Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2019

OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
    
Commission File Number 001-08604
 
https://cdn.kscope.io/1fa8f83e5a0d115cc361578e48dacbe0-teama31.jpg
TEAM, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
74-1765729
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
13131 Dairy Ashford, Suite 600, Sugar Land, Texas
 
77478
(Address of Principal Executive Offices)
 
(Zip Code)
(281) 331-6154
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, $0.30 par value
TISI
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
    ¨
  
Accelerated filer
 
    þ
Non-accelerated filer
 
    ¨
  
Smaller reporting company
 
    ¨
 
 
 
 
Emerging growth company
 
    ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ
The aggregate market value of the voting stock held by non-affiliates on June 28, 2019 was approximately $316 million, determined using the closing price of shares of common stock on the New York Stock Exchange on that date of $15.32.
For purposes for the foregoing calculation only, all directors, executive officers, the Team, Inc. Salary Deferral Plan and Trust and known 10% or greater beneficial owners have been deemed affiliates.
The Registrant had 30,518,678 shares of common stock, par value $0.30, outstanding as of March 10, 2020.
Documents Incorporated by Reference
Portions of our Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
 


Table of Contents

ANNUAL REPORT ON FORM 10-K INDEX
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
 
 
 
 
 
 
 
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
 
ITEM 9B.
 
 
 
 
 
 
 
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
 
 
 
 
 
 
 
ITEM 15.
ITEM 16.
 
 
 
 
 


Table of Contents

Certain items required in Part III of this Annual Report on Form 10-K can be found in our 2020 Proxy Statement and are incorporated herein by reference. A copy of the 2020 Proxy Statement will be provided, without charge, to any person who receives a copy of this Annual Report on Form 10-K and submits a written request to Team, Inc., Attn: Corporate Secretary, 13131 Dairy Ashford, Suite 600, Sugar Land, Texas 77478.
PART I
 
ITEM 1.
BUSINESS
General Information
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 incorporated in the State of Delaware on October 20, 2006 and our company website can be found at www.teaminc.com. Our corporate headquarters is located at 13131 Dairy Ashford, Suite 600, Sugar Land, Texas, 77478 and our telephone number is (281) 331-6154. Our stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “TISI.” On November 10, 2015, we announced a change of our fiscal year end to December 31 of each calendar year from May 31.
We are a global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions. We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability and operational efficiency for our client’s most critical assets. We conduct operations in three segments: Inspection and Heat Treating (“IHT”) (formerly TeamQualspec), Mechanical Services (“MS”) (formerly TeamFurmanite) and Quest Integrity. Through the capabilities and resources in these three segments, we believe that Team is uniquely qualified to provide integrated solutions involving in their most basic form: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the client’s election. In addition, the Company is capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry. We also believe that Team is unique in its ability to provide services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services and (iii) nested or run-and-maintain services.
IHT provides conventional and advanced non-destructive testing (“NDT”) services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities.
MS provides primarily call-out and turnaround services under both on-stream and off-line/shut down circumstances. On-stream services offered by MS represent the services offered while plants are operating and under pressure. These services include leak repair, fugitive emissions control, hot tapping and line intervention to help operators manage the material opportunity costs associated with taking off line process, transportation or storage infrastructure. Turnaround services are project-related and demand is a function of the number and scope of scheduled and unscheduled facility turnarounds as well as new industrial facility construction or expansion activities. The turnaround and call-out services MS provides include field machining, technical bolting, vapor barrier plug and weld testing, field valve repair and valve product sales.
Quest Integrity provides integrity and reliability management solutions for the process, pipeline and power sectors. These solutions encompass three broadly-defined disciplines: (1) highly specialized in-line inspection services for historically unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software; (2) advanced engineering and condition assessment services through a multi-disciplined engineering team and related lab support; and (3) advanced digital imaging including remote digital video imaging, laser scanning and laser profilometry-enabled reformer care services.
We offer these services globally through approximately 200 locations in 20 countries throughout the world with approximately 6,800 employees. We market our services to companies in a diverse array of heavy industries which include:
Energy (refining, power, renewables, nuclear, LNG, offshore oil and gas, pipelines, terminals and storage)
Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive and mining)
Public Infrastructure (bridges, ports, construction and building, roads and railways)
Aerospace and Defense

1

Table of Contents

In July 2018, we announced an organizational restructuring. The organizational changes include a Product and Service Line organization and an Operations organization. The Product and Service Lines organization is responsible for standardization of best practices and the related technical training and program development, value positioning and pricing, and technology development and innovation across Team’s global enterprise. The Operations organization, comprised of cross-segment divisions aligned by major geographic regions, is responsible for executing product and service delivery in accordance with established Team service line standards, safety and quality protocols. Overall company management and decision-making continues to be performed according to the structure of the three operating segments (IHT, MS and Quest Integrity). Accordingly, these changes had no effect on our reportable segments.
Narrative Description of Business
Inspection and Heat Treating Group:
IHT offers standard to specialty inspection services as well as heat treating services. Heat treating services are generally associated with turnaround or project activities. A description of these core IHT services is as follows:
Non-Destructive Evaluation and Testing Services. Machined parts and industrial structures can be complex systems that experience extreme loads and fatigue during their lifetime. Our Non-Destructive Evaluation and Testing (“NDE/NDT”) services enable the inspection of these components without permanently altering the equipment. It is a highly valuable technique that is often used to validate the integrity of materials, detect instabilities, discover performance outside of tolerances, identify failed components, or highlight an inadequate control system. Inspection services frequently require industry recognized training and certification. We employ training and certification programs, which are designed to meet or exceed industry standards. As assets continue to age and remain in service often beyond the original design life, and compliance regulations advance in parallel, inspection and assessment techniques are playing a critical role in safely monitoring fitness-for-service and where practical, extending the useful life of this aging infrastructure.
Radiographic Testing. Radiographic Testing (“RT”) is used to detect discontinuities in ferrous and nonferrous castings, welds or forgings using X-ray or gamma ray radiation. RT reveals both external and internal defects, internal assembly details and changes in thickness. Our licensed technicians utilize conventional, computed and real-time radiography testing techniques depending upon the complexity and needs of our customers.
Ultrasonic Testing. Ultrasonic Testing (“UT”) uses high frequency ultrasonic waves to detect surface breaking and internal imperfections, measure material thickness and determine acceptance or rejection of a test object based on a reference code or standard. We offer ten different types of UT methods, including traditional scans as well as automated and high speed ultrasonic Electro Magnet Acoustic Transducer testing. Each method is utilized to meet a specific material or process application requirement.
Magnetic Particle Inspection. Magnetic Particle Inspection is an NDT process for detecting surface and slightly subsurface discontinuities in ferroelectric materials such as iron, nickel, cobalt, and some of their alloys. The process puts a magnetic field into the test object. When the part is magnetized, flaws perpendicular to the magnetic field direction cause flux leakage. If a lapse or a crack is present, the magnetic particles will be attracted to the flawed area, providing our technician with what is called an indication. Our technician will then evaluate the indication to assess the location, size, shape and extent of these imperfections.
Liquid Penetrant Inspection. Liquid Penetrant Inspection is one of the most widely used NDE/NDT methods. Its popularity can be attributed to two main factors: its relative ease of use and its flexibility. Liquid Penetrant Inspection can be used to inspect almost any material. At Team, we utilize Liquid Penetrant Inspection to detect surface discontinuities in both ferromagnetic and non-ferromagnetic materials. In castings and forgings, there may be cracks or leaks in new products or fatigue cracks in in-service components.
Positive Material Identification. Positive Material Identification (“PMI”) quickly and accurately identifies the composition of more than 100 different metallurgical alloys onsite. Team can perform PMI on virtually any size or shape of pipe, plate, weld, welding materials, machined parts or castings.
Electromagnetic Testing. Electromagnetic Testing applies to a family of test methods that use magnetism and electricity to detect or measure cracks, flaws, corrosion or heat damage in conductive materials. Magnetic properties and geometric analysis are used to determine the best technique to identify defects. Our electromagnetic services enable our technicians to evaluate small cracks, pits, dents and general thinning in tubing with small diameters, large steel surfaces such as storage tank floors, and everything in between.
Alternating Current Field Measurement. Originally developed for inspection of fatigue cracking, our Alternating Current Field Measurement (“ACFM”) is an advanced technique for detecting surface cracks and pinpointing the location, length and depth of the defect. Our ACFM works through paint and coatings and in a wide range of temperatures. Results are automatically recorded and accepted by certification authorities.

2

Table of Contents

Eddy Current Testing. Eddy Current Testing (“ECT”) is ideal for nonferrous materials such as heat exchanger tubes, condensers, boilers, tubing and aircraft surfaces. Team’s ECT uses electromagnetic induction to detect flaws in conductive materials, displaying the presence of very small cracks, pits, dents and general thinning.
Long-Range Guided Ultrasonics. Guided wave inspection is a method of ultrasonic testing that enables the detection and location of pipe defects above and below ground without disruption of service. This technique only requires a small area of excavation to perform the testing where applicable. Guided ultrasonics sends a bilateral signal over hundreds of feet allowing long ranges of piping to be inspected at one time.
Phased Array Ultrasonic Testing. Phased Array Ultrasonics (“PAUT”) provides enhanced detection, characterization and sizing capability of flaws in manufactured materials like welds. PAUT applies computer-controlled excitation to individual elements in a multi-element probe. By varying the timing of the excitation, the sound beam can be swept through a range of angles to a specific area of interest.
Tank Inspection and Management Programs. Our above ground storage tank (“ABST”) inspection and management team, TCI Services, Inc. (“TCI”), specializes in performing inspections, condition assessment and selected repair services across the United States (“U.S.”) for ABST and related infrastructure. Backed by Team’s in-house engineering, documentation and certification services – including American Petroleum Institute 653 evaluations – TCI’s on-site tank inspections, repair and maintenance services help keep customers’ tanks fully operational and compliant with stringent industry standards.
Rope Access. We provide a range of innovative and cost-effective solutions to suit the customer’s individual requirements for inspection and maintenance services for the energy and industrial markets. Our rope access solutions allow for work to be carried out safely and is quicker than traditional methods using scaffolding, keeping costs and operational disruption to a minimum. We provide these services under full accreditation by the Industrial Rope Access Trade Association, whose guidelines are recognized by the industry as the safest method of working at heights.
Mechanical Integrity Services. Maintaining the integrity of equipment is more than simply performing inspections. A well-implemented Mechanical Integrity (“MI”) program involves multiple components that improve the safety and reliability of a facility’s equipment. Our MI programs are designed to ensure the continued integrity and fitness-for-service of piping systems, pressure vessels, tanks and related components. Our mechanical integrity engineers are trained on pertinent codes and standards of the Occupational Safety and Health Administration’s (“OSHA”) process safety management and the U.S. Environmental Protection Agency’s (the “EPA”) risk management program regulations.
Pipeline Integrity Services. We assist pipeline operators in regard to their regulatory compliance, ongoing inspection and maintenance activities that verify the safety, integrity and life expectancy of their pipeline systems. Pipeline Integrity (“PI”) services can include engineering and consulting services that review the program, prior inspection data and advise in threat planning and monitoring. Most midstream piping systems are below ground, and environmental assessments are necessary to understand the threats from topography and soil and to determine the effectiveness of the coating/cathodic protection systems. Team applies the appropriate conventional and advanced NDE methods to provide the most accurate identification, characterization and sizing of pipeline anomalies and then apply engineering service to assist with repair recommendations. Standard, accurate and timely documentation and reporting along with quality reviews with our PI services are necessary to support our clients’ regulation compliance.
Field Heat Treating Services. Field Heat Treating Services include electric resistance and gas-fired combustion, primarily utilized by industrial customers to enhance the metallurgical properties of their process piping and equipment. Electric resistance heating is the transfer of high energy power sources through attached heaters to the plant component to preheat weld joints, to remove contaminants and moisture prior to welding, for post-weld heat treatments and 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 for expanding metal parts for assembly or disassembly, expanding large bolting for industrial turbines and stress relieving projects which are cost prohibitive for electric resistance or gas-fired combustion.

3

Table of Contents

Mechanical Services Group:
MS offers standard to specialty services within on-stream, turnaround/project-related and nested environments. A description of these core MS services is as follows:
Leak Repair Services. Our leak repair services consist of on-stream repairs of leaks in pipes, valves, flanges and other parts of piping systems, pipelines and related equipment. Our on-stream repairs utilize composite repair, drill and tap repair, and both standard and custom-designed clamps and enclosures for process piping and pipelines. We use specially developed techniques, sealants and equipment for repairs. Many of our repairs are furnished as interim measures which allow plant systems to continue operating until more permanent repairs can be made during plant shut downs. Our leak repair services involve inspection of the leak by our field technicians who record pertinent information about the faulty part of the 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 International Organization for Standardization (“ISO”)-9001 certified manufacturing centers and then delivered to the job site for installation by our technicians. We maintain an inventory of raw materials and semi-finished clamps and enclosures to reduce the time required to manufacture the finished product. We have a diverse global supply chain with a network of alternate suppliers. We routinely perform due diligence on our suppliers and sources of raw materials and finished products and are continuing to pursue responsible sourcing of all materials used in our products, regardless of the country of origin.
Fugitive Emissions Control Services. We provide fugitive volatile organic compound (“VOC”) emission leak detection services that include identification, monitoring, data management and reporting primarily for the chemical, refining and natural gas processing industries. These services are designed to monitor and record VOC emissions from specific process equipment and piping components as required by environmental regulations and customer requests, typically assisting the customer in enhancing an ongoing maintenance program and/or complying with present and/or future environmental regulations. We provide specialty trained technicians in the use of portable organic chemical analyzers and data loggers to measure potential leaks at designated plant components maintained in customer or our proprietary databases. The measured data is used to prepare standard reports in compliance with EPA and local regulatory requirements. We also provide enhanced custom-designed reports to customer specifications.
Hot Tapping Services. Our hot tapping services consist of a full range of hot tapping and Line-stopTM services. Hot tapping services involve utilizing special equipment to machine a hole in a pressurized piping system so that a new branch pipe can be connected onto the existing pipeline without interrupting operations. Line-stopTM services permit the line to be isolated and 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-stopTM is a proprietary procedure that allows stopping of process flows under typically more 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. Inflatable bag stops are used when a pipe is out of round or inside surface conditions of the pipe prevent a standard line stop. Inflatable stops can also be used to back up a line stop or be used independently on low pressure systems. A small hot tap is made into a pipe and an inflatable pipe plug is inserted into the pipe allowing isolation of the pipe. Additionally, we provide innovative line stop applications for bespoke service applications to meet our clients more unconventional needs.
Field Machining Services and Technical Bolting Services. We use portable machining equipment to repair or modify machinery, equipment, vessels and piping systems not easily removed from a permanent location. As opposed to conventional machining processes where the work piece rotates and the cutting tool is fixed, in field machining, the work piece remains fixed in position and the cutting tool rotates. Other common descriptions for this service are on-site or in-place machining. Field machining services include flange facing, pipe cutting, line boring, journal turning, drilling and milling. We provide customers technical bolting as a complementary service to field machining during plant shut downs or maintenance activities. These services involve the use of hydraulic or pneumatic equipment with industry standard bolt tightening techniques to achieve reliable and leak-free connections following plant maintenance or expansion projects. Additional services include bolt disassembly and hot bolting, which is a technique to remove and replace a bolt while on-line under pressure and temperature.
Valve Repair Services and Products. We perform on-site and shop-based repairs to manual and control valves and 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 (the “NBBPVI”). 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. We also represent selected valve manufacturers and distribute their products where complementary to our clients’ valve supply and management needs.

