-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D4TzuEjC1jhBpZxq56U8A+RX+AA32bOON2TvcErbJHM1XOy/Wmz0jmfdCLPCfcd/ evFwDC1giG+ZlSVO6mzXIg== 0000950129-03-004977.txt : 20031015 0000950129-03-004977.hdr.sgml : 20031013 20031015154354 ACCESSION NUMBER: 0000950129-03-004977 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031015 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08604 FILM NUMBER: 03941898 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-Q 1 h09621e10vq.txt TEAM, INC.- PERIOD ENDED AUGUST 31, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 2003 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to ----------------------- --------------------------- Commission file number 0-9950 --------------------------------------------------------- TEAM, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Texas 74-1765729 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 200 Hermann Drive, Alvin, Texas 77511 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (281) 331-6154 ------------------------------ ---------- Indicate by checkmark 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 [ ] On October 9, 2003, there were 7,594,204 shares of the Registrant's common stock outstanding. TEAM, INC. INDEX
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets -- 1 August 31, 2003 (Unaudited) and May 31, 2003 Consolidated Condensed Statements of Operations (Unaudited) -- 2 Three Months Ended August 31, 2003 and 2002 Consolidated Condensed Statements of Cash Flows (Unaudited) -- 3 Three Months Ended August 31, 2003 and 2002 Notes to Unaudited Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis 8 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure 12 about Market Risk Item 4. Controls and Procedures 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
AUGUST 31, MAY 31, ASSETS 2003 2003 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents $ 788,000 $ 854,000 Accounts receivable, net of allowance for doubtful accounts of $580,000 and $533,000 20,085,000 17,707,000 Inventories 9,226,000 9,498,000 Prepaid expenses and other current assets 1,930,000 1,358,000 ------------ ------------ Total Current Assets 32,029,000 29,417,000 Property, plant and equipment, net of accumulated depreciation of $18,045,000 and $17,542,000 13,005,000 12,268,000 Goodwill, net of accumulated amortization of $922,000 10,049,000 10,049,000 Other assets 432,000 490,000 ------------ ------------ Total Assets $ 55,515,000 $ 52,224,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,482,000 $ 1,482,000 Accounts payable 4,024,000 3,195,000 Accrued liabilities 3,967,000 5,027,000 Income taxes payable 774,000 -- ------------ ------------ Total Current Liabilities 10,247,000 9,704,000 Long-term debt 11,186,000 9,577,000 Other long-term liabilities 930,000 990,000 Minority interest 270,000 218,000 ------------ ------------ Total Liabilities 22,633,000 20,489,000 ------------ ------------ Commitments and Contingencies Stockholders' Equity: Preferred stock, 500,000 shares authorized, none issued Common stock, par value $.30 per share, 30,000,000 shares authorized, 8,612,512 and 8,587,512 shares issued at August 31, 2003 and May 31, 2003, respectively 2,584,000 2,576,000 Additional paid-in capital 34,235,000 34,065,000 Retained earnings (accumulated deficit) 1,094,000 (268,000) Accumulated other comprehensive income (loss) 1,000 (1,000) Treasury stock at cost, 1,018,308 and 968,308 shares (5,032,000) (4,637,000) ------------ ------------ Total Stockholders' Equity 32,882,000 31,735,000 ------------ ------------ Total Liabilities and Stockholders' Equity $ 55,515,000 $ 52,224,000 ============ ============
See notes to unaudited consolidated condensed financial statements. -1- TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 2003 2002 ------------ ------------ Revenues $ 24,918,000 $ 22,008,000 Operating expenses 14,806,000 12,977,000 ------------ ------------ Gross Margin 10,112,000 9,031,000 Selling, general and administrative expenses 7,718,000 6,993,000 Non-cash G&A compensation cost 31,000 21,000 ------------ ------------ Earnings before interest and income taxes 2,363,000 2,017,000 Interest 145,000 159,000 ------------ ------------ Earnings before income taxes 2,218,000 1,858,000 Provision for income taxes 856,000 710,000 ------------ ------------ Net income $ 1,362,000 $ 1,148,000 ============ ============ Net income per common share: Basic $ 0.18 $ 0.15 ============ ============ Diluted $ 0.17 $ 0.14 ============ ============ Weighted average number of shares outstanding: Basic 7,610,000 7,703,000 ============ ============ Diluted 8,250,000 8,490,000 ============ ============
