by the Lenders, to cause the principal amount of Revolving Loans made by each Lender to be in the amount of its Revolving Pro Rata Share (after giving effect to the increase in the Aggregate Revolving
Commitment in accordance with this Agreement) of all outstanding Revolving Loans. If, as a result of the repayment of Revolving Loans provided for in this Section 5, any payment of Eurodollar Rate Loans occurs on a day which is not the last day
of the applicable Interest Period, the Borrower will pay to the Administrative Agent for the benefit of any Lender holding a Eurodollar Rate Loan any loss or cost incurred by such Lender resulting therefrom in accordance with
Section 3.05 of the Credit Agreement. Upon the Increase Effective Date and the making of the payments described in this Section 5, each Increasing Lender shall be deemed to have irrevocably and unconditionally purchased and
received, without recourse or warranty, an undivided participation in all outstanding Swing Line Loans and L/C Obligations in accordance with its Revolving Pro Rata Share (after giving effect to the increase in the Aggregate Revolving Commitment in
accordance with this Agreement).

6. GUARANTOR’S ACKNOWLEDGMENT. By signing below, each Guarantor (a) acknowledges,
consents and agrees to the execution, delivery and performance by the Borrower of this Agreement, (b) acknowledges and agrees that its obligations in respect of its Guaranty (i) are not released, diminished, waived, modified, impaired or
affected in any manner by this Agreement or any of the provisions contemplated herein and (ii) cover the Aggregate Revolving Commitment as increased by this Agreement, (c) ratifies and confirms its obligations under its Guaranty, and
(d) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Guaranty.

7. REFERENCE
TO THE CREDIT AGREEMENT
.

(a) Upon the effectiveness of this Agreement, each reference in the Credit Agreement to
“this Agreement”, “hereunder”, or words of like import shall mean and be a reference to the Credit Agreement, as modified hereby. This Agreement shall be a Loan Document.

STYLE="margin-top:0px;margin-bottom:0px"> 


3









(b) The Credit Agreement, as modified herein, shall remain in full force and effect and
is hereby ratified and confirmed.

8. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay promptly after demand all reasonable
costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Agreement and the other instruments and documents to be delivered hereunder (including the reasonable fees and
out-of-pocket expenses of counsel for the Administrative Agent with respect thereto).

9. EXECUTION IN COUNTERPARTS. This Agreement
may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and
the same instrument. For purposes of this Agreement, a counterpart hereof (or signature page thereto) signed and transmitted by any Person party hereto to the Administrative Agent (or its counsel) by facsimile machine, telecopier or electronic mail
is to be treated as an original. The signature of such Person thereon, for purposes hereof, is to be considered as an original signature, and the counterpart (or signature page thereto) so transmitted is to be considered to have the same binding
effect as an original signature on an original document.

10. GOVERNING LAW; BINDING EFFECT. This Agreement shall be deemed to be a
contract made under and governed by and continued in accordance with the internal laws of the State of Texas applicable to agreements made and to be performed entirely within such state, provided that each party shall retain all rights arising under
federal law. This Agreement shall be binding upon the parties hereto and their respective successors and assigns.

11. HEADINGS.
Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

FACE="Times New Roman" SIZE="2">12. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, THE OTHER LOAN DOCUMENTS, INCLUDING THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 








REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

 


4









IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date above written.

 





















TEAM, INC., a Texas corporation
By:  
 Phillip J. Hawk, Chief Executive Officer

 

 

SIZE="1"> 


5





























BANK OF AMERICA, N.A., as

Administrative
Agent

By:  
 

Suzanne M. Paul

Vice President

 





















BANK OF AMERICA, N.A., as a Lender,

L/C
Issuer and Swing Line Lender

By:  
 

Gary L. Mingle

Senior Vice
President

 

 

STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 

 

 


6



































BRANCH BANKING & TRUST

COMPANY, as
a Lender

By:  
 SIZE="2">Name:                                      
                              
 Title:
                                         
                            

 

 


7

































COMPASS BANK, as a Lender

By:  
 SIZE="2">Name:                                      
                                
 SIZE="2">Title:                                      
                                  

 


8






































JPMORGAN CHASE BANK, N.A., as a Lender
By:    
 SIZE="2">Name:                                      
                                
 SIZE="2">Title:                                      
                                  

 


9









ACKNOWLEDGED AND AGREED TO:

 






























TEAM INDUSTRIAL SERVICES, INC.,

a Texas
corporation

By:    
 SIZE="2">Name:                                      
                                
 SIZE="2">Title:                                      
                                  

 

 






