4

Table of Contents

Field Welding. We perform certified manual, semi-automatic and fully automated machine welding services in a variety of specialty industrial applications. All Team welders are certified to applicable American Society of Mechanical Engineers (“ASME”) code and we are authorized by the NBBPVI for the repair of nuclear components, boilers and other pressure-containing components.
Vapor Barrier Plug and Weld Testing Services. We install vapor barrier plugs to provide a mechanical block of flammable vapors to allow for pipe cutting and welding down or upstream without having to purge the entire piping system. The plugs are mechanically expanded to seal on the inside pipe surface and provide a venting system to prevent pressure from building up in the piping system while the system is opened. Weld test plugs are used to verify the integrity of welded joints by providing sealing surfaces on both sides of the weld and pressuring the void cavity in between. The test plugs allow the customer to comply with the ASME hydrostatic test requirements for welded joints without having to pressurize the whole system which may result in shutdown of other systems or environmental issues with the test medium.
Valve Insertion Services. We offer professional installation services for our patented InsertValveTM. The valve installs under pressure, eliminating the need for line shut downs in the event of planned or emergency valve cut-ins. Designed for a wide range of line sizes and types, the InsertValveTM wedge gate sits on the valve body, not the pipe bottom. This unique feature prevents the seat from coming into contact with the cut pipe edges to significantly extend valve life. If a repair is ever needed, we believe it is the only valve on the market that can be repaired under pressure.
Quest Integrity:
Quest Integrity offers integrity and reliability management solutions to the energy industry in the form of advanced quantitative inspection, engineering and condition assessment services and products and digital imaging services. Quest Integrity’s advanced quantitative inspection services utilize proprietary non-destructive testing and examination (NDT/NDE) instrumentation and technology to provide in-line inspections of fired heaters, pipelines, process piping systems and steam reformers, primarily to the process, pipeline and power industries. Additionally, Quest Integrity offers engineering assessment services enabled by proprietary software and other analytical tools, and complemented by lab testing resources; and advanced digital imaging services enabled by specialized local and wide area laser scanning and video equipment and land-based and aerial robotics platforms in the form of drones.
Furnace Tube Inspection System-Enabled Services. Furnace Tube Inspection System (“FTISTM”) in-line inspection service provides an untethered 360-degree 100% coverage ultrasonic inspection of the internal and external surfaces of serpentine coils of fired heaters, which are found in refineries and other process plant environments. FTISTM allows us to detect and quantify internal/external pipe/tube wall loss, deformation and fouling and thereby identify weak points in such heaters in order to provide customers with timely, actionable information to better manage their infrastructure.
InVistaTM-Enabled Services. Our proprietary InVistaTM in-line inspection service provides an untethered 360-degree 100% coverage ultrasonic inspection of the internal and external surfaces of pipelines and process piping that are considered “unpiggable” or too challenging to inspect by traditional in-line inspection methods, due to a number of factors. InVistaTM allows us to detect and quantify pipe/tube internal/external wall loss, deformation, pitting and fouling in such pipelines and process piping. Our standard InVistaTM deliverable also provides a fitness-for-service assessment on the pipe and displays the information in a highly intuitive format, providing an integrated inspection plus condition assessment solution for customers.
Pipeline Integrity Management Services. We offer turn-key Pipeline Integrity Management services, including project management, integrity engineering and integrity management development services, in-line inspection support such as cleaning and launching/receiving, pig tracking and materials equipment selection and procurement. We offer these resources on an integrated basis with our InVistaTM in-line inspection services and engineering assessment capabilities, or individually as applicable.
Advanced Engineering and Condition Assessment Services. Employing a multi-disciplined engineering team, supported by proprietary software, other analytical tools and complementary lab testing capability, we offer a variety of advanced engineering assessment services to customers in the process, power, pipeline, petrochemical and alternative energy industries including fitness-for-service, computational mechanics, failure analysis, risk-based asset management and materials consulting.
Advanced Digital Imaging Services. Quest Integrity offers Advanced Digital Imaging (“ADI”) services utilizing a combination of proprietary and advanced third party equipment, including video, laser scanning, robotic crawlers and aerial drones, to remotely capture digital images in difficult or dangerous to access locations in and around energy industry infrastructure. We often deliver such services as part of an integrated solution where ADI may complement or further inform other inspection and condition assessment techniques.

5

Table of Contents

Acquisitions
In June 2016, we acquired a mechanical furnace and pipe cleaning business in Europe, Turbinate International B.V. (“Turbinate”) for approximately $8 million. Recognized as a service leader in the European market, Turbinate specializes in de-coking and cleaning of fired heaters and unpiggable refinery assets as well as mechanical cleaning of furnaces and pipes from two to 18 inches in diameter by means of pigging, endoscopy and ultra sound inspection services. Turbinate is located in Vianen, the Netherlands. Turbinate is reported in the Quest Integrity segment.
In April 2016, we acquired two related businesses in Europe: Quality Inspection Services (“QIS”) and TiaT Europe (“TiaT”) for a total of approximately $9 million. QIS is an NDT inspection company and TiaT is an NDT training school and consultancy and engineering company recognized as a specialist in aerospace inspections. Both companies are located in Roosendaal, the Netherlands. The businesses added approximately 65 employees to our organization in Europe and collectively serve clients in the on and offshore energy, steel construction, shipbuilding and repair and aerospace industries. QIS is the fourth largest NDT inspection company in the Netherlands and represents IHT’s first inspection operation outside of North America. QIS and TiaT are reported in the IHT segment.
In February 2016, we completed our acquisition of Furmanite Corporation (now Furmanite LLC, “Furmanite”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) under which we acquired all the outstanding shares of Furmanite in a stock transaction at a value of approximately $282.3 million which included the payoff, immediately prior to closing, of approximately $70.8 million in Furmanite debt. Under the terms of the Merger Agreement, Furmanite shareholders received 0.215 shares of Team common stock for each share of Furmanite common stock they owned. The combination doubled the size of Team’s mechanical services capabilities and established a deeper, broader talent and resource pool that better supports customers across standard and specialty mechanical services worldwide. In addition, our expanded capability and capacity offers an enhanced single-point of accountability and flexibility in addressing some of the most critical needs of clients; whether as individual services or as part of an integrated specialty industrial services solution. The purchase price allocation included net working capital of $143.9 million, $63.3 million in fixed assets, $89.0 million in intangibles, $91.4 million of non-current deferred tax liabilities, and $13.5 million of defined benefit pension liabilities, with $89.6 million allocated to goodwill. Our consolidated results include the activity of Furmanite beginning on the acquisition date of February 29, 2016. Included in the Furmanite acquisition was a process management inspection services business serving contractors and operators participating primarily in the midstream oil and gas market in the U.S. Upon acquisition, we determined that this business was not a strategic fit for Team and shortly thereafter began marketing the business to prospective buyers. We completed the sale of this operation in December 2016. The operating results of this business were reported as discontinued operations in our consolidated financial statements.
In July 2015, we acquired 100% of the membership interests in Qualspec Group LLC (“Qualspec”) for total cash consideration of $255.5 million. Qualspec is a leading provider of NDT services in the U.S., with significant operations in the West Coast, Gulf Coast and Mid-Western areas of the country. Qualspec primarily specializes in nested or run-and-maintain services and adds strength to our resident refinery inspection programs with major customer relationships across the U.S., as well as to our already strong capabilities in advanced inspection services, rope access services and the delivery of innovative inspection and condition assessment technologies to our customers. The purchase of Qualspec was financed through borrowings under our banking credit facility. The purchase price allocation included net working capital of $16.3 million, $15.5 million in fixed assets, $78.1 million in intangibles, $3.0 million of non-current deferred tax liability, with $148.5 million allocated to goodwill. Our consolidated results include the activity of Qualspec beginning on the acquisition date of July 7, 2015 in the IHT segment.
In June 2015, we purchased DK Amans Valve, an advanced valve leader located in Long Beach, California, with a portfolio of projects from various sectors including oil and gas refining, pipelines and power generation for a total consideration of $12.3 million, net of cash acquired of $0.1 million. The purchase price included net working capital of $3.0 million, $0.6 million in fixed assets and $8.8 million in intangibles that includes $2.5 million allocated to goodwill. The purchase price allocation included contingent consideration initially valued at $1.8 million, but as a result of meeting certain performance targets, ultimately resulted in the payment of additional consideration of $4.0 million. DK Amans Valve is reported in the MS segment.
Marketing and Customers
Our industrial services are marketed principally by personnel based at our service locations. We believe that these service locations are situated to facilitate timely responses to customer needs with on-call expertise, which is an important feature of selling and providing our services. The capacity and capability scope of our discrete and integrated services also allows us to benefit from the procurement trends of many of our customers who are seeking to reduce the number of contractors and vendors in their facilities, as well as to outsource more of such services. No single customer accounted for 10% or more of consolidated revenues during the years ended December 31, 2019, 2018 or 2017.

6

Table of Contents

Generally, customers are billed on a time and materials basis, although some work may be performed pursuant to a fixed-price bid. Services are usually performed pursuant to purchase orders issued under written customer agreements. While most purchase orders provide for the performance of a single job, some provide for services to be performed on a run-and-maintain basis. Substantially all our agreements and contracts may be terminated by either party on short notice. The agreements generally specify the range of services to be performed and the hourly rates for labor. While many contracts cover specific plants or locations, we also enter into multiple-site regional or national contracts which cover multiple plants or locations.
Seasonality
We experience some seasonal fluctuations. Historically, the refining industry has scheduled plant shutdowns (commonly referred to as “turnarounds”) for the fall and spring seasons. The power industry follows a similar seasonal schedule for their plant maintenance. The timing of large turnarounds or outages can significantly impact our revenues. The pipeline industry follows and depends in part on weather conditions where the ability to access pipeline infrastructure for or after inspections may be impeded by more severe cold weather conditions.

7

Table of Contents

Employees
At December 31, 2019, we had approximately 6,800 employees in our worldwide operations. Our employees in the U.S. are non-unionized. Most of our Canadian employees and certain employees outside of North America, primarily Europe, are unionized. There have been no employee work stoppages to date and we believe our relations with our employees and their representative organizations are fair and productive.
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 OSHA of the U.S. Department of Labor and the EPA. Failure to comply with these laws and regulations may involve civil and criminal liability. From time to time, we are also subject to a wide range of reporting requirements, certifications and compliance as prescribed by various federal and state governmental agencies that include, but are not limited to, the EPA, the Nuclear Regulatory Commission, the Chemical Safety Board, the Department of Transportation and the Federal Aviation Administration. Expenditures relating to such regulations are made in the normal course of our business and are neither material nor place us at any competitive disadvantage. We do not currently expect that compliance with such laws and regulations will require us to make material expenditures.
From time to time, during the operation of our environmental consulting and engineering services, the assets of which were sold in 1996, we handled small quantities of certain hazardous wastes or other substances generated by our customers. Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (the “Superfund Act”), the EPA is authorized to take administrative and judicial action to either cause parties who are responsible under the Superfund Act for cleaning up any unauthorized release of hazardous substances to do so, or to clean up such hazardous substances and to seek reimbursement of the costs thereof from the responsible parties, who are jointly and severally liable for such costs under the Superfund Act. The EPA may also bring suit for treble damages from responsible parties who unreasonably refuse to voluntarily participate in such a clean-up or funding thereof. Similarly, private parties who bear the costs of cleanup may seek to recover all or part of their costs from responsible parties in cost recovery or contribution actions. Responsible parties include anyone who owns or operates the facility where the release occurred (either currently and/or at the time such hazardous substances were disposed of), or who by contract arranges for disposal, treatment, transportation for disposal or treatment of a hazardous substance, or who accepts hazardous substances for transport to disposal or treatment facilities selected by such person from which there is a release. We believe that our risk of liability is minimized since our handling consisted solely of maintaining and storing small samples of materials for laboratory analysis that are classified as hazardous. Due to its prohibitive costs, we accordingly do not currently carry insurance to cover liabilities which we may incur under the Superfund Act or similar environmental statutes.
Intellectual Property
We hold various patents, trademarks, trade secrets and licenses, which have not historically been material to our consolidated business operations. However, Quest Integrity has significant trade secrets and intellectual property pertaining to its proprietary inspection and engineering assessment and software tools. This subsidiary was acquired in November 2010 and a significant amount of the purchase price was allocated to these intangible assets. As of December 31, 2019, we held patents, trademarks, trade secrets and licenses which will expire at various times between 2020 and 2030. We do not consider any single intangible asset material to our results of operations or financial position.
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 North America and increasingly international service capability, the breadth and depth of our services, our ability to provide such services on an integrated, more turnkey basis, and our technical engineered support coupled with our manufacturing capabilities supporting the service network.
Available Information
As a public company, we are required to file periodic reports with the Securities and Exchange Commission (the “SEC”) within established deadlines. Our SEC filings are available to the public through the SEC’s website located at www.sec.gov. Our internet website address is www.teaminc.com. Information contained on our website is not part of this Annual 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

8

Table of Contents

with (or furnished to) the SEC are available on our website, free of charge, as soon as reasonably practicable after we file or furnish such material. We also post our code of ethical conduct, our governance principles, our social responsibility policy and the charters of our Board committees on our website. Our governance documents are available in print to any stockholder that submits a written request to Team, Inc., Attn: Corporate Secretary, 13131 Dairy Ashford, Suite 600, Sugar Land, Texas 77478.
ITEM 1A.
RISK FACTORS
Our business, financial condition, results of operations, cash flows and/or stock price could be materially adversely affected by any of the risks and uncertainties described below.
Risks Related to Market Conditions
The economic environment may affect our customers’ demand for our services. Future economic uncertainty may reduce the availability of liquidity and credit and, in many cases, reduce demand for our customers’ products. Disruption of the credit markets could also adversely affect our customers’ ability to finance on-going maintenance and new capital projects, resulting in contract cancellations or suspensions, and capital project delays. An extended or deep recession may result in plant closures or other contractions in our customer base. These factors may also adversely affect our ability to collect payment for work we have previously performed. Furthermore, our ability to expand our business could be limited if, in the future, we are unable to increase our credit capacity under favorable terms or at all. Such disruptions, should they occur, could materially impact our results of operations, financial position or cash flows.
Our revenues are heavily dependent on certain industries. Sales of our services are dependent on customers in certain industries, particularly the refining and petrochemical industries. As we have experienced in the past, and as we expect to occur in the future, downturns characterized by diminished demand for services in these industries as well as potential changes due to consolidation or changes in customer businesses or governmental regulations, could have a material impact on our results of operations, financial position or cash flows. Certain of our customers have employees represented by unions and could be subject to temporary work stoppage which could impact our activity level.
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. Future economic uncertainty could generally reduce demand for industrial services and thus create a more competitive bidding environment for new and existing work. No assurances can be made that we will continue to maintain our pricing model and our profit margins or increase our market share.
Our ongoing investments in new customer markets involve significant risks and could disrupt our current operations and may not produce the long-term benefits that we expect. Our ability to compete successfully in new customer markets depends on our ability to continue to deliver innovative, relevant and useful services to our customers in a timely manner. As a result, we have invested, and expect to continue to invest resources in developing products and services to new customers. Such investments may not prioritize short-term financial results and may involve significant risks and uncertainties, including encountering new competitors. We may fail to generate sufficient revenue, operating margin or other value to justify our investments in such new customer markets, thereby harming our ability to generate revenue.
Public health threats such as the recent outbreak of the novel coronavirus may have a negative effect on our customers and supply chain. On December 31, 2019, a human infection originating in China was traced to a novel strain of coronavirus or COVID-19. On January 30, 2020, the World Health Organization declared the coronavirus outbreak to be a “public health emergency of international concern” and then on March 11, 2020, declared the outbreak to be a “pandemic.” Since its detection, the virus has spread to various countries, including the United States. The United States and other countries have placed restrictions on travel to and from China and other affected regions, and a number of businesses in affected regions have temporarily closed. While we have no direct operations in China, the geographic scope of the outbreak remains uncertain and changes daily. Potential effects of the outbreak include volatility in the financial markets, the effect of travel restrictions on the global economy, supply chain disruptions and the impact on certain commodity prices. Some of these factors may affect us directly, in the form of travel restrictions, disruptions to our supply chain for consumables or equipment sourced from affected areas, and more importantly, the impact to our customer base, especially in the petrochemical and refining industries. The novel coronavirus’s impact on the global economy may lead to a decrease in worldwide demand for oil and refined products which may lead to diminished demand for our services.