See notes to unaudited consolidated condensed financial statements. -2- TEAM, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 2003 2002 ------------ ------------ Cash Flows from Operating Activities: Net income $ 1,362,000 $ 1,148,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 657,000 608,000 Allowance for doubtful accounts 47,000 73,000 Equity in (earnings) loss of unconsolidated subsidiary (66,000) 1,000 Non-cash G&A compensation cost 31,000 21,000 Change in assets and liabilities (Increase) decrease: Accounts receivable (2,425,000) 2,557,000 Inventories 272,000 (228,000) Prepaid expenses and other current assets (535,000) (351,000) Increase (decrease): Accounts payable 829,000 (1,352,000) Accrued liabilities (987,000) (35,000) Income taxes payable 808,000 (101,000) ------------ ------------ Net cash (used in ) provided by operating activities (7,000) 2,341,000 ------------ ------------ Cash Flows From Investing Activities: Capital expenditures (1,315,000) (351,000) Additions to rental and demo machines (22,000) (91,000) Proceeds from sale of assets 1,000 8,000 Other 70,000 46,000 ------------ ------------ Net cash used in investing activities (1,266,000) (388,000) ------------ ------------ Cash Flows From Financing Activities: Borrowings (payments) under debt agreements and other long-term liabilities 1,549,000 (858,000) Repurchase of common stock (395,000) (514,000) Issuance of common stock 53,000 417,000 ------------ ------------ Net cash provided by (used in) financing activities 1,207,000 (955,000) ------------ ------------ Net (decrease) increase in cash and cash equivalents (66,000) 998,000 Cash and cash equivalents at beginning of year 854,000 823,000 ------------ ------------ Cash and cash equivalents at end of period $ 788,000 $ 1,821,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 153,000 $ 165,000 ============ ============ Income taxes paid $ 25,000 $ 776,000 ============ ============
See notes to unaudited consolidated condensed financial statements. -3- TEAM, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. Method of Presentation General The interim financial statements are unaudited, but in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for such periods. The consolidated condensed balance sheet at May 31, 2003 is derived from the May 31, 2003 audited consolidated financial statements. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in Team, Inc.'s ("the Company") annual report on Form 10-K for the fiscal year ended May 31, 2003. New Accounting Standards In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets, except for certain obligations of lessees. SFAS 143 became effective for the Company in June 2003. The adoption of Statement 143 has not impacted the Company's financial statements. SFAS No. 146, "Accounting for Exit or Disposal Activities" was issued in June 2002. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for disposal activities occurring after December 31, 2002. The adoption of SFAS No 146 has not impacted the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in these notes to the consolidated financial statements. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for the options granted after this date was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for August 31, 2003 and 2002, respectively: risk-free interest rate of 1.9% and 1.8%; volatility factor of the expected market price of the Company's common stock of 32.4% and 35.6%; expected dividend yield percentage of 0.0% for each period; and a weighted average expected life of the option of three years for each period. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models -4- require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company's pro forma information, as if the fair value method described above had been adopted, is as follows:
THREE MONTHS ENDED AUGUST 31, ----------------------------- 2003 2002 ------------ ------------ Net income - as reported $ 1,362,000 $ 1,148,000 Stock based employee compensation expense included in reported net income 31,000 21,000 Total stock-based employee compensation expense determined under fair value based method for all awards (44,000) (41,000) ------------ ------------ Pro forma net income $ 1,349,000 $ 1,128,000 ============ ============ Earnings per share - Basic $ 0.18 $ 0.15 ============ ============ Pro forma earnings per share--Basic $ 0.18 $ 0.15 ============ ============ Earnings per share - diluted $ 0.17 $ 0.14 ============ ============ Pro forma earnings per share--diluted $ 0.16 $ 0.13 ============ ============
The Company has reviewed other new accounting standards not identified above and does not believe any other new standard will have a material impact on the Company's financial position or operating results. 2. Dividends and Stock Repurchases No dividends were paid during the three months ended August 31, 2003. Pursuant to the Company's Credit Agreement, the Company may not pay quarterly dividends without the consent of its senior lender. Future dividend payments will depend upon the Company's financial condition and other relevant matters. In the three months ended August 31, 2003, the Company reacquired 50,000 shares pursuant to an open-market repurchase plan at a weighted average price of $7.89 per share. These shares have not been formally retired and, accordingly, these shares are carried as treasury stock. The Company is authorized by it Board of Directors and lender to expend up to an additional $1.1 million on open market repurchases. 