TEAM INDUSTRIAL SERVICES

INTERNATIONAL,
INC., a Delaware corporation

By:    
 SIZE="2">Name:                                      
                                
 SIZE="2">Title:                                      
                                  

 






























AITEC USA INC., a Delaware corporation
By:    
 SIZE="2">Name:                                      
                                
 SIZE="2">Title:                                      
                                  

 

 






























AITEC INVESTMENTS USA INC.,

a Delaware
corporation

By:    
 SIZE="2">Name:                                      
                                
 SIZE="2">Title:                                      
                                  

 


10









 






























TEAM, INC., a Delaware corporation
By:    
 SIZE="2">Name:                                      
                                
 SIZE="2">Title:                                      
                                  

 


11









SCHEDULE 2.01

FACE="Times New Roman" SIZE="2">REVOLVING COMMITMENTS

AND REVOLVING PRO RATA SHARES

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 




















































Lender

  Revolving Commitment  Revolving Pro Rata
Share

Bank of America, N.A.

  $35,000,000  24.137931035%

Branch Banking & Trust Company

  $29,250,000  20.172413793%

Compass Bank

  $29,250,000  20.172413793%

JPMorgan Chase Bank, N.A.

  $29,250,000  20.172413793%

Comerica Bank

  $22,250,000  15.344827586%

Total

  $145,000,000  100.000000000%

 


Schedule 2.01







EX-21
3
dex21.htm
SUBSIDIARIES OF THE COMPANY


SUBSIDIARIES OF THE COMPANY




Exhibit 21

FACE="Times New Roman" SIZE="2">SUBSIDIARIES OF REGISTRANT

 
































































































COMPANY

  

JURISDICTION / STATE OF INCORPORATION

Team, Inc.  Texas

Team, Inc.

  Delaware

Team Industrial Services, Inc.

  Texas

Aitec Investments USA Inc.

  Delaware

Aitec USA, Inc.

  Delaware

Team Industrial Services International, Inc.

  Delaware

TISI Acquisition Inc.

  Canada

Global Heat (1998) Inc.*

  Canada

TISI Canada Inc.

  Canada

Global Heat U.K. Ltd.

  United Kingdom

TISI Inspection Services Inc.*

  Canada

TISI Inspection Services East Inc*

  Canada

TISI Inspection Services West Inc*

  Canada

TISI VI, LLC

  USVI

1728853 Ontario Inc.*

  Canada

Teaminc. Europe B.V.

  The Netherlands

Team Industrial Services Asia (PTE) Ltd.

  Singapore

Team Industrial Services Trinidad, Ltd.

  Trinidad, West Indies

TISI Trinidad Limited

  Trinidad, West Indies

Team Industrial Services, C.V. de S.A.

  Venezuela

Leak Repairs Specam B.V.

  The Netherlands

 





*Removed subsequent to our year ended May 31, 2008





EX-23.1
4
dex231.htm
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - KPMG LLP


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - KPMG LLP




Exhibit 23.1

FACE="Times New Roman" SIZE="2">Consent of Independent Registered Public Accounting Firm

The Board of Directors

STYLE="margin-top:0px;margin-bottom:0px">Team, Inc. and Subsidiaries:

We consent to the incorporation by reference
in the registration statements (No. 33-74382, No. 33-88684, No. 333-119341, No. 333-119344, No. 333-119346, No. 333-30003, No. 333-72329, No. 333-74060, No. 333-72331, No. 333-74070, No. 333-74062, No. 333-29997, No. 333-74068, No. 333-138011, and
No. 333-151151) on Form S-8 of Team, Inc. and Subsidiaries of our reports dated July 30, 2008, with respect to the consolidated balance sheets of Team, Inc. and Subsidiaries as of May 31, 2008 and 2007, and the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2008, and the effectiveness of internal control over financial reporting as of May 31, 2008, which reports
appear in the May 31, 2008 annual report on Form 10-K of Team, Inc. and Subsidiaries.

As discussed in Note 9 to the consolidated financial statements,
effective June 1, 2006 the Company changed its method of accounting for share-based payments.

/s/ KPMG LLP

STYLE="margin-top:12px;margin-bottom:0px">Houston, Texas

July 30, 2008






EX-31.1
5
dex311.htm
CERTIFICATIONS PURSUANT TO SECTION 302


CERTIFICATIONS PURSUANT TO SECTION 302




Exhibit 31.1

SIZE="2">I, Philip J. Hawk, certify that:

 





1.I have reviewed this annual report on Form 10-K of Team, Inc.;

 





2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 





3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 





4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 






 a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 






 b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px"> 






 c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 






 d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent quarter that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 





5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the re