9

Table of Contents

Risks Related to Our Operations
If we are not able to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures and technology trends, our business and results of operations could be materially and adversely affected. The market for our services is characterized by continual technological developments to provide better and more cost-effective services. If we are not able to implement commercially competitive services and products in a timely manner in response to changes in the market, customer requirements, competitive pressures and technology trends, our business and results of operations could be materially and adversely affected. Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected.
No assurances can be made that we will be successful in maintaining or renewing our contracts with our customers. A significant portion of our contracts and agreements with customers may be terminated by either party on short notice. Although we actively pursue the renewal of our contracts, we cannot assure that we will be able to renew these contracts or that the terms of the renewed contracts will be as favorable as the existing contracts. If we are unable to renew or replace these contracts, or if we renew on less favorable terms, we may suffer a material reduction in revenue and earnings.
No assurances can be made that we will be successful in hiring or retaining members of a skilled technical workforce. We have a skilled technical workforce and an industry recognized technician training program for each of our service lines that prepares new employees as well as further trains our existing 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.
The loss or unavailability of any of our executive officers or other key personnel could have a material adverse effect on our business. We depend greatly on the efforts of our executive officers and other key employees to manage and exercise leadership over our operations. The loss or unavailability of any of our executive officers or other key employees could have a material adverse effect on our business operations.
Unsatisfactory quality of service execution, including safety performance, can affect customer relationships, eliminate or reduce revenue streams from our largest customers, result in higher operating costs and negatively impact our ability to hire and retain a skilled technical workforce. The services we provide could incur quality of execution issues that may be caused by our workforce personnel and/or components we purchase from other manufacturers or suppliers. If the quality of our services does not meet our customers’ expectations or satisfaction, then our sales and operating earnings, and, ultimately, our reputation, could be negatively impacted. Additionally, our workers are subject to the normal hazards associated with providing services at industrial facilities. Even with proper safety precautions, these hazards can lead to personal injury, loss of life, destruction of property, plant and equipment, lower employee morale and environmental damage. While we are intensely focused on maintaining a strong safety environment and minimizing the risk of accidents, there can be no assurance that these efforts will be effective. Poor safety performance may limit or eliminate potential revenue streams, including from many of our largest customers, and may materially increase our operating costs, including increasing our required insurance deductibles, self-insured retention and insurance premium costs.
Additional impairments of our goodwill, impairments of our intangible and other long-lived assets, and changes in the estimated useful lives of intangible assets could have a material adverse impact on our results of operations and financial condition. As a result of past acquisitions, goodwill and other intangible assets comprise a substantial portion of our total assets. As of December 31, 2019, our goodwill and intangible assets totaled $282.0 million and $117.0 million, respectively. We assess or test goodwill for impairment at least annually in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”), while our other long-lived assets, including our finite-lived intangible assets, are tested for impairment when circumstances indicate that the carrying amount may not be recoverable. A decrease in our market capitalization or profitability or unfavorable changes in market, economic and industry conditions all would increase the risk of impairment. In 2017, we determined that there were sufficient indicators to trigger interim goodwill impairment tests. The indicators included, among other factors, market softness and the related impacts on our financial results and our stock price. This resulted in an impairment loss of $75.2 million in the third quarter of 2017. Our 2018 and 2019 annual goodwill impairment tests, which were completed as of December 1, 2018 and December 1, 2019, respectively, did not result in any additional impairment. However, there can be no assurance that the estimates and assumptions made for purposes of the Company’s most recent goodwill impairment test will prove to be accurate predictions of the future. Accordingly, we may be required to recognize additional impairment charges in future reporting periods, which could materially and adversely impact our results of operations and financial condition.

10

Table of Contents

GAAP requires that we evaluate the useful lives of our intangible assets subject to amortization each reporting period. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life. To the extent the revised useful life of an intangible asset is less than originally estimated, our future amortization expense will increase, which could have a material impact on our results of operations and financial condition.
Improvements in operating results from expected savings in operating costs from workforce reductions and other cost saving and business improvement initiatives may not be realized in the estimated amounts, may take longer to be realized, or could be realized only for a limited period. In the fourth quarter of 2017, we engaged outside consultants to assess all aspects of our business for improvement and cost saving opportunities as part of a new cost savings and business improvement project. In the first quarter of 2018, we completed the design phase of the project, known as OneTEAM, and are now in the deployment phase. In the third quarter of 2019, we began the design phase of OneTEAM for our international operations. We expect to incur various additional expenses associated with the execution of the OneTEAM project through 2020 with funding provided by our operating cash flows and the Credit Facility. However, in order to implement this or any other future cost savings or business improvement initiatives, we expect to incur additional expenses, which could adversely impact our financial results prior to the realization of the expected benefits associated with the initiatives. Due to numerous factors or future developments, we may not achieve cost reductions or other business improvements consistent with our expectations or the benefits may be delayed. These factors or future developments could include (i) the incurrence of higher than expected costs or delays in reassigning and retraining remaining employees or outsourcing or eliminating duties and functions of eliminated employees, (ii) unanticipated delays in discharging employees in eliminated positions as a result of regulatory or legal limitations on employee terminations in certain jurisdictions, (iii) actual savings differing from anticipated cost savings, (iv) anticipated benefits from business improvement initiatives not materializing and (v) disruptions to normal operations or other unintended adverse impacts resulting from the initiatives.
We may also decide to reduce, suspend or terminate our cost saving and business improvement initiatives at any time before achieving the estimated benefits or after a limited period of time. The elimination of current employees can also result in increased future costs in hiring, training and mobilizing new employees or rehires in the event of a future increase in demand for our services resulting in a slower recovery of results from operations. Our initiatives may negatively affect our ability to retain and attract qualified personnel, who may experience uncertainty about their future roles with the Company.
Economic, political and other risks associated with international operations could adversely affect our business. A portion of our operations are conducted and located outside the U.S., and accordingly, our business is subject to risks associated with doing business internationally, including changes in foreign currency exchange rates, instability in political or economic conditions, difficulty in repatriating cash proceeds, differing employee relations, differing regulatory environments, trade protection measures, and difficulty in administering and enforcing corporate policies which may be different than the normal business practices of local cultures. In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S. and foreign anti-corruption regulations applicable to us such as the U.S. Foreign Corrupt Practices Act and the United Kingdom Bribery Act. Our international business operations may include projects in countries where corruption is prevalent. Although we have, and continue to, implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors or agents, including those representing us in countries where practices which violate such anti-corruption laws may be customary, will not take actions in violation of our policies and procedures. Any violation of foreign or U.S. laws by our employees, contractors or agents, even if such violation is prohibited by our policies and procedures, could have a material adverse effect on our results of operations, financial position or cash flows.
Business acquisitions entail risk for investors. From time to time, we pursue acquisitions in, or complementary to, the specialty maintenance and specialty industrial services, including inspection, engineering assessment and mechanical services to complement and diversify our existing business. We may also acquire other businesses that enhance our services or geographic scope. We may not be able to expand our market presence through acquisitions, and acquisitions may present unforeseen integration difficulties or costs. No assurances can be made that we will realize the cost savings, synergies or revenue enhancements that we may anticipate from any acquisition, or that we will realize such benefits within the time frame that we expect. If we are not able to address the challenges associated with acquisitions and successfully integrate acquired businesses, or if our integrated product and service offerings fail to achieve market acceptance, our business could be adversely affected. The consideration paid in connection with an acquisition may also affect our share price or future financial results depending on the structure of such consideration. To the extent we issue stock or other rights to purchase stock, including options or other rights, existing shareholders may be diluted and earnings per share may decrease. In addition, acquisitions may result in the incurrence of additional debt.
The price of our outstanding securities may be volatile. It is possible that in some future quarter (or quarters) our revenues, operating results or other measures of financial performance will not meet the expectations of public stock market analysts or investors, which could cause the price of our outstanding securities to decline or be volatile. Historically, our quarterly and annual

11

Table of Contents

sales and operating results have fluctuated. We expect fluctuations to continue in the future. In addition to general economic and political conditions, and in addition to the other factors identified under this Item 1A “Risk Factors”, the following factors may affect our sales and operating results: the timing of significant customer orders, the timing of planned maintenance projects at customer facilities, changes in competitive pricing, wide variations in profitability by product line, variations in operating expenses, rapid increases in raw material and labor costs, the timing of announcements or introductions of new products or services by us, our competitors or our respective customers, the acceptance of those services, our ability to adequately meet staffing requirements with qualified personnel, relative variations in manufacturing efficiencies and costs, and the relative strength or weakness of international markets. Since our quarterly and annual revenues and operating results vary, we believe that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indicators of our future performance.
Our business may be adversely impacted by work stoppages, staffing shortages and other labor matters. At December 31, 2019, we had approximately 6,800 employees, approximately 1,700 of whom were located in Canada and Europe where employees predominantly are represented by unions. Although we believe that our relations with our employees are good and we have had no strikes or work stoppages, no assurances can be made that we will not experience these and other types of conflicts with labor unions, works councils, other groups representing employees, or our employees in general, or that any future negotiations with our labor unions will not result in significant increases in the cost of labor.
We extend credit to customers for purchases of our services which subjects us to potential credit risk that could, if realized, adversely affect our financial condition, results of operations and cash flows. If we are unable to collect amounts owed to us, or retain amounts paid to us, our cash flows would be reduced and we could experience losses. We would also recognize losses with respect to any receivables that are impaired as a result of our customers’ financial difficulties or bankruptcies. The risk of loss may increase for capital projects where we provide services over a longer period of time. Credit losses could materially and adversely affect our financial condition, results of operations and cash flows.
As a result of our geographically diverse and decentralized operations within the United States and other countries around the world, we are more susceptible to certain risks. We have offices and operations in approximately 200 locations in 20 countries throughout the world. This creates greater financial and operational risks due to the nature of our operations being conducted at various locations. The internal controls, policies and procedures, and employee training and compliance programs we have implemented to deter prohibited practices may not be effective in preventing employees, contractors or agents from violating or circumventing such internal policies or from material violations of applicable laws and regulations.
Risks Related to Financing Our Business
We are subject to risks associated with indebtedness under our banking credit facility, including the risk of failure to maintain compliance with financial covenants, the risk of being unable to make interest and principal payments when due and the risk of rising interest rates. The Credit Facility consists of a $225 million revolving loan facility and a $50 million term loan facility, and allows for an increase in total commitments of up to an additional $100 million if certain conditions are met. The Credit Facility contains financial covenants requiring the Company to maintain certain financial ratios. As of December 31, 2019, we were required to maintain (i) a maximum ratio of senior secured debt to consolidated EBITDA (the “Senior Secured Leverage Ratio,” as defined in the Credit Facility agreement) and (ii) a minimum ratio of the sum of consolidated EBITDA less taxes and capital expenditures paid in cash to consolidated debt service (the “Debt Service Coverage Ratio,” as defined in the Credit Facility agreement). Beginning March 31, 2020, we will also be required to maintain a maximum ratio of consolidated funded indebtedness to consolidated EBITDA (the “Net Leverage Ratio”, as defined in the Credit Facility agreement).
We entered into the eighth amendment to the Credit Facility (the “Eighth Amendment”) on August 30, 2019 to amend and restate certain portions of the Third Amended and Restated Credit Agreement, dated as of July 7, 2015, including modifying certain financial covenants. The Eighth Amendment amended the financial covenants in the Credit Facility by eliminating the ratio of consolidated EBITDA to consolidated interest charges (the “Interest Coverage Ratio,” as defined in the Credit Facility agreement), adding the Net Leverage Ratio and the Debt Service Coverage Ratio, and modifying the Senior Secured Leverage Ratio. The financial covenant requirements under the Eighth Amendment are summarized in the table below.