3. Earnings Per Share In 1998 the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share," which specifies the computation, presentation and disclosure requirements for earnings per share ("EPS"). There is no difference, for either of the periods 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 -5- 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. There were 225,500 shares of Common Stock outstanding for the three-months ended August 31, 2003, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the Common Stock. For the three-months ended August 31, 2002, all outstanding options were "in the money" and therefore, no options were excluded from the computation of diluted EPS in that period. 4. Inventories Inventories consist of:
August 31, May 31, 2003 2003 ------------ ------------ Raw materials $ 1,029,000 $ 1,084,000 Finished goods and work in progress 8,197,000 8,414,000 ------------ ------------ Total $ 9,226,000 $ 9,498,000 ============ ============
5. Long-term debt Long-term debt consists of:
August 31, May 31, 2003 2003 ------------ ------------ Revolving loan $ 6,980,000 $ 5,000,000 Term and mortgage notes 5,688,000 6,059,000 ------------ ------------ 12,668,000 11,059,000 Less current portion 1,482,000 1,482,000 ------------ ------------ Total $ 11,186,000 $ 9,577,000 ============ ============
6. Industry Segment Information The Company has two reportable segments: industrial services and equipment sales and rentals. The industrial services segment includes services consisting of leak repair, hot tapping, emissions control monitoring, field machining, and NDT inspection. The equipment sales and rental segment is comprised solely of the operations of a wholly owned subsidiary, Climax Portable Machine Tools, Inc. The Company evaluates performance based on earnings before interest and income taxes. Inter-segment sales are eliminated in the operating measures used by the company to evaluate segment performance and have, therefore, been eliminated in the following schedules. Interest is not allocated down to the segments. -6- THREE MONTHS ENDED AUGUST 31, 2003
Industrial Equipment Corporate Services Sales & Rentals & Other Total -------------- --------------- -------------- -------------- Revenues $ 22,315,000 $ 2,603,000 $ -- $ 24,918,000 ============== ============== ============== ============== Earnings before interest & taxes 3,650,000 (95,000) (1,192,000) 2,363,000 Interest -- -- 145,000 145,000 -------------- -------------- -------------- -------------- Earnings before income taxes 3,650,000 (95,000) (1,337,000) 2,218,000 ============== ============== ============== ============== Depreciation and amortization 394,000 165,000 98,000 657,000 ============== ============== ============== ============== Capital expenditures 1,270,000 45,000 -- 1,315,000 ============== ============== ============== ============== Identifiable assets $ 39,010,000 $ 11,331,000 $ 5,174,000 $ 55,515,000 ============== ============== ============== ==============
THREE MONTHS ENDED AUGUST 31, 2002
Industrial Equipment Corporate Services Sales & Rentals & Other Total -------------- --------------- -------------- -------------- Revenues $ 19,032,000 $ 2,976,000 $ -- $ 22,008,000 ============== ============== ============== ============== Earnings before interest & taxes 2,812,000 256,000 (1,051,000) 2,017,000 Interest -- -- 159,000 159,000 -------------- -------------- -------------- -------------- Earnings before income taxes 2,812,000 256,000 (1,210,000) 1,858,000 ============== ============== ============== ============== Depreciation and amortization 362,000 146,000 100,000 608,000 ============== ============== ============== ============== Capital expenditures 324,000 9,000 18,000 351,000 ============== ============== ============== ============== Identifiable assets $ 33,855,000 $ 11,738,000 $ 4,396,000 $ 49,989,000 ============== ============== ============== ==============
7. Comprehensive income Comprehensive income represents the change in the Company's equity from transactions and other events and circumstances from non-owner sources and includes all changes in equity except those resulting from investments by owners and distributions to owners. Comprehensive income is as follows:
Three Months Ended August 31, ------------------------------ 2003 2002 ------------ ------------ Net income $ 1,362,000 $ 1,148,000 Other comprehensive gain (loss): Unrealized loss on derivative instruments net of $8,000 and $3,000 tax benefit, respectively (13,000) (5,000) Foreign currency translation adjustment 15,000 -- ------------ ------------ Comprehensive income $ 1,364,000 $ 1,143,000 ============ ============