12

Table of Contents

Fiscal Quarter Ending
Maximum Senior Secured Leverage Ratio
December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020
2.75 to 1.00
December 31, 2020 and each Fiscal Quarter thereafter
2.50 to 1.00
 
 
 
Fiscal Quarter Ending
Maximum Net Leverage Ratio
March 31, 2020
5.50 to 1.00
June 30, 2020
5.25 to 1.00
September 30, 2020
5.00 to 1.00
December 31, 2020 and each Fiscal Quarter thereafter
4.50 to 1.00
 
 
 
Fiscal Quarter Ending
Minimum Debt Service Coverage Ratio
December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020
1.25 to 1.00
December 31, 2020 and each Fiscal Quarter thereafter
1.50 to 1.00
As of December 31, 2019, we are in compliance with these covenants. The Senior Secured Leverage Ratio and the Debt Service Coverage Ratio stood at 1.89 to 1.00 and 2.17 to 1.00, respectively, as of December 31, 2019. We are not bound by a covenant with respect to the Net Leverage Ratio until March 31, 2020; however, as of December 31, 2019 this ratio stood at 4.97 to 1.00.
Our ability to maintain compliance with the financial covenants is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties. Accordingly, there can be no assurance that we will be able to maintain compliance with the Credit Facility covenants as of any future date. In the event we are unable maintain compliance with our financial covenants, we would seek to enter into an amendment to the Credit Facility with our bank group in order to modify and/or to provide relief from the financial covenants for an additional period of time. Although we have entered into amendments in the past, there can be no assurance that any future amendments would be available on terms acceptable to us, if at all.
We rely primarily on cash flows from our operations to make required interest and principal payments on our debt under the Credit Facility. If we are unable to generate sufficient cash flows from our operations, we may be unable to pay interest and principal obligations on our debt when they become due. Failure to comply with these obligations or failure to comply with the financial covenants discussed above could result in an event of default, which would permit our lenders to accelerate the repayment of the debt. If our lenders accelerate the repayment of debt, there is no assurance that we could refinance such debt on terms favorable to us or at all.
All of the debt outstanding under the Credit Facility bears interest at variable market rates. If market interest rates increase, our interest expense and cash flows could be adversely impacted. Based on Credit Facility borrowings outstanding at December 31, 2019, an increase in market interest rates of 100 basis points would increase our interest expense and decrease our operating cash flows by approximately $1.2 million on an annual basis.
Our Credit Facility restricts our ability to, among other items, incur additional indebtedness, engage in mergers, acquisitions and dispositions and alter the business conducted by the Company and its subsidiaries. These restrictions could adversely affect our ability to operate our businesses and may limit our ability to take advantage of potential business opportunities as they arise.
No assurances can be made that we will be able to renew our Credit Facility, refinance the outstanding balance or otherwise repay our obligations in full prior to maturity on July 7, 2021. The Credit Facility matures on July 7, 2021 and under the terms of the Credit Facility, any outstanding balance is due in full on that date. As of December 31, 2019, under the Credit Facility, we had an outstanding principal balance of $123.6 million and outstanding letters of credit totaling $20.5 million. The ability to renew the Credit Facility, refinance the debt or otherwise repay the outstanding debt prior to maturity is dependent upon capital/credit market conditions as well as our financial condition, operating results and cash flows, all of which are subject to prevailing economic and competitive conditions in addition to financial, business, legislative, governmental, political, regulatory and other factors beyond our control. Therefore, we can give no assurance that we will be able to renew the Credit Facility or refinance the debt on terms favorable to us, or at all, or that we will otherwise be able repay the Credit Facility obligations in full

13

Table of Contents

by the maturity date. In such event, we could face substantial liquidity problems, which could cause a materially adverse impact on our business operations.
The accounting method for our convertible debt securities may have a material effect on our reported financial results. On July 31, 2017 we issued $230.0 million principal amount of 5.00% Convertible Senior Notes due 2023 (the “Notes”) in a private offering. Accordingly, the issuance of the Notes and the subsequent accounting associated with the Notes has been reflected in our consolidated financial statements beginning in the third quarter of 2017.
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options, (“ASC 470-20”), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component is included in the additional paid-in capital section of equity on our consolidated balance sheet, and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the Notes. As a result, we are recording a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the Notes to their face amount over the term of the Notes. We will report lower net income (or greater net loss) in our financial results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the market price of our common stock and the trading price of the Notes.
In addition, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method if we have the ability and intent to settle in cash, the effect of which is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount and if the effect would be dilutive. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that we will be able to demonstrate the ability or intent to settle the Notes in cash in any future reporting period or that future accounting standards will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares of common stock issuable upon conversion of the Notes, then we would utilize the if-converted method, which would require us to assume the Notes would be settled entirely in shares of common stock for purposes of calculating diluted earnings per share, if the effect would be dilutive. In such case, our diluted earnings per share would be adversely affected.
Transactions relating to our convertible debt securities may dilute the ownership interest of existing stockholders, or may otherwise depress the price of our common stock. The Notes are initially convertible into 10,599,067 shares of common stock, but the occurrence of certain corporate events could increase the conversion rate, which could result in the Notes becoming convertible into a maximum of 14,838,703 shares of common stock. Upon conversion, the Company may settle the Notes in cash or in shares of common stock or a combination of cash and shares of common stock, in each case, at the Company’s election. If the Notes are converted, our current intent is to settle the principal amount of the Notes in cash and settle the remainder of our conversion obligation by issuing shares of common stock; however, we cannot guarantee that we will have sufficient funds available to us at the time of any such conversions in order to effect settlement in that manner. In such case, we could elect to settle the conversion obligation in a different combination of cash and shares of common stock or entirely in shares of common stock, depending on the circumstances. To the extent we deliver shares of common stock upon conversion of the Notes, the ownership interests of existing stockholders would be diluted. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.
Risks Related to Information Systems
The Company’s operations and information systems, including its employee, customer and financial records, are subject to cybersecurity risks. Team continues to increase its dependence on digital technologies to conduct its operations. Many of the Company’s files, including employee, customer and financial records, are digitized and more employees are working in almost paperless and remote environments. We have also outsourced certain information technology development, maintenance and support functions. As a result, the Company may be exposed to potentially severe cyber incidents at both its internal locations and outside vendor locations that could result in a theft of sensitive data and/or intellectual property, alteration or deletion of critical data and/or disruption of its operations for an extended period of time. This could also result in claims, losses, fines and higher costs to correct and remedy the effects of such incidents, although no such material incidents have occurred to date to the Company’s knowledge.
Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs and/or decreases in revenues. The proper functioning of our information systems is critical to the successful operation of our

14

Table of Contents

business. Although our information systems are protected through physical and software safeguards, our information systems are still vulnerable to natural disasters, power losses, telecommunication failures and other problems. If critical information systems fail or are otherwise unavailable, our business operations could be adversely affected.
Risks Related to Regulations
Fluctuations in our effective tax rate and our tax obligations could adversely affect our financial results. We are subject to taxes in the U.S. and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision, tax assets and accruals for other taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective income tax rate could be adversely affected by our profit levels, changes in our business, reorganization of our business and operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the elections we make, changes in applicable tax laws or interpretations of existing tax laws or changes in the valuation allowance for deferred tax assets, as well as other factors.
We are also currently subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.
Our operations and properties are subject to extensive environmental, health and safety regulations. We are subject to a variety of U.S. federal, state, local and international laws and regulations relating to the environment, and worker health and safety, among other things. These laws and regulations are complex, change frequently, are becoming increasingly stringent, and can impose substantial sanctions for violations or require operational changes that may limit our services. We must conform our operations to comply with applicable regulatory requirements and adapt to changes in such requirements in all locations in which we operate. These requirements can be expected to increase the overall costs of providing our services over time. Some of our services involve handling or monitoring highly regulated materials, including VOCs or hazardous wastes. Environmental laws and regulations generally impose limitations and standards for the characterization, handling and disposal of regulated materials and require us to obtain permits and comply with various other requirements. The improper characterization, handling, or disposal of regulated materials or any other failure by us to comply with increasingly complex and strictly-enforced federal, state, local, and international environmental, health and safety laws and regulations or associated 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 contaminant is released into the environment. In addition, the modification or interpretation of existing environmental, health and safety laws or regulations, the more vigorous enforcement of existing laws or regulations, or the adoption of new laws or regulations may also negatively impact industries in which our customers operate, which in turn could have a negative impact on us.
Climate change legislation or regulations restricting emissions of “greenhouse gases” could result in reduced demand for our services and products. There has been an increased focus in the last several years on climate change in response to findings that emissions of carbon dioxide, methane and other greenhouse gases present an endangerment to public health and the environment. As a result, there have been a variety of regulatory developments, proposals or requirements and legislative initiatives that have been introduced in the U.S. and other parts of the world that are focused on restricting the emission of greenhouse gases. The adoption of new or more stringent legislation or regulatory programs limiting greenhouse gas emissions from customers for whom we provide repair and maintenance services could affect demand for our products and services. Further, some scientists have concluded that increasing greenhouse gas concentrations in the atmosphere may produce physical effects, such as increased severity and frequency of storms, droughts, floods and other climate events. Such climate events have the potential to adversely affect our operations or those of our customers, which in turn could have a negative effect on us.
The United Kingdom’s (the “U.K.”) departure from the European Union (the “EU”) could adversely affect us. The U.K. held a referendum in 2016 in which a majority of voters approved an exit from the EU (“Brexit”). In March 2017, the U.K. government gave formal notice of its intention to leave the EU. The U.K. Parliament passed a withdrawal bill on January 23, 2020, which was ratified by European Parliament shortly thereafter, marking the U.K.’s departure from the EU effective January 31, 2020. The U.K. will now enter into a transition period that is scheduled to end on December 31, 2020, unless it is requested to be extended before July 1, 2020. Negotiations are ongoing to determine the future terms of the U.K.’s relationship with the EU, including, among other things, the terms of trade between the U.K. and the EU. The effects of Brexit will depend on any agreements the U.K. reaches to retain access to EU markets. The outcome of this referendum caused volatility in global stock markets and foreign currency exchange rate fluctuations and uncertainty about the terms and impact of Brexit may continue to do so in the future. Brexit could adversely affect U.K., regional European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the British Pound and Euro,

15

Table of Contents

which in turn could adversely affect our customers, particularly in the U.K. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. negotiates with the EU. In particular, depending on the terms of Brexit, we may face new regulatory costs and challenges, including additional regulatory licensing to operate in the U.K. market, adding costs and potential inconsistency to our business and we could also be required to comply with regulatory requirements in the U.K. that are in addition to, or inconsistent with, the regulatory requirements of the EU. Any of these effects of Brexit and others we cannot anticipate could adversely affect our business, results of operations, financial condition and cash flows.
We are subject to privacy and data security/protection laws in the jurisdictions in which we operate and may be exposed to substantial costs and liabilities associated with such laws and regulations. The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes, which could have a material adverse effect on our financial condition and results of operations. In addition, the payment of potentially significant fines or penalties in the event of a breach or other privacy and information security laws, as well as the negative publicity associated with such a breach, could damage the Company’s reputation and adversely impact product demand and customer relationships.
Risks Related to Legal Liability
The Company’s insurance coverage will not fully indemnify us against certain claims or losses. Further, the Company’s insurance has limits and exclusions and not all losses or claims are insured. We perform services in hazardous environments on or around high-pressure, high temperature systems and our employees are exposed to a number of hazards, including exposure to hazardous materials, explosion hazards and fire hazards. Incidents that occur at these large industrial facilities or systems, regardless of fault, may be catastrophic and adversely impact our employees and third parties by causing serious personal injury, loss of life, damage to property or the environment, and interruption of operations. Our contracts typically require us to indemnify our customers for injury, damage or loss arising out of our presence at our customers’ location, regardless of fault, or the performance of our services and provide for warranties for materials and workmanship. We may also be required to name the customer as an additional insured under our insurance policies. We maintain limited insurance coverage against these and other risks associated with our business. Due to the high cost of general liability coverage, we maintain insurance with a self-insured retention of $1.0 million and a deductible of $2.0 million per occurrence. This insurance may not protect us against liability for certain events, including events involving pollution, product or professional liability, losses resulting from business interruption or acts of terrorism or damages from breach of contract by the Company. We cannot assure you that our insurance will be adequate in risk coverage or policy limits to cover all losses or liabilities that we may incur. Moreover, in the future, we cannot assure that we will be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate. Any future damages caused by our products or services that are not covered by insurance or are in excess of policy limits could have a material adverse effect on our results of operations, financial position or cash flows.
We are involved and are likely to continue to be involved in legal proceedings, which will increase our costs and, if adversely determined, could have a material effect on our results of operations, financial position or cash flows. We are currently a defendant in legal proceedings arising from the operation of our business and it is reasonable to expect that we will be named in future actions. Most of the legal proceedings against us arise out of the normal course of performing services at customer facilities, and include claims for workers’ compensation, personal injury and property damage. Legal proceedings can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome. An unsuccessful defense of a liability claim could have an adverse effect on our business, results of operations, financial position or cash flows.
Other Risk Factors
Other risk factors may include interruption of our operations, or the operations of our customers due to fire, floods, hurricanes, earthquakes, power loss, telecommunications failure, terrorist attacks, labor disruptions, health epidemics and other events beyond our control.
Any of these factors, individually or in combination, could materially and adversely affect our future results of operations, financial position, cash flows and/or stock price and could also affect whether any forward-looking statements in this Annual Report on Form 10-K ultimately prove to be accurate.



16

Table of Contents

ITEM 1B.
UNRESOLVED STAFF COMMENTS
NONE

ITEM 2.
PROPERTIES

We provide our services globally through approximately 200 locations in 20 countries throughout the world. There are several materially important physical properties used in our operations. We own a facility in Alvin, Texas that consists of our primary training facility, equipment center and ISO-9001 certified manufacturing facility for clamps, enclosures, and sealants. Additionally, we operate three manufacturing facilities in Houston, Texas (two of which are owned and the other is leased), which are included in our MS segment. Further, we lease office space for our corporate headquarters in Sugar Land, Texas and for our Quest Integrity segment headquarters in Kent, Washington. Additional district service locations considered materially important in our IHT and MS segments are as follows. We lease facilities in Mobile, Alabama; Benicia, California; Harbor City, California; Hammond, Indiana; Columbus, Ohio; Pasadena, Texas (two locations); and Edmonton, Alberta, Canada. We own a facility in Pasadena, Texas; a facility in Vlissingen, Netherlands and three facilities in the United Kingdom in Kendal, Carlisle and Scunthorpe.
We believe that our property and equipment are adequate for our current needs, although additional investments are expected to be made for expansion of property and equipment, replacement of assets at the end of their useful lives will occur in connection with corporate development activities.
ITEM 3.
LEGAL PROCEEDINGS
For information on legal proceedings, see Note 14 to the consolidated financial statements included this report.

ITEM 4.
MINE SAFETY DISCLOSURES
NOT APPLICABLE

17

Table of Contents

PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our stock is traded on the NYSE under the symbol “TISI”.
Holders
There were 540 holders of record of our common stock as of March 10, 2020, excluding beneficial owners of stock held in street name.
Dividends
No cash dividends were declared or paid during the year ended December 31, 2019 or the year ended December 31, 2018. We are limited in our ability 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.

18

Table of Contents

Performance Graph
The following performance graph compares the performance of our common stock to the NYSE Composite Index and a Peer Group Index. The comparison assumes $100 was invested on May 31, 2014 in our common stock, the NYSE Composite Index and 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. For the year ended December 31, 2019, the following Peer Group companies are relevant for comparison in terms of service offerings, industry and other factors: Aegion Corporation, Barnes Group, Basic Energy Services (delisted from the NYSE in December 2019), CIRCOR International, Clean Harbors, DXP Enterprises, Emcor Group, Enerpac Tool Group (formerly Actuant Corporation), EnPro Industries, ESCO Technologies,  MasTec, Inc., Matrix Service Company, Mistras Group, MYR Group, Primoris Services Corporation, Quanta Services, SEACOR Holdings, Tetra Tech, Inc. and TETRA Technologies, Inc.

https://cdn.kscope.io/1fa8f83e5a0d115cc361578e48dacbe0-chart-28f215e5018b5e4fb97.jpg
*
$100 invested on 5/31/14 in stock or index, including reinvestment of dividends. Years ended May 31, 2015; seven-month transition period ended December 31, 2015; and years ended December 31, 2019, 2018, 2017 and 2016.
 
5/14
 
5/15
 
12/15
 
12/16
 
12/17
 
12/18
 
12/19
Team, Inc.
100.00

 
94.94

 
76.24

 
93.63

 
35.54

 
34.95

 
38.10

NYSE Composite
100.00

 
105.22

 
97.91

 
109.60

 
130.12

 
118.48

 
148.70

Peer Group
100.00

 
80.88

 
69.47

 
102.22

 
112.71

 
90.27

 
128.19

Note: The above information was provided by Research Data Group, Inc.
The information under the caption “Performance Graph” above is not deemed to be “filed” as part of the Annual Report on Form 10-K and is not subject to the liability provisions of Section 18 of the Securities Exchange Act of 1934. Such information will not be deemed incorporated by reference into any filing we make under the Securities Act of 1933 unless we explicitly incorporate it into such filing at such time.