-7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 2003 COMPARED TO THREE MONTHS ENDED AUGUST 31, 2002 Revenues for the quarter ended August 31, 2003 were $24.9 million compared to $22.0 million for the corresponding period of the preceding year. Operating margins (shown as "gross margin" in the Consolidated Condensed Statements of Operations) were 40.6% of revenues in the first quarter of fiscal 2004, a slight decrease from 41.0% in the same quarter last year. Net income increased to $1,362 thousand ($.17 per diluted share) as compared to $1,148 thousand ($.14 per diluted share) in last year's quarter. The industrial services segment revenues were $22.3 million in the August 2003 quarter, an increase of $3.3 million (17%) over the prior year. Operating profits for the segment (earnings before interest and taxes) were up 30%, increasing to $3.7 million in the August 2003 quarter versus $2.8 million in the same quarter last year. The industrial services segment benefited from double digit growth in several of its service lines--including on-stream leak repair, hot-tapping, field machining and the new field valve repair service line. Valve repair revenues exceeded $1 million in the quarter, in only the second full quarter in this offering, due to the completion of a significant turnaround project in the quarter. NDT Inspection revenues declined in the quarter by 15% due to significantly reduced pipeline projects versus the prior year quarter. The equipment sales and rental segment (the "Climax" business) struggled during the quarter with lower sales and a weaker product mix. Sales were $2.6 million, down 13% from the prior year first quarter. In addition, a greater portion of the sales in the quarter were related to resale items not manufactured by Climax and, typically having lower gross margins. As a result, the segment reported a loss of $95 thousand in the quarter versus an operating profit of $256 thousand in last year's quarter. The current quarter loss includes professional fees of approximately $95 thousand associated with the sales tax matter discussed in prior filings. Total corporate general and administrative costs were $1,192 thousand in the August 2003 quarter, versus $1,051 thousand in the same quarter last year. The increase of $141 thousand is due primarily to increases in legal and professional fees ($60 thousand), non-cash compensation G&A cost ($10 thousand), and incentive compensation accruals ($30 thousand), as well as certain charges whose timing is different than last year ($30 thousand). LIQUIDITY AND CAPITAL RESOURCES At August 31, 2003, our liquid working capital (cash and accounts receivable, less current liabilities) totaled $10.6 million, which is up $1.7 million from May 31, 2003. During the August 2003 quarter, we increased our total outstanding debt by $1.6 million. This increase was due to 1) accounts receivable growth of $2 million in the quarter primarily as a result of an individually significant turnaround project completed in August 2003 and 2) expenditures of $1.3 million for equipment associated primarily with the valve repair business and for an upgrade of our emissions monitoring hardware. We expect capital expenditures for all of fiscal 2004 to be on the high end of our usual spending pattern of $2 to $3 million per year. In the opinion of management, we currently have sufficient funds and adequate financial sources available to meet our anticipated liquidity needs. Management believes that cash flows from operations, cash balances and available borrowings will be sufficient for the foreseeable future to finance anticipated working capital requirements, capital expenditures and debt service requirements. The Company has a $24 million bank credit facility that consists of: (i) a $12,500,000 revolving loan, which matures September 30, 2005, (ii) $9,500,000 in term loans for business acquisitions and (iii) a -8- $2,000,000 mortgage loan. Amounts borrowed against the term loans are due in quarterly installments in the amount of $339,000 until the loans mature on September 30, 2005. Amounts borrowed against the mortgage loan are repaid in quarterly installments of $31,000 until its maturity date of September 30, 2008. Amounts outstanding under the credit facility bear interest at a marginal rate over either the LIBOR rate or the prime rate. At August 31, 2003, our marginal rate was 1.5% over the LIBOR rate. The weighted average rate on outstanding borrowings at August 31, 2003 is approximately 3.7%. The Company also pays a commitment fee of .25% per annum on the average amount of the unused availability under the revolving loan. The Company entered into an interest rate swap agreement that expired in September 2003 and which qualified as a cash flow hedge under SFAS No. 133. The agreement was entered into in 1998 to hedge the exposure of an increase in interest rates. Pursuant to this agreement, which covered approximately $2.1 million of outstanding debt, the Company exchanged a variable LIBOR rate for a fixed LIBOR rate of approximately 5.2%. As the interest rates on the credit facility are based on market rates, the fair value of amounts outstanding under the facility approximate the carrying value. The interest rate swap agreement, which had no carrying value, had a negative mark-to-market value of approximately $22,000 and $43,000 at August 31, 2003 and May 31, 2003, respectively. The fair value of interest rate swaps is estimated by discounting expected cash flows using quoted market interest rates. Loans under the credit facility are secured by substantially all of the assets of the Company. The terms of the agreement require the maintenance of certain financial ratios and limit investments, liens, leases and indebtedness, and dividends, among other things. At August 31, 2003, the Company was in compliance with all credit facility covenants. At August 31, 2003, the Company was contingently liable for $2.1 million in outstanding stand-by letters of credit and, at that date, approximately $4.0 million was available to borrow under the credit facility. CRITICAL ACCOUNTING POLICIES Goodwill - SFAS No. 142 Accounting for Goodwill and Other Intangible Assets became effective for the Company as of June 1, 2002. According to SFAS No. 142, goodwill that arises from purchases after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 requires that amortization of existing goodwill will cease on the first day of the adoption year. Accordingly, the Company stopped recording the amortization of goodwill as a charge to earnings effective as of the beginning of fiscal 2003. The Company had six months from the date it initially applied SFAS No. 142 to test goodwill for impairment. Thereafter, goodwill must be tested for impairment at least annually and impairment losses, if any, will be presented in the operating section of the income statement. The Company has completed the required annual impairment test for fiscal 2003 and determined that there was no impairment of goodwill as of May 31, 2003. The impairment test for the current fiscal year will not be performed until the end of the fiscal year. Revenue Recognition - The Company derives its revenues by providing a variety of industrial services including leak repair, hot tapping, emissions control services, field machining and inspection services. In addition, the Company sells and rents portable machine tools through one of its subsidiaries. For all of these services, revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer. Deferred Income Taxes - The Company records deferred income tax assets and liabilities related to temporary differences between the book and tax bases of assets and liabilities. The Company computes its deferred tax balances by multiplying these temporary differences by the current tax rates. If deferred tax assets exceed deferred tax liabilities, the Company must estimate whether those net deferred asset amounts will be -9- realized in the future. A valuation allowance is then provided for the net deferred asset amounts that are not likely to be realized. As of August 31, 2003 management believes that it is more likely than not that the Company will have sufficient future taxable income to allow it to realize the benefits of the net deferred tax assets. Accordingly, no valuation allowance has been recorded. Loss Contingencies - The Company is involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, management consults with its legal counsel and evaluates the merits of the claim based on the facts available at that time. Currently, the Company is involved with two significant legal matters, which are summarized in Legal Proceedings in Part II. Additionally, At May 31, 2003, a $150 thousand loss provision was made with respect to a sales tax matter involving Climax Portable Machine Tools, Inc., a wholly-owned subsidiary. The fiscal 2003 provision represents management's estimate of the probable loss that Climax will incur with respect to the matter, however, the ultimate outcome is subject to a great deal of variables and cannot be determined with a certainty. Management believes this issue will be fully resolved over the course of the current fiscal year and that the ultimate outcome, even if different that the amount provided, will not have a significant impact on the future operating results of Climax. In management's opinion, an adequate accrual has been made as of August 31, 2003 and May 31, 2003 to provide for any losses that may arise from those contingencies. OTHER CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The Company enters into capital leases related to certain computer and equipment and software, as well as operating leases related to facilities and transportation and other equipment. These operating leases are over terms ranging from one to five years with typical renewal options and escalation clauses. The Company is occasionally required to post letters of credit generally issued by a bank as collateral under certain agreements. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that the Company has failed to meet its obligations under the letter of credit. If this were to occur, the Company would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. To date, the Company has not had any claims made against a letter of credit that resulted in a payment made be the issuer or the Company to the holder. The Company believes that it is unlikely that it will have to fund claims made under letters of credit in the foreseeable future. NEW ACCOUNTING STANDARDS In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement applies to legal obligations associated with the retirement of long-lived assets, except for certain obligations of lessees. SFAS 143 became effective for the Company in June 2003. The adoption of Statement 143 has not impacted the Company's financial statements. SFAS No. 146, "Accounting for Exit or Disposal Activities" was issued in June 2002. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS No. 146 is effective for disposal activities occurring after December 31, 2002. The adoption of SFAS No 146 has not impacted the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition -10- for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to the consolidated financial statements. The company has reviewed other new accounting standards not identified above and does not believe any other new standards will have a material impact on the Company's financial position or operating results. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Any forward-looking information contained herein is being provided in accordance with the provisions of the Private Securities Litigation Reform Act. Such information is subject to certain assumptions and beliefs based on current information known to the Company and is subject to factors that could result in actual results differing materially from those anticipated in any forward-looking statements contained herein. Such factors include domestic and international economic activity, interest rates, market conditions for the Company's customers, regulatory changes and legal proceedings, and the Company's successful implementation of its internal operating plans. Accordingly, there can be no assurance that any forward-looking statements contained herein will occur or that objectives will be achieved. -11- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company holds certain floating-rate obligations. The exposure of these obligations to increase in short-term interest rates is limited by interest rate swap agreements entered into by the Company. There were no material quantitative or qualitative changes during the first three months of fiscal 2004 in the Company's market risk sensitive instruments. ITEM 4. CONTROLS AND PROCEDURES The Company's chief executive officer and its chief financial officer have evaluated the Company's disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)) as of August 31, 2003, and have concluded that such controls are effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In May 2002, a jury verdict was rendered against the Company in an employment related case brought in the United States District Court for the Western District of Louisiana. The case involves allegations of misconduct by personnel in one of the Company's branches during the years 1998 and 1999. In August 2002, the Court ruled on certain post-trial motions and determined that, with respect to one of the two plaintiffs, a $300,000 judgment was entered against the Company. In December 2002, the Company settled the lawsuit with respect to that plaintiff for an amount less than the judgment entered. With respect to the second plaintiff, the Court set aside the jury verdict on most points and granted the Company's motion for a new trial on a specific issue. The second plaintiff has appealed the District Court's decision, which is currently pending in the United States Court of Appeals for the Fifth Circuit. The Company is presently evaluating its legal options with respect to this case. In management's opinion, an adequate accrual was made in the financial statements as of August 31, 2003 and May 31, 2003 to provide for the probable amount of loss in this case. In December 2001, the Company and 18 other defendants were sued in a lawsuit styled Lyondell Chemical Company and Atlantic Richfield Company v. Ethyl Corporation et al in the United States District Court for the Eastern District of Texas, Beaumont Division. Other defendants have subsequently been added. The suit seeks contribution for clean-up costs expended by the plaintiffs in cleaning up an EPA Superfund site at which hazardous wastes were disposed. A former subsidiary of the Company acquired in 1978 and sold back to the prior owner in 1984, had allegedly disposed of hazardous wastes at the site during the period 1969-1976, years before the Company owned it. The plaintiff's allege that the Company is a legal successor-in-interest to the former subsidiary and liable for its prior liabilities. The case is in the discovery stage and it is not possible at this time to estimate