19

Table of Contents

ITEM 6.
SELECTED FINANCIAL DATA
We have included selected financial data for the years ended December 31, 2019, 2018, 2017 and 2016, the seven months ended December 31, 2015 and the year ended May 31, 2015 under “Five Year Comparison,” in the financial information that is included in this report in Part II, Item 8, “Financial Statements and Supplementary Data.” This information is incorporated herein by reference.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management’s Discussion and Analysis of Financial Condition and Results of Operations listed in the Financial Table of Contents included in this report is incorporated herein by reference.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have included a discussion about market risks under “Market Risk” in the Management’s Analysis that is included in this report in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This information is incorporated herein by reference.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements, the Notes to Consolidated Financial Statements, the reports of our Independent Registered Public Accounting Firm and the information under “Quarterly Financial Data (Unaudited)” and “Five Year Comparison” listed in this report are incorporated herein by reference. All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable, and therefore, have been omitted.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements concerning accounting and financial disclosures with our independent accountants during any of the periods presented.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”), are controls and procedures that are designed to ensure that the information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is appropriately accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
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 CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. 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 related to our compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Based on this evaluation, our CEO and CFO have concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective due to the existence of a material weakness in our internal control over financial reporting described below. During an internal investigation that concluded in March 2020, the Company discovered that over a period of multiple years an employee at Team Industrial Services Netherlands B.V., one of its wholly-owned subsidiaries, misappropriated assets from the Company through management override of internal controls in an attempt to conceal the transactions. This circumvention of internal controls and misappropriation, which was within its Netherlands subsidiary, was discovered during management’s reviews after the end of 2019, but prior to the financial statements being available to be issued.
In response to the identification of the material weakness in our financial reporting described below, we performed additional analysis, reconciliations, and other post-closing procedures to ensure that our consolidated financial statements included in this Form 10-K were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Following such additional analysis and procedures, our management, including our CEO and CFO, has concluded that the consolidated financial statements

20

Table of Contents

for the periods covered by and included in this Form 10-K fairly present, in all material respects, our financial position, results of operations, and cash flows in conformity with GAAP.

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 GAAP.
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.
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 (2013) to evaluate the effectiveness of our internal control over financial reporting. As a result of this evaluation, we have identified a material weakness in our internal control, as further described below. As a result of this material weakness, we have concluded that our internal control over financial reporting was not effective as of December 31, 2019.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We have concluded that our monitoring controls over certain subsidiary operations were ineffective due to our risk assessment not identifying the need for monitoring controls at these subsidiaries. This resulted in management override of certain process level controls allowing an individual to submit unauthorized payments to unauthorized third parties over a period of multiple years.
The control deficiency did not result in a material misstatement of our current or prior period consolidated annual or interim financial statements. However, the control deficiency could have resulted in material misstatements to the annual or interim consolidated financial statements that would not have been prevented or detected. Accordingly, management concluded that the control deficiency was a material weakness in the Company’s internal control over financial reporting. The attestation report of KPMG LLP, the Company’s independent registered public accounting firm, is an adverse opinion on the Company’s internal control over financial reporting and is set forth in this Annual Report on Form 10-K which appears herein.
Changes in internal control over financial reporting. Except for the material weakness discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2019.
Remediation of Material Weakness. We are in process of remediating the material weakness in our internal control over financial reporting noted above. We have already undertaken a number of measures designed to directly address, or contribute to, the remediation of our material weakness and the enhancement of our internal control over financial reporting including change in personnel and centralization of certain control processes.
Management has implemented or is in the process of implementing, the following changes to the Company’s internal control systems and procedures in order to remediate the above stated material weakness:

Establishment of additional review procedures and monitoring activities at a centralized level over all subsidiary senior finance lead roles in order to verify that process level controls are present and functioning as designed
The Company’s fraud risk assessment of a location will be included as a factor in determining the scope of our SOX compliance program, in order to more fully tailor the design of internal control over financial reporting to mitigate the risk of material misstatement caused by fraud or otherwise
Additional training of finance personnel on internal control over financial reporting, the importance of monitoring control activities, and fraud risk assessment


21

Table of Contents

The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

ITEM 9B.
OTHER INFORMATION
NONE

22

Table of Contents

PART III
The information for the following items of Part III has been omitted from this Annual Report on Form 10-K since we will file, not later than 120 days following the close of our fiscal year ended December 31, 2019, 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 “Audit Committee Report.”
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES


23

Table of Contents

PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1)
Consolidated Financial Statements filed as part of this report are listed in the Financial Table of Contents included in this report and incorporated by reference in this report in Part II, Item 7 “ Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Consolidated Financial Statements and Supplementary Data.”
 
2)
All schedules for which provision is made in the applicable accounting regulations of the SEC are listed in this report in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data.”
 
3)
See exhibits listed under Part (b) below.
 
 
 
(b)
 
Exhibits
Exhibit
Number
 
Description
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
3.3
 
 
 
 
4.1
 
 
 
 
4.2
 
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, incorporated by reference herein).
 
 
 
4.3
 
 
 
 
10.1†
 
 
 
 
10.2†
 
 
 
 
10.3†
 
 
 
 
10.4†
 
 
 
 
10.5.1†
 
 
 
 
10.5.2†
 
 
 
 
10.6†
 
 
 
 
10.7†
 
 
 
 
10.8†
 
 
 
 
10.9†
 
 
 
 

24

Table of Contents

Exhibit
Number
 
Description
10.10†
 
 
 
 
10.11†
 
 
 
 
10.12
 
 
 
 
10.13
 
 
 
 
10.14
 
 
 
 
10.15†
 
 
 
 
10.16†
 
 
 
 
10.17†
 
 
 
 
10.18
 
 
 
 
10.19
 
 
 
 
10.20†
 
 
 
 
10.21†
 
 
 
 
10.22†
 
 
 
 
10.23†
 
 
 
 
21
 
 
 
 
23.1
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Schema Document.
 
 
 

25

Table of Contents

Exhibit
Number
 
Description
101.CAL
 
XBRL Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Presentation Linkbase Document.
Management contract or compensation plan or arrangement.

Note: Unless otherwise indicated, documents incorporated by reference are located under SEC file number 001-08604.


ITEM 16.
FORM 10-K SUMMARY
NONE


26

Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized March 16, 2020.
 
TEAM, INC.
 
/S/    AMERINO GATTI       
Amerino Gatti
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/    AMERINO GATTI       
  
Chief Executive Officer (Principal Executive Officer); Chairman of the Board
March 16, 2020
(Amerino Gatti)
 
 
 
 
 
 
 
/S/    SUSAN M. BALL        
  
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
March 16, 2020
(Susan M. Ball)
 
 
 
 
 
 
 
/S/ JEFFERY G. DAVIS
  
Director
March 16, 2020
(Jeffery G. Davis)
 
 
 
 
 
 
 
/S/ BRIAN K. FERRAIOLI
 
Director
March 16, 2020
(Brian K. Ferraioli)
 
 
 
 
 
 
 
/S/    SYLVIA J. KERRIGAN
  
Director
March 16, 2020
(Sylvia J. Kerrigan)
 
 
 
 
 
 
 
/S/    EMMETT J. LESCROART
  
Director
March 16, 2020
(Emmett J. Lescroart)
 
 
 
 
 
 
 
/S/    MICHAEL A. LUCAS     
  
Director
March 16, 2020
(Michael A. Lucas)
 
 
 
 
 
 
 
/S/ CRAIG L. MARTIN
 
Director
March 16, 2020
(Craig L. Martin)
 
 
 
 
 
 
 
/S/ ROBERT SKAGGS JR.
 
Director
March 16, 2020
(Robert Skaggs Jr.)
 
 
 
 
 
 
 
/S/    LOUIS A. WATERS  
  
Director
March 16, 2020
(Louis A. Waters)
 
 
 
 
 
 
 
/S/  GARY G. YESAVAGE
 
Director
March 16, 2020
(Gary G. Yesavage)
 
 
 
 
 
 
 


27

Table of Contents

FINANCIAL TABLE OF CONTENTS


28

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following review of our results of operations and financial condition should be read in conjunction with Item 1 “Business,” Item 1A “Risk Factors,” Item 2 “Properties,” and Item 8 “Consolidated Financial Statements and Supplementary Data,” included in this Annual Report on Form 10-K.
CAUTIONARY STATEMENT FOR THE PURPOSE OF
SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on behalf of the Company in other materials we release to the public including all statements, other than statements of historical facts, included or incorporated by reference in this Annual Report on Form 10-K, that address activities, events or developments which we expect or anticipate will or may occur in the future. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “will,” “could,” “should,” “may” and similar expressions.
We based our forward-looking statements on our reasonable beliefs and assumptions, and our current expectations, estimates and projections about ourselves and our industry. We caution that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions about events and circumstances 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. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements, including, but not limited to the statements under “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying consolidated financial statements and notes to help provide an understanding of our financial condition, changes in financial condition, and results of operations.
General Information
We are a global leading provider of integrated, digitally-enabled asset performance assurance and optimization solutions. We deploy conventional to highly specialized inspection, condition assessment, maintenance and repair services that result in greater safety, reliability and operational efficiency for our client’s most critical assets. We conduct operations in three segments: Inspection and Heat Treating (“IHT”) (formerly TeamQualspec), Mechanical Services (“MS”) (formerly TeamFurmanite) and Quest Integrity. Through the capabilities and resources in these three segments, we believe that Team is uniquely qualified to provide integrated solutions involving in their most basic form: inspection to assess condition; engineering assessment to determine fitness for purpose in the context of industry standards and regulatory codes; and mechanical services to repair, rerate or replace based upon the client’s election. In addition, the Company is capable of escalating with the client’s needs, as dictated by the severity of the damage found and the related operating conditions, from standard services to some of the most advanced services and integrated asset integrity and reliability management solutions available in the industry. We also believe that Team is unique in its ability to provide services in three distinct client demand profiles: (i) turnaround or project services, (ii) call-out services and (iii) nested or run-and-maintain services.
IHT provides conventional and advanced non-destructive testing (“NDT”) services primarily for the process, pipeline and power sectors, pipeline integrity management services, and field heat treating services, as well as associated engineering and condition assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities.
MS provides primarily call-out and turnaround services under both on-stream and off-line/shut down circumstances. On-stream services offered by MS represent the services offered while plants are operating and under pressure. These services include leak repair, fugitive emissions control, hot tapping and line intervention to help operators manage the material opportunity costs associated with taking off line process, transportation or storage infrastructure. Turnaround services are project-related and demand

29

Table of Contents

is a function of the number and scope of scheduled and unscheduled facility turnarounds as well as new industrial facility construction or expansion activities. The turnaround and call-out services MS provides include field machining, technical bolting, vapor barrier plug and weld testing, field valve repair and valve product sales.
Quest Integrity provides integrity and reliability management solutions for the process, pipeline and power sectors. These solutions encompass three broadly-defined disciplines: (1) highly specialized in-line inspection services for historically unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software; (2) advanced engineering and condition assessment services through a multi-disciplined engineering team and related lab support; and (3) advanced digital imaging including remote digital video imaging, laser scanning and laser profilometry-enabled reformer care services.
We offer these services globally through approximately 200 locations in 20 countries throughout the world with approximately 6,800 employees. We market our services to companies in a diverse array of heavy industries which include:
Energy (refining, power, renewables, nuclear, LNG, offshore oil and gas, pipelines, terminals and storage)
Manufacturing and Process (chemical, petrochemical, pulp and paper industries, automotive and mining)
Public Infrastructure (bridges, ports, construction and building, roads and railways)
Aerospace and Defense
In July 2018, we announced an organizational restructuring. The organizational changes include a Product and Service Line organization and an Operations organization. The Product and Service Lines organization is responsible for standardization of best practices and the related technical training and program development, value positioning and pricing, and technology development and innovation across Team’s global enterprise. The Operations organization, comprised of cross-segment divisions aligned by major geographic regions, is responsible for executing product and service delivery in accordance with established Team service line standards, safety and quality protocols. Overall company management and decision-making continues to be performed according to the structure of the three operating segments (IHT, MS and Quest Integrity). Accordingly, these changes had no effect on our reportable segments.



30

Table of Contents

Results of Operations
The following is a comparison of our results of operations for the twelve months ended December 31, 2019 compared to December 31, 2018 and for the twelve months ended December 31, 2018 compared to December 31, 2017.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The following table sets forth the components of revenue and operating income (loss) from our operations for the years ended December 31, 2019 and 2018 (in thousands):
 
 
Twelve Months Ended
December 31,
 
Increase
(Decrease)
 
2019
 
2018
 
$
 
%
 
 
 
 
 
 
 
 
Revenues by business segment:
 
 
 
 
 
 
 
IHT
$
512,950

 
$
617,378

 
$
(104,428
)
 
(16.9
)%
MS
535,372

 
532,365

 
3,007

 
0.6
 %
Quest Integrity
114,992

 
97,186

 
17,806

 
18.3
 %
Total
$
1,163,314

 
$
1,246,929

 
$
(83,615
)
 
(6.7
)%
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
IHT
$
24,084

 
$
37,329

 
$
(13,245
)
 
(35.5
)%
MS
55,385

 
6,323

 
49,062

 
775.9
 %
Quest Integrity
28,757

 
20,138

 
8,619

 
42.8
 %
Corporate and shared support services
(110,372
)
 
(102,751
)
 
(7,621
)
 
(7.4
)%
Total
$
(2,146
)
 
$
(38,961
)
 
$
36,815

 
94.5
 %
Revenues. Total revenues declined $83.6 million or 6.7% from the same period in the prior year. Excluding the unfavorable impact of $11.8 million due to foreign currency exchange rate changes, total revenues decreased by $71.8 million, IHT revenues decreased by $101.7 million, MS revenues increased by $10.9 million and Quest Integrity revenues increased by $19.0 million. The unfavorable impacts of foreign exchange rate changes are primarily due to the strengthening of the U.S. dollar relative to the Euro, the British Pound, the Canadian dollar and the Australian dollar. Decreased activity levels in IHT were associated with volume declines due to regional competitive pressures along the U.S. Gulf Coast, deliberate market share loss due to a continued focus on pricing discipline, Canadian end-market challenges and some weather related impacts. Also contributing to the decrease was the loss of revenue from certain under-performing businesses in IHT that closed down in late 2018. For MS, revenue increased primarily due to higher on-stream services. Within Quest Integrity, the increase in revenue is primarily the result of higher demand for Quest Integrity’s proprietary services and tools as well as growth from certain geographic expansion.
Operating income (loss). Overall operating loss was $2.1 million, compared to an operating loss of $39.0 million in the prior year. The overall decrease in operating loss is primarily attributable to the MS segment, which experienced an increase in operating income of $49.1 million. Additionally, operating income for Quest Integrity increased by $8.6 million. Partially offsetting these improvements was the decrease in operating income in IHT of $13.2 million and the increase in corporate and shared support service expenses of $7.6 million.

31

Table of Contents

Operating income (loss) for the current year includes net expenses totaling $23.3 million that we do not believe are indicative of the Company’s core operating activities, while the same period in the prior year included $33.9 million of such items, as detailed by segment in the table below (in thousands):
Expenses reflected in operating income (loss) that are not indicative of the Company’s core operating activities (unaudited):
 
IHT
 
MS
 
Quest Integrity
 
Corporate and shared support services
 
Total
Twelve Months Ended December 31, 2019
 
 
 
 
 
 
 
 
 
 
Professional fees and other1
 
$

 
$

 
$

 
$
16,448

 
$
16,448

Legal costs2
 

 

 

 
5,167

 
5,167

Restructuring and other related charges3
 
249

 
418

 
62

 
947

 
1,676

Total
 
$
249

 
$
418

 
$
62

 
$
22,562

 
$
23,291

Twelve Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
Professional fees and other1
 
$
1,086

 
$
315

 
$

 
$
22,419

 
$
23,820

Legal costs2
 

 

 

 
2,000

 
2,000

Restructuring and other related charges3
 
2,995

 
2,514

 
418

 
800

 
6,727

Revaluation of contingent consideration
 

 

 

 
(202
)
 
(202
)
Asset write-offs and disposals
 

 
1,429

 

 

 
1,429

Implementation of the new Enterprise Resource Planning system
 

 

 

 
87

 
87

Total
 
$
4,081

 
$
4,258

 
$
418

 
$
25,104

 
$
33,861

______________________
1
Consists primarily of professional fees and other costs for assessment of corporate and support cost structures, acquired business integration, natural disaster costs and transition/severance costs associated with certain executive leadership changes. For the twelve months ended December 31, 2019 and 2018, includes $12.3 million and $15.5 million, respectively, associated with the OneTEAM program (exclusive of restructuring costs).
2
For the twelve months ended December 31, 2019, primarily relates to accrued costs due to resolutions of certain legal matters. For the twelve months ended December 31, 2018, relates to intellectual property legal defense costs associated with Quest Integrity.
3
Relates to restructuring costs incurred associated with the OneTEAM program. See Note 16 to the consolidated financial statements for additional information.
Excluding the impact of these identified items in both periods, operating loss changed favorably by $26.2 million, consisting of increased operating income in MS and Quest Integrity of $45.2 million and $8.3 million, respectively, partially offset by decreased operating income in IHT of $17.1 million and an increase in corporate and shared support services expenses of $10.2 million. The higher operating income in MS is primarily due to improvements in project execution pricing and cost. Additionally, MS incurred $12.4 million of amortization expense in 2018 due to the accelerated amortization of the Furmanite trade name intangible asset. Management determined that, as a result of initiatives to consolidate the Company’s branding, the useful life of Furmanite trade name intangible asset was not expected to extend beyond December 31, 2018. We accounted for the change in useful life prospectively effective January 1, 2018 and amortized the remaining balance over 2018, which resulted in the incremental amortization expense in 2018. Within Quest Integrity, the higher operating income reflects both higher activity levels and a favorable project mix. The lower operating income in IHT reflects lower activity levels due to a decline in market conditions. The operating loss increase in corporate and shared support services was driven by corporate cost increases in technology expenses, labor costs and conclusion of certain legal settlements offset by lower non-cash compensation costs.
Interest expense. Interest expense decreased from $30.9 million in the prior year to $29.7 million in the current year. The decrease is primarily due to a lower overall debt balances outstanding.
Write-off of deferred loan costs. The write-off of deferred loan costs of $0.3 million for the year ended December 31, 2019 was associated with a reduction in capacity of the revolving portion of the Credit Facility in July 2019.
Loss on convertible debt embedded derivative. For the twelve months ended December 31, 2018, we recorded a loss of $24.8 million associated with the increase in fair value of our convertible debt embedded derivative liability. The loss recognized during this period is primarily attributable to the increase in the Company’s stock price during the period. As discussed further in Note 9 to the consolidated financial statements, in accordance with ASC 815-15, we recorded a loss to adjust the embedded derivative liability to its fair value as of May 17, 2018 and then reclassified the balance of $45.4 million to stockholders’ equity in the second quarter of 2018. As a result of this reclassification, the embedded derivative liability is no longer marked to fair value each period.
Other (income) expense, net. Non-operating results include foreign currency transaction losses of $0.5 million for the year ended December 31, 2019 compared to foreign currency transaction losses of $1.7 million in the same period last year. The foreign currency transaction losses in both periods reflect the effects of fluctuations in the U.S. Dollar relative to the currencies to which

32

Table of Contents

we have exposure, including but not limited to, the Brazilian Real, British Pound, Canadian Dollar, Euro, Australian Dollar, New Zealand Dollar, Norwegian Kroner, Malaysian Ringgit, Mexican Peso and Singapore Dollar. Non-operating results also include certain components of our net periodic pension cost (credit).
Taxes. The benefit for income tax was $0.4 million on the pre-tax loss from continuing operations of $32.9 million in the current year compared to the benefit for income tax of $31.1 million on pre-tax loss from continuing operations of $94.2 million in the prior year. The effective tax rate was a benefit of 1.3% for the year ended December 31, 2019 and a benefit of 33.0% for the year ended December 31, 2018. The lower effective rate benefit in 2019 is primarily attributable to an increase in valuation allowance on the expected realizability of the Company’s deferred tax assets for federal, foreign and state tax net operating loss carryforwards.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
The following table sets forth the components of revenue and operating income (loss) from our operations for the years ended December 31, 2018 and 2017 (in thousands):
 
 
Twelve Months Ended
December 31,
 
Increase
(Decrease)
 
2018
 
2017
 
$
 
%
 
 
 
 
 
 
 
 
Revenues by business segment:
 
 
 
 
 
 
 
IHT
$
617,378

 
$
588,441

 
$
28,937

 
4.9
%
MS
532,365

 
529,973

 
2,392

 
0.5
%
Quest Integrity
97,186

 
81,797

 
15,389

 
18.8
%
Total
$
1,246,929

 
$
1,200,211

 
$
46,718

 
3.9
%
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
IHT2
$
37,329

 
$
11,128

 
$
26,201

 
235.5
%
MS2
6,323

 
(33,993
)
 
40,316

 
NM1

Quest Integrity
20,138

 
12,337

 
7,801

 
63.2
%
Corporate and shared support services
(102,751
)
 
(104,582
)
 
1,831

 
1.8
%
Total
$
(38,961
)
 
$
(115,110
)
 
$
76,149

 
66.2
%
______________________
1    NM - Not meaningful
2    Includes goodwill impairment loss of $21.1 million and $54.1 million for IHT and MS, respectively, in 2017.
Revenues. Total revenues grew $46.7 million or 3.9% in 2018 from the same period in the prior year. Excluding the favorable impact of $4.2 million due to foreign currency exchange rate changes, total revenues increased by $42.5 million, IHT revenues increased by $27.1 million, MS revenues increased by $0.5 million and Quest Integrity revenues increased by $14.9 million. The favorable impacts of foreign exchange rate changes were primarily due to the weakening of the U.S. dollar relative to Euro, the British Pound and the Canadian dollar. The increases in IHT and Quest Integrity reflected higher activity levels due to increased demand and customer spending levels, attributable to improved market conditions, particularly within the refining and petrochemical industries. The increased activity levels within IHT reflect higher inspection services in our North American operations while the increases within Quest Integrity include additional subsea deepwater pipeline inspection work and growth from certain geographic expansion. Within MS, improvements in activity levels during the first half of 2018 were largely offset by lower activity levels experienced in the second half of the year, due to a softer fall 2018 turnaround season. The fall 2018 turnaround season was negatively impacted by significantly higher North America refinery utilization levels in order to capitalize on higher regional crack spreads driven by recent midstream pipeline capacity contracts and widened crude oil pricing differentials, resulting in the postponement of planned fall 2018 maintenance work. The adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, (“ASC 606”), as of January 1, 2018, had an overall unfavorable impact on consolidated revenues of $4.8 million for the year ended December 31, 2018.
Operating income (loss). Overall operating loss was $39.0 million, compared to an operating loss of $115.1 million in the prior year. The decrease in the operating loss was primarily due to the effect of goodwill impairment losses of $54.1 million and

33

Table of Contents

$21.1 million for MS and IHT, respectively, incurred in 2017 which did not recur in 2018. These impairment losses were a result of our interim goodwill impairment test completed in the third quarter of 2017, which was triggered by the existence of impairment indicators, including market softness and the related impacts on our financial results and our stock price. The results of the impairment test indicated that the carrying values of our MS and IHT operating segments exceeded their estimated fair values. The estimated fair values of these segments had been adversely impacted by the declines in operating results and the related significant decrease in our share price experienced during 2017, particularly the decrease experienced during the third quarter. While there has been no additional goodwill impairment losses in subsequent periods, there can be no assurance that we will not experience additional goodwill impairment losses in future periods. The current year period includes $5.7 million of consolidated operating loss associated with the adoption of ASC 606.
Operating income (loss) for the year ended December 31, 2018 included net expenses totaling $33.9 million that we do not believe are indicative of the Company’s core operating activities, while the same period in the prior year included $107.7 million of such items (including the $75.2 million of goodwill impairment losses), as detailed by segment in the table below (in thousands):
Expenses reflected in operating income (loss) that are not indicative of the Company’s core operating activities (unaudited):
 
IHT
 
MS
 
Quest Integrity
 
Corporate and shared support services
 
Total
Twelve Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
Professional fees, legal and other1
 
$
1,086

 
$
315

 
$

 
$
24,419

 
$
25,820

Restructuring and other related charges2
 
2,995

 
2,514

 
418

 
800

 
6,727

Revaluation of contingent consideration
 

 

 

 
(202
)
 
(202
)
Asset write-offs and disposals
 

 
1,429

 

 

 
1,429

Implementation of the new Enterprise Resource Planning (“ERP”) system
 

 

 

 
87

 
87

Total
 
$
4,081

 
$
4,258

 
$
418

 
$
25,104

 
$
33,861

Twelve Months Ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
Implementation of the new ERP system
 
$

 
$

 
$

 
$
13,776

 
$
13,776

Professional fees, legal and other1
 
1,325

 
796

 

 
13,837

 
15,958

Restructuring and other related charges2
 
966

 
393

 
429

 
863

 
2,651

Goodwill impairment loss
 
21,140

 
54,101

 

 

 
75,241

Revaluation of contingent consideration
 
(1,174
)
 

 

 

 
(1,174
)
Asset write-offs and disposals
 
1,210

 

 

 

 
1,210

Total
 
$
23,467

 
$
55,290

 
$
429

 
$
28,476

 
$
107,662

______________________
1
Consists primarily of professional fees and other costs for assessment of corporate and support cost structures, acquired business integration, natural disaster costs, transition/severance costs associated with certain executive leadership changes and intellectual property legal defense costs associated with Quest Integrity. For 2018, includes $15.5 million (exclusive of restructuring costs) associated with the OneTEAM program.
2
For 2018, relates to restructuring costs incurred associated with the OneTEAM program. For 2017, primarily associated with the 2017 Cost Savings Initiative, net of a $1.1 million gain in MS associated with the disposal of Furmanite operations in Belgium. See Note 16 to the consolidated financial statements for additional information.
Excluding the impact of these identified items in both periods, operating loss changed favorably by $2.3 million in 2018 compared to 2017, consisting of increased operating income in IHT and Quest Integrity of $6.8 million and $7.8 million, respectively, partially offset by decreased operating income in MS of $10.7 million and an increase in corporate and shared support services expenses of $1.6 million. The higher operating income in IHT was attributable to higher activity levels, reflecting an improvement in market conditions, and the benefits from both the Company’s cost savings initiative completed in 2017 as well as the OneTEAM program in 2018, partially offset by increases in labor costs, including overtime compensation and flexible labor cost to meet customer demand. Within Quest Integrity, the higher operating income reflects both higher activity levels and a favorable project mix. Within MS, the benefit of cost reductions were more than offset by additional amortization expense of $12.4 million associated with the Furmanite trade name intangible asset (described above) as well as higher bad debt expense and inventory charges. As discussed above, within MS, improved operating performance in the first half of 2018 was essentially offset by the negative impacts in the second half of the year due to the postponement of planned fall and winter 2018 maintenance work, attributable to the significantly higher North America refinery utilization levels. Within corporate and shared support services, the lower operating income was primarily attributable to higher incentive and non-cash compensation cost, partially offset by labor cost savings from our cost saving initiatives.
Interest expense. Interest expense increased from $21.5 million in 2017 to $30.9 million in 2018. The increase was due to a combination of higher overall debt balances outstanding and higher interest rates. The higher interest rates were primarily due to higher interest rates on our Credit Facility borrowings compared to the same period in the prior year, as well as the effect of

34

Table of Contents

using the proceeds from the $230.0 million of 5.00% convertible senior notes on July 31, 2017 (the “Notes”) offering to repay a portion of the Credit Facility borrowings, which bear a higher effective interest rate than our Credit Facility borrowings.
Write-off of deferred loan costs. The write-off of deferred loan costs of $1.2 million for the year ended December 31, 2017 was associated with the extinguishment of the term-loan portion of the Company’s Credit Facility as well as a reduction in capacity of the revolving portion of the Credit Facility in July 2017.
Loss (gain) on convertible debt embedded derivative. For the twelve months ended December 31, 2018, we recorded a loss of $24.8 million associated with the increase in fair value of our convertible debt embedded derivative liability, compared to a gain of $0.8 million for 2017. The loss recognized during this current year period was primarily attributable to the 38.9% increase in the Company’s stock price during the period through May 17, 2018, while the prior year gain was primarily a result of a decrease in our stock price from the issuance date of the Notes until December 31, 2017. On May 17, 2018, we received shareholder approval to issue shares of common stock upon conversion of the Notes. As discussed further in Note 9 to the consolidated financial statements, in accordance with ASC 815-15, we recorded a loss to adjust the embedded derivative liability to its fair value as of this date and then reclassified the balance of $45.4 million to stockholders’ equity in the second quarter of 2018. As a result of this reclassification, the embedded derivative liability is no longer marked to fair value each period.
Other (income) expense, net. Non-operating results include foreign currency transaction losses of $1.7 million for the year ended December 31, 2018 compared to foreign currency transaction losses of $0.5 million in 2017. The foreign currency transaction gains and losses in both periods reflect the effects of fluctuations in the U.S. Dollar relative to the currencies to which we have exposure, including but not limited to, the Brazilian Real, British Pound, Canadian Dollar, Euro, Australian Dollar, New Zealand Dollar, Norwegian Kroner, Malaysian Ringgit, Mexican Peso and Singapore Dollar. For the year ended December 31, 2018, non-operating results also include a gain of $1.0 million realized on the sale of an investment. Non-operating results also include certain components of our net periodic pension cost (credit).
Taxes. The benefit for income tax was $31.1 million on the pre-tax loss from continuing operations of $94.2 million in 2018 compared to the benefit for income tax of $53.1 million on pre-tax loss from continuing operations of $137.5 million in the prior year. The effective tax rate was a benefit 33.0% for the year ended December 31, 2018 and a benefit of 38.6% for the year ended December 31, 2017. The lower effective rate benefit in 2018 was primarily attributable to the effect of the benefits recorded in 2017 to initially apply the 2017 Tax Act, partially offset by the effect of the non-deductible portion of the goodwill impairment loss also in 2017. The year ended December 31, 2017 included tax benefits of $26.1 million associated with the 2017 Tax Act, comprised of a net benefit of $17.1 million for the decrease in our deferred tax liability on unremitted foreign earnings, a benefit of $17.4 million associated with the remeasurement of other deferred tax balances to reflect the new tax rate and an increase in tax expense of approximately $8.4 million, net of related foreign tax credits, associated with a deemed repatriation tax. During the year ended December 31, 2018, the Company finalized the recording of the impacts of the 2017 Tax Act and recorded an income tax benefit of $1.8 million, reflecting an adjustment to the provisional estimate of the deemed repatriation transition tax. As a result of the final calculation of the transition tax liability, the Company also recorded an adjustment to the deferred tax liability associated with investments in foreign subsidiaries. For additional information on the 2017 Tax Act, see Note 8 to the consolidated financial statements.
Liquidity and Capital Resources
    
Financing for our operations consists primarily of our Credit Facility and cash flows attributable to our operations, which we believe are sufficient to fund our business needs. From time to time, we may experience periods of weakness in the industries in which we operate, with activity levels below historical levels. These conditions, depending on their duration and severity, have the potential to adversely impact our operating cash flows. In the event that existing liquidity sources are no longer sufficient for our capital requirements, we would explore additional external financing sources. However, there can be no assurance that such sources would be available on terms acceptable to us, if at all.