reasonably or accurately the likelihood or amount of any potential liability in this matter, if any. The Company vigorously denies that it is a successor-in-interest to the former subsidiary and that it has any liability in the matter. The Company and certain subsidiaries are involved in various other lawsuits and are subject to various claims and proceedings encountered in the normal conduct of business. In the opinion of management, any uninsured losses that might arise from these lawsuits and proceedings will not have a materially adverse effect on the Company's consolidated financial statements. -12- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description 31.1 Certification for Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification for Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification for Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification for Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K The Company filed (1) report on Form 8-K during the quarter ended August 31, 2003, covering a press release announcing its earnings for the quarter ended May 31, 2003. The date of the report was July 16, 2003. -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. TEAM, INC (Registrant) Date: October 15, 2003 /s/ PHILIP J. HAWK Philip J. Hawk Chief Executive Officer and Director /s/ TED W. OWEN Ted W. Owen, Senior Vice President - Finance and Administration (Principal Financial Officer and Principal Accounting Officer) -14- INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 31.1 Certification for Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification for Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification for Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification for Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-31.1 3 h09621exv31w1.txt CERTIFICATION FOR CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 I, Philip J. Hawk, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Team, Inc., ("Team"); 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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. Team'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 Team 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 Team, 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; 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; c) evaluated the effectiveness of Team'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 Team's internal control over financial reporting that occurred during Team's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Team's internal control over financial reporting; and 5. Team's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Team's auditors and audit committee of Team's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Team's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Team's internal control over financial reporting. Date: October 15, 2003 /S/ PHILIP J. HAWK -------------------------------- Philip J. Hawk Chief Executive Officer EX-31.2 4 h09621exv31w2.txt CERTIFICATION FOR CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 I, Ted W. Owen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Team, Inc., ("Team"); 2. Based on my knowledge, this 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 quarterly report; 4. Team'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)) Team 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 Team, 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; 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; c) evaluated the effectiveness of Team'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 Team's internal control over financial reporting that occurred during Team's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Team's internal control over financial reporting; and 5. Team's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Team's auditors and audit committee of Team's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Team's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Team's internal control over financial reporting. Date: October 15, 2003 /S/ Ted W Owen -------------------------------- Ted W. Owen Senior Vice President - Finance and Administration EX-32.1 5 h09621exv32w1.txt CERTIFICATION FOR CEO PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ending August 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Phillip J. Hawk, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ PHILIP J. HAWK - -------------------------- Philip J. Hawk Chairman and Chief Executive Officer October 15, 2003 EX-32.2 6 h09621exv32w2.txt CERTIFICATION FOR CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ending August 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ted W. Owen, Senior Vice President - Finance and Administration of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ TED W. OWEN - -------------------------- Ted W. Owen Senior Vice President - Finance and Administration October 15, 2003 -----END PRIVACY-ENHANCED MESSAGE-----