Credit Facility. On August 30, 2019, we renewed our Credit Facility under the Eighth Amendment to the Third Amended and Restated Credit Agreement. The Eighth Amendment amends and restates certain portions of the Third Amended and Restated Credit Agreement, dated as of July 7, 2015. In accordance with the Eighth Amendment, the Credit Facility has a borrowing capacity of up to $275.0 million and consists of a $225.0 million revolving loan facility and a $50.0 million term loan facility. The entire $50.0 million term loan amount was used to pay the outstanding principal amount borrowed under the Credit Facility prior to the effectiveness of the Eighth Amendment. The Credit Facility allows for an increase in total commitments of up to an additional $100 million if certain conditions are met. The swing line facility is $35.0 million. The Credit Facility matures on July 7, 2021. Both the revolving loan facility and term loan bear interest based on a variable Eurodollar rate option (LIBOR plus 2.75% margin at December 31, 2019) and have commitment fees on unused borrowing capacity (0.50% at December 31, 2019). The Credit

35

Table of Contents

Facility limits our ability to pay cash dividends. The Company’s obligations under the Credit Facility are guaranteed by its material direct and indirect domestic subsidiaries and are secured by a lien on substantially all of the Company’s and the guarantors’ tangible and intangible property (subject to certain specified exclusions) and by a pledge of all of the equity interests in the Company’s material direct and indirect domestic subsidiaries and 65% of the equity interests in the Company’s material first-tier foreign subsidiaries.
The Eighth Amendment amended the financial covenants in the Credit Facility by eliminating the ratio of consolidated EBITDA to consolidated interest charges (the “Interest Coverage Ratio,” as defined in the Credit Facility agreement), adding the ratio of consolidated funded indebtedness to consolidated EBITDA (the "Net Leverage Ratio," as defined in the Credit Facility agreement), adding the ratio of the sum of consolidated EBITDA less taxes and capital expenditures paid in cash to consolidated debt service (the "Debt Service Coverage Ratio," as defined in the Credit Facility agreement) and modifying the ratio of senior secured debt to consolidated EBITDA (the “Senior Secured Leverage Ratio,” as defined in the Credit Facility agreement). The financial covenant requirements under the Eighth Amendment are summarized in the table below.
Fiscal Quarter Ending
Maximum Senior Secured Leverage Ratio
December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020
2.75 to 1.00
December 31, 2020 and each Fiscal Quarter thereafter
2.50 to 1.00
 
 
 
Fiscal Quarter Ending
Maximum Net Leverage Ratio
March 31, 2020
5.50 to 1.00
June 30, 2020
5.25 to 1.00
September 30, 2020
5.00 to 1.00
December 31, 2020 and each Fiscal Quarter thereafter
4.50 to 1.00
 
 
 
Fiscal Quarter Ending
Minimum Debt Service Coverage Ratio
December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020
1.25 to 1.00
December 31, 2020 and each Fiscal Quarter thereafter
1.50 to 1.00
As of December 31, 2019, we are in compliance with these covenants. The Senior Secured Leverage Ratio and the Debt Service Coverage Ratio stood at 1.89 to 1.00 and 2.17 to 1.00, respectively, as of December 31, 2019. We are not bound by a covenant with respect to the Net Leverage Ratio until March 31, 2020; however, as of December 31, 2019 this ratio stood at 4.97 to 1.00.
At December 31, 2019, we had $12.2 million of cash on hand and had approximately $66 million of available borrowing capacity through our Credit Facility. As of December 31, 2019, we had $2.1 million of unamortized debt issuance costs and debt discount that are being amortized over the life of the Credit Facility.
Our ability to maintain compliance with the financial covenants is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties. Accordingly, there can be no assurance that we will be able to maintain compliance with the Credit Facility covenants as of any future date. In the event we are unable to maintain compliance with our financial covenants, we would seek to enter into an amendment to the Credit Facility with our bank group in order to modify and/or to provide relief from the financial covenants for an additional period of time. Although we have entered into amendments in the past, there can be no assurance that any future amendments would be available on terms acceptable to us, if at all.
In order to secure our casualty insurance programs, we are required to post letters of credit generally issued by a bank as collateral. A letter of credit commits the issuer to remit specified amounts to the holder if the holder demonstrates that we failed to meet our obligations under the letter of credit. If this were to occur, we would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. We were contingently liable for outstanding stand-by letters of credit totaling $20.5 million at December 31, 2019 and $22.8 million at December 31, 2018. 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.

36

Table of Contents

Issuance of Convertible Senior Notes. On July 31, 2017, we issued $230.0 million principal amount of 5.00% Convertible Senior Notes due 2023 in a private offering to qualified institutional buyers (as defined in the Securities Act) pursuant to Rule 144A under the Securities Act. The Notes are senior unsecured obligations of the Company. The Notes bear interest at a rate of 5.0% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on February 1, 2018. The Notes mature on August 1, 2023 unless repurchased, redeemed or converted in accordance with their terms prior to such date. The Notes are convertible at an initial conversion rate of 46.0829 shares of our common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $21.70 per share, which represents a conversion premium of 40% to the last reported sale price of $15.50 per share on the NYSE on July 25, 2017, the date the pricing of the Notes was completed. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture governing the Notes.
Holders may convert their Notes at their option prior to the close of business on the business day immediately preceding May 1, 2023, but only under the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day;

if we call any or all of the Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or;

upon the occurrence of specified corporate events described in the indenture governing the Notes.

On or after May 1, 2023 until the close of business on the business day immediately preceding the maturity date, holders may, at their option, convert their Notes at any time, regardless of the foregoing circumstances.

The Notes are initially convertible into 10,599,067 shares of common stock. Previously, because the Notes could be convertible in full into more than 19.99% of our outstanding common stock, we were required by the listing rules of the NYSE to obtain the approval of the holders of our outstanding shares of common stock before the Notes could converted into more than 5,964,858 shares of common stock. At our annual shareholders’ meeting, held on May 17, 2018, our shareholders approved the issuance of shares of common stock upon conversion of the Notes. The Notes will be convertible into, subject to various conditions, cash or shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, in each case, at the Company’s election.

If holders elect to convert the Notes in connection with certain fundamental change transactions described in the indenture governing the Notes, we will, under certain circumstances described in the indenture governing the Notes, increase the conversion rate for the Notes so surrendered for conversion.

We may not redeem the Notes prior to August 5, 2021. We will have the option to redeem all or any portion of the Notes on or after August 5, 2021, if certain conditions are met (including that our common stock is trading at or above 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption) at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Net proceeds received from the Offering were approximately $222.3 million after deducting discounts, commissions and expenses. During 2017, we used $160.0 million of the net proceeds to repay all outstanding borrowings under the term-loan portion of our Credit Facility and $62.3 million of the net proceeds to repay a portion of the outstanding borrowings under the revolving portion of our Credit Facility, which may be subsequently reborrowed for general corporate purposes.
Cost Savings and Business Improvement Initiatives. On July 24, 2017, we announced our commitment to a cost savings initiative to take direct actions to reduce our overall cost structure given a continuation of weak market conditions. The cost savings initiative included reductions to discretionary spending and the elimination of certain employee positions. Based upon our estimates,

37

Table of Contents

we believe that the actions taken reduced our annual operating expenses by approximately $30 million, with the impact to operating results of those reduction synergies having begun in the third quarter of 2017. The resulting severance and related charges, which were recorded in the third and fourth quarters of 2017, were approximately $3.9 million, most of which had been paid in cash as of December 31, 2017. This cost savings initiative is complete.
In the fourth quarter of 2017, we engaged outside consultants to assess all aspects of our business for improvement and cost saving opportunities as part of a new cost savings and business improvement project. In the first quarter of 2018, we completed the design phase of the project, known as OneTEAM, and are now in the deployment phase. In the third quarter of 2019, we began the design phase of OneTEAM for our international operations. We expect to incur various additional expenses associated with the execution of the OneTEAM project through 2020 with funding provided by our operating cash flows and the Credit Facility. We incurred $12.3 million and $15.5 million of expenses during the twelve months ended December 31, 2019 and December 31, 2018, respectively, primarily related to professional fees associated with the OneTEAM project. Additionally, we incurred $1.7 million and $6.7 million of severance-related costs during the twelve months ended December 31, 2019 and December 31, 2018, respectively, related to the elimination of certain employee positions in conjunction with the OneTEAM project.
Exiting 2020, the Company expects to ultimately achieve annual run-rate cost efficiencies of $35 million to $45 million related to the overall OneTEAM Program. OneTEAM savings realized during the twelve months ended December 31, 2019 were approximately $22.9 million. Although management expects that cost savings and other business improvements will result from these actions, there can be no assurance that such results will be achieved.

ERP System. At the end of 2013, we initiated the design and implementation of a new ERP system, which was substantially installed by the end of 2017. Amortization of the ERP system development costs began in March 2017 and was computed by the straight-line method. Through December 31, 2017, we capitalized $46.6 million associated with the project which included $1.6 million of capitalized interest. No additional amounts were capitalized in association with this project in 2018 and 2019.
Common Stock Repurchase Plan. On June 23, 2014, our Board authorized an increase in the stock repurchase plan limit to repurchase Team common stock up to $50 million (net of the $13.3 million repurchased previously). The stock repurchase plan was canceled in 2017. No shares were repurchased during the years ended December 31, 2019, 2018, and 2017.
Cash and cash equivalents. Our cash and cash equivalents at December 31, 2019 totaled $12.2 million, of which $10.7 million was in foreign accounts, primarily in the U.K., New Zealand, Canada and Australia.
Cash flows attributable to our operating activities. For the year ended December 31, 2019, net cash provided by operating activities was $58.8 million. Although we incurred a net loss of $32.4 million, the effect of depreciation and amortization of $49.1 million, a decrease in working capital of $25.0 million, non-cash compensation cost of $10.1 million, amortization of deferred loan costs and debt discount of $7.7 million and deferred income taxes of $3.8 million primarily due to net tax refunds, resulted in positive operating cash flow.
For the year ended December 31, 2018, net cash used in operating activities was $41.9 million. Although we incurred a net loss of $63.1 million, the effect of depreciation and amortization of $64.9 million, a non-cash loss on our convertible debt embedded derivative of $24.8 million, a decrease in working capital of $19.0 million, non-cash compensation cost of $12.3 million and a provision for doubtful accounts of $11.7 million, partially offset by deferred tax benefits of $31.7 million, resulted in positive operating cash flow.
For the year ended December 31, 2017, net cash used in operating activities was $13.7 million. The negative operating cash flow was primarily attributable to the net loss of $84.5 million, deferred tax benefits of $66.2 million and an increase in working capital of $5.0 million, largely offset by the effect of the non-cash goodwill impairment loss of $75.2 million, depreciation and amortization of $52.1 million, non-cash compensation cost of $7.9 million and a provision for doubtful accounts of $7.1 million.
Cash flows attributable to our investing activities. For the year ended December 31, 2019, net cash used in investing activities was $28.1 million, consisting primarily of $29.0 million of capital expenditures. Capital expenditures can vary depending upon specific customer needs that may arise unexpectedly.
For the year ended December 31, 2018, net cash used in investing activities was $25.0 million, consisting primarily of $27.2 million of capital expenditures. Capital expenditures can vary depending upon specific customer needs that may arise unexpectedly.
For the year ended December 31, 2017, net cash used in investing activities was $34.0 million, consisting primarily of $36.8 million of capital expenditures. Capital expenditures included $1.8 million in costs related to our ERP project.

38

Table of Contents

Cash flows attributable to our financing activities. For the year ended December 31, 2019, net cash used in financing activities was $36.8 million, consisting primarily of $82.4 million net debt repayments under the revolving portion of our Credit Facility, $1.9 million in withholding tax payments related to share-based compensation, $0.4 million in contingent consideration payments and $1.5 million of Credit Facility debt issuance costs, partially offset by net borrowings on our Credit Facility term loan of $49.7 million.
For the year ended December 31, 2018, net cash used in financing activities was $23.0 million, consisting primarily of $19.7 million net debt repayments under the revolving portion of our Credit Facility, $1.4 million in withholding tax payments related to share-based compensation, $1.1 million in contingent consideration payments and $0.9 million of Credit Facility debt issuance costs.
For the year ended December 31, 2017, net cash provided by financing activities was $25.6 million, consisting primarily of $222.3 million of proceeds from the issuance of our convertible senior notes, partially offset by $170 million in payments on our term loan, $23.0 million of net debt repayments under the revolving portion of our Credit Facility and $1.9 million of Credit Facility debt issuance costs.
Effect of exchange rate changes on cash. For the years ended December 31, 2019 and 2018, the effect of foreign exchange rate changes on cash was a negative impact of $43.0 thousand and $2.1 million, respectively. The negative impact in both periods is primarily attributable to unfavorable fluctuations in U.S. Dollar exchange rates with the Canadian Dollar, Australian Dollar, the British Pound, the Euro and the Brazilian Real.
For the year ended December 31, 2017, the effect of foreign exchange rate changes on cash was a positive impact of $2.5 million. The positive impact in the current period is primarily attributable to favorable fluctuations in U.S. Dollar exchange rates with the Australian Dollar, Canadian Dollar, and the British Pound, partially offset by unfavorable fluctuations with the Euro and the Malaysian Ringgit.
Contractual Obligations

A summary of contractual obligations as of December 31, 2019 is as follows (in thousands):
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
 
Total
Principal payments on Credit Facility and Convertible Senior Notes
$
5,000

 
$
118,876

 
$
230,000

 
$

 
$
353,876

Interest payments on Credit Facility and Convertible Senior Notes1
16,895

 
25,771

 
11,500

 

 
54,166

Finance lease obligations2
593

 
1,198

 
1,093

 
5,105

 
7,989

Operating lease obligations2
21,539

 
29,648

 
19,431

 
20,031

 
90,649

Defined benefit pension plan contribution obligations3
3,955

 
7,911

 
7,911

 
28,017

 
47,794

Total
$
47,982

 
$
183,404

 
$
269,935

 
$
53,153

 
$
554,474

________________________
1
While we cannot predict with certainty the amount of interest payments due to the expected variability of interest rates and principal amounts outstanding, we have provided estimated amounts of interest payments based on the following assumptions. With respect to our Credit Facility, the calculation includes estimated interest payments totaling $8.2 million over the remaining contractual period based on the outstanding principal balance and interest rates in effect as of December 31, 2019. With respect to the Notes, includes total interest payments of $46 million assuming that the Notes remain outstanding through the maturity date.
2
Includes interest of $2.6 million and $19.1 million for finance and operating lease obligations, respectively, as of December 31, 2019.
3
For the Company’s defined benefit pension plan covering certain United Kingdom employees (the “U.K. Plan”), as of December 31, 2019, the Company has committed to fund annual contributions of $3.9 million in 2020 and thereafter through January 2032 for a total funding commitment of up to approximately $47.8 million (undiscounted). Further, in any year in which specified operating performance levels are exceeded, we have committed to an additional contribution for that year, of up to approximately $1.2 million, depending on actual performance levels. Notwithstanding these commitments, the Company will make contributions to the U.K. Plan only to the extent necessary to eliminate the funding deficit. Accordingly, the aggregate amount of contributions ultimately made may be less than those noted above.

39

Table of Contents

A summary of long-term liabilities and other long-term obligations as of December 31, 2019 and 2018 is as follows (in thousands): 
 
December 31,
 
2019
 
2018
Long-term liabilities per consolidated balance sheets:
 
 
 
Long-term debt:
 
 
 
Credit Facility revolver
$
73,876

 
$
156,843

Credit Facility term loan
49,735

 

Total Credit Facility
123,611

 
156,843

Convertible debt
201,619

 
195,184

Finance lease obligations
5,363

 
5,356

Current maturities under Credit Facility term loan
(5,000
)
 

Current maturities under finance lease obligations
(294
)
 
(569
)
Long-term debt, excluding current maturities
$
325,299

 
$
356,814

Defined benefit pension liability
$
9,321

 
$
10,940

Other long-term liabilities
$
1,959

 
$
6,910

 
 
 
 
Other long-term obligations:
 
 
 
Outstanding letters of credit
$
20,500

 
$
22,800

Operating leases
$
71,536

 
$
93,693



40

Table of Contents

Critical Accounting Policies
The process of preparing financial statements in accordance with 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 believe that the following critical accounting policies comprise the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Revenue from contracts with customers. The majority of our revenues are derived from providing services on a time and material basis and are short-term in nature. We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
Revenue is recognized as (or when) the performance obligations are satisfied by transferring control over a service or product to the customer. As most of our contracts contain only one performance obligation, the allocation of a contract’s transaction price to multiple performance obligations is generally not applicable. For our time and materials contracts, we are generally able to elect the right-to-invoice practical expedient, which permits us to recognize revenue in the amount to which we have a right to invoice the customer if that amount corresponds directly with the value to the customer of our performance completed to date. For our fixed price contracts, we typically recognize revenue using the cost-to-cost method, which measures the extent of progress towards completion based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Under this method, revenue is recognized proportionately as costs are incurred. For contracts where control is transferred at a point in time, revenue is recognized at the time control of the asset is transferred to the customer, which is typically upon delivery and acceptance by the customer.
Certain contracts may also contain a combination of fixed and variable pricing elements. Generally, in contracts where the amount of consideration is variable, the amount is determinable each period based on our right to invoice the customer for services performed to date.
Goodwill. Goodwill represents the excess purchase price of acquired businesses over the fair values attributed to underlying net tangible assets and identifiable intangible assets. We test goodwill each year on December 1 for impairment at a reporting unit level. Goodwill is also tested for impairment whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. An assessment can be performed by first completing a qualitative assessment on none, some, or all of our reporting units. We can also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, a significant change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a decrease in our market capitalization below book value may trigger the need for interim impairment testing of goodwill associated with one or more of our reporting units. If we believe that, as a result of our qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test involves comparing the fair value of each of our reporting units with its carrying amount, including goodwill.
During the third quarter of 2017, there was a triggering event in the MS and IHT reporting units and our interim goodwill impairment test indicated an impairment as the carrying values of the MS and IHT reporting units exceeded their fair values. This resulted in an impairment loss of $75.2 million. See Note 1 in the notes to consolidated financial statements for further details.
Income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted rates in effect for the year in which the differences are expected to reverse. The effect of the change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be unable to realize our deferred tax assets, we would make an adjustment to the deferred tax asset valuation allowance.

41

Table of Contents

We establish reserves for uncertain tax positions when it is not more likely than not that the position will be sustained upon challenge. When facts and circumstances change, we adjust these reserves through our provision for income taxes. To the extent interest and penalties may be assessed by taxing authorities on any related underpayment of income tax, such amounts have been accrued and are classified as a component of income tax expense.
New Accounting Principles
For information about newly adopted accounting principles as well as information about new accounting principles pending adoption, see Note 1 to the consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk sensitive instruments and positions have been determined to be “other than trading.” We have operations in foreign countries with a functional currency that is not the U.S. Dollar. We are exposed to market risk, primarily related to foreign currency fluctuations related to these operations. Subsidiaries with asset and liability balances denominated in currencies other than their functional currency are remeasured in the preparation of their financial statements using a combination of current and historical exchange rates, with any resulting remeasurement adjustments included in net income (loss) for the period. Net foreign currency transaction losses for the year ended December 31, 2019 were $0.5 million and relate primarily to fluctuations in the U.S. Dollar in relation to the Euro and the Brazilian Real.

In 2015, we initiated a foreign currency hedging program to mitigate the foreign currency risk in countries where we have significant assets and liabilities denominated in currencies other than the functional currency. We utilize monthly foreign currency swap contracts to reduce exposures to changes in foreign currency exchange rates related to our largest exposures including, but not limited to the Australian Dollar, Canadian Dollar, Brazilian Real, British Pound, Euro, Malaysian Ringgit and Mexican Peso. The impact from these swap contracts was not material as of December 31, 2019, 2018 and 2017 or for the years ended December 31, 2019, 2018 and 2017.
Translation adjustments for the assets and liability accounts are included as a separate component of accumulated other comprehensive loss in shareholders’ equity. Foreign currency translation losses recognized in other comprehensive loss were $3.9 million for the year ended December 31, 2019.
Based on the year ended December 31, 2019, we had foreign currency-based revenues and operating income of $321.1 million and $11.1 million, respectively. A hypothetical 10% adverse change in all applicable foreign currencies would result in an annual change in revenues and operating income of $32.1 million and $1.1 million, respectively.
We carry Euro-based debt to serve as a hedge of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our European operations. We are exposed to market risk, primarily related to foreign currency fluctuations related to the unhedged portion of our investment in our European operations.
All of the debt outstanding under the Credit Facility bears interest at variable market rates. If market interest rates increase, our interest expense and cash flows could be adversely impacted. Based on Credit Facility borrowings outstanding at December 31, 2019, an increase in market interest rates of 100 basis points would increase our interest expense and decrease our operating cash flows by approximately $1.2 million on an annual basis.
Our convertible senior notes bear interest at a fixed rate, but the fair value of the Notes is subject to fluctuations as market interest rates change. In addition, the fair value of the Notes is affected by changes in our stock price. As of December 31, 2019, the outstanding principal balance of the Notes was $230.0 million. The carrying value of the liability component of the Notes, net of the unamortized discount and issuance costs, was $201.6 million as of December 31, 2019, while the estimated fair value of the Notes was $241.7 million (inclusive of the fair value of the conversion option), which was determined based on the observed trading price of the Notes. Through May 17, 2018, a portion of the conversion feature of the Notes was accounted for as an embedded derivative liability under ASC 815, with changes in fair value reflected in our results of operations each period. As a result of obtaining shareholder approval on May 17, 2018 to issue shares of common stock upon conversion of the Notes, we reclassified the embedded derivative to stockholders’ equity at its May 17, 2018 fair value of $45.4 million during the second quarter of 2018. As a result of the reclassification to stockholders’ equity, the embedded derivative is no longer marked to fair value each period. See Note 9 to the consolidated financial statements for additional information regarding the Notes.

42

Table of Contents





Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Team, Inc.:

Opinion on Internal Control Over Financial Reporting
We have audited Team, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019 and the related notes (collectively, the consolidated financial statements), and our report dated March 16, 2020 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to monitoring controls over certain subsidiary operations being ineffective due to the Company's risk assessment not identifying the need for monitoring controls at these subsidiaries has been identified and included in management's assessment. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.



43

Table of Contents

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.

/s/ KPMG LLP

Houston, Texas
March 16, 2020

44

Table of Contents

Report of Independent Registered Public Accounting Firm


To the Shareholders and Board of Directors
Team, Inc.:

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Team, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2020 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842 (ASC 842), Leases.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition as of January 1, 2018 due to the adoption of Accounting Standards Codification Topic 606 (ASC 606), Revenue from Contracts with Customer.

Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.
Houston, Texas
March 16, 2020


45

Table of Contents

TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
December 31,
 
2019
 
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
12,175

 
$
18,288

Receivables, net of allowance of $9,990 and $15,182
245,617

 
268,352

Inventory
39,195

 
48,540

Income tax receivable
316

 
331

Prepaid expenses and other current assets
20,275

 
19,445

Total current assets
317,578

 
354,956

Property, plant and equipment, net
191,951

 
194,794

Intangible assets, net of accumulated amortization of $96,797 and $82,406
117,019

 
131,372

Operating lease right-of-use assets
67,048

 

Goodwill
282,006

 
281,650

Other assets, net
4,426

 
7,397

Deferred income taxes
5,189

 
7,652

Total assets
$
985,217

 
$
977,821

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt and finance lease obligations
$
5,294

 
$
569

Current portion of operating lease obligations
17,100

 

Accounts payable
41,636

 
44,074

Other accrued liabilities
86,506

 
95,308

Total current liabilities
150,536

 
139,951

Deferred income taxes
6,996

 
6,106

Long-term debt and finance lease obligations
325,299

 
356,814

Operating lease obligations
54,436

 

Defined benefit pension liability
9,321

 
10,940

Other long-term liabilities
1,959

 
6,910

Total liabilities
548,547

 
520,721

Commitments and contingencies

 

Equity:
 
 

Preferred stock, 500,000 shares authorized, none issued

 

Common stock, par value $0.30 per share, 60,000,000 shares authorized; 30,518,793 and 30,184,330 shares issued
9,153

 
9,053

Additional paid-in capital
409,034

 
400,989

Retained earnings
48,673

 
81,450

Accumulated other comprehensive loss
(30,190
)
 
(34,392
)
Total equity
436,670

 
457,100

Total liabilities and equity
$
985,217

 
$
977,821

 
See accompanying notes to consolidated financial statements.


46

Table of Contents

TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Twelve Months Ended
December 31,
 
2019
 
2018
 
2017
Revenues
$
1,163,314

 
$
1,246,929

 
$
1,200,211

Operating expenses
835,570

 
918,673

 
890,212

Gross margin
327,744

 
328,256

 
309,999

Selling, general and administrative expenses
328,214

 
360,692

 
348,391

Restructuring and other related charges, net (see Note 16)
1,676

 
6,727

 
2,651

Gain on revaluation of contingent consideration

 
(202
)
 
(1,174
)
Goodwill impairment loss (see Note 1)

 

 
75,241

Operating loss
(2,146
)
 
(38,961
)
 
(115,110
)
Interest expense, net
29,713

 
30,875

 
21,487

Write-off of deferred loan costs
279

 

 
1,244

Loss (gain) on convertible debt embedded derivative (see Note 9)

 
24,783

 
(818
)
Other (income) expense, net
715

 
(410
)
 
510

Loss before income taxes
(32,853
)
 
(94,209
)
 
(137,533
)
Less: Benefit for income taxes (see Note 8)
(436
)
 
(31,063
)
 
(53,078
)
Net loss
$
(32,417
)
 
$
(63,146
)
 
$
(84,455
)
 
 
 
 
 
 
Earnings (Loss) per common share:
 
 
 
 
 
Basic
$
(1.07
)
 
$
(2.10
)
 
$
(2.83
)
Diluted
$
(1.07
)
 
$
(2.10
)
 
$
(2.83
)
 
See accompanying notes to consolidated financial statements.


47

Table of Contents

TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
 
 
Twelve Months Ended
December 31,
 
2019
 
2018
 
2017
Net loss
$
(32,417
)
 
$
(63,146
)
 
$
(84,455
)
Other comprehensive income (loss) before tax:
 
 
 
 
 
Foreign currency translation adjustment
3,865

 
(9,241
)
 
10,607

Foreign currency hedge
282

 
658

 
(1,802
)
Defined benefit pension plans:
 
 
 
 
 
Net actuarial gain (loss) arising during period
(421
)
 
109

 
3,226

Settlement cost during period
226

 

 

Prior service cost arising during period

 
(669
)
 

Amortization of prior service cost
33

 

 

Amortization of net actuarial (gain) loss

 
(78
)
 
71

Other comprehensive income (loss), before tax
3,985

 
(9,221
)
 
12,102

Tax (provision) benefit attributable to other comprehensive income (loss)
217

 
(3,045
)
 
(2,898
)
Other comprehensive income (loss), net of tax
4,202

 
(12,266
)
 
9,204

Total comprehensive loss
$
(28,215
)
 
$
(75,412
)
 
$
(75,251
)
 
See accompanying notes to consolidated financial statements.


48

Table of Contents

TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
 
Common
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
Balance at January 1, 2017
29,785


8,934


336,756


218,947


(29,000
)
 
535,637

Adoption of new accounting principle

 

 

 
994

 

 
994

Net loss

 

 

 
(84,455
)
 

 
(84,455
)
Foreign currency translation adjustment, net of tax

 

 

 

 
7,688

 
7,688

Foreign currency hedge, net of tax

 

 

 

 
(1,114
)
 
(1,114
)
Defined benefit pension plans, net of tax

 

 

 

 
2,630

 
2,630

Issuance of convertible debt, net of tax

 

 
8,415

 

 

 
8,415

Non-cash compensation

 

 
7,876

 

 

 
7,876

Vesting of stock awards
152

 
45

 
(992
)
 

 

 
(947
)
Exercise of stock options
16

 
5

 
445

 

 

 
450

Balance at December 31, 2017
29,953


8,984


352,500


135,486


(19,796
)

477,174

Adoption of new accounting principles

 

 

 
9,110

 
(2,330
)
 
6,780

Net loss

 

 

 
(63,146
)
 

 
(63,146
)
Foreign currency translation adjustment, net of tax

 

 

 

 
(12,164
)
 
(12,164
)
Foreign currency hedge, net of tax

 

 

 

 
496

 
496

Defined benefit pension plans, net of tax

 

 

 

 
(598
)
 
(598
)
Reclassification of convertible debt embedded derivative, net of tax

 

 
37,698

 

 

 
37,698

Non-cash compensation

 

 
12,256

 

 

 
12,256

Vesting of stock awards
231

 
69

 
(1,465
)
 

 

 
(1,396
)
Balance at December 31, 2018
30,184

 
9,053

 
400,989

 
81,450

 
(34,392
)
 
457,100

Adoption of new accounting principles, net of tax

 

 

 
(360
)
 

 
(360
)
Net loss

 

 

 
(32,417
)
 

 
(32,417
)
Foreign currency translation adjustment, net of tax

 

 

 

 
4,258

 
4,258

Foreign currency hedge, net of tax

 

 

 

 
213

 
213

Defined benefit pension plans, net of tax

 

 

 

 
(269
)
 
(269
)
Non-cash compensation

 

 
10,055

 

 

 
10,055

Vesting of stock awards
335

 
100

 
(2,010
)
 

 

 
(1,910
)
Balance at December 31, 2019
30,519

 
$
9,153

 
$
409,034

 
$
48,673

 
$
(30,190
)
 
$
436,670

See accompanying notes to consolidated financial statements.

49

Table of Contents

TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Twelve Months Ended
December 31,
 
2019
 
2018