UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~June 30, 2016~~March 31, 2017


¨	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

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)

None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer	¨	Accelerated filer	þ

Non-accelerated filer (Do not check if a smaller reporting company)	¨	Smaller reporting company	¨
~~(Do not check if a 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 Exchange Act). Yes ¨ No þ

The Registrant had ~~29,327,191~~29,814,913 shares of common stock, par value $0.30, outstanding ~~and 821,087 shares of treasury stock~~ as of ~~July 31, 2016.~~May 3, 2017.

Table of Contents

INDEX



		Page No.
PART I—FINANCIAL INFORMATION		2
ITEM 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets as of ~~June 30, 2016~~March 31, 2017 (Unaudited) and December 31, ~~2015~~2016	2
	Unaudited Condensed Consolidated Statements of ~~Income~~Operations for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~	3
	Unaudited Condensed Consolidated Statements of Comprehensive ~~Income~~Loss for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~	4
	~~Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2016 and 2015~~	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~	65
	Notes to Unaudited Condensed Consolidated Financial Statements	76
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2926
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3430
ITEM 4.	Controls and Procedures	3530
PART II—OTHER INFORMATION		36
ITEM 1.	Legal Proceedings	3631
ITEM 1A.	Risk Factors	3631
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3631
ITEM 3.	Defaults Upon Senior Securities	3632
ITEM 4.	Mine Safety Disclosures	3732
ITEM 5.	Other Information	3732
ITEM 6.	Exhibits	3733
SIGNATURES		3834

PART I—FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

TEAM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	June 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	65,440		$	44,825		$	23,740		$	46,216
Restricted cash	—			5,000
Receivables, net of allowance of $5,739 and $3,548	282,324			214,324
Receivables, net of allowance of $9,182 and $7,835							269,281			262,773
Inventory	54,255			27,936			50,404			49,571
Income tax receivable	9,821			3,893			2,563			512
Deferred income taxes	17,212			6,917			—			16,521
Prepaid expenses and other current assets	36,141			11,664			23,776			25,764
Current assets of discontinued operations	14,810			—
Total current assets	480,003			314,559			369,764			401,357
Property, plant and equipment, net	206,292			124,983			205,342			203,130
Intangible assets, net of accumulated amortization of $28,511 and $21,161	167,196			99,119
Intangible assets, net of accumulated amortization of $41,583 and $37,309							171,940			176,104
Goodwill	361,961			256,654			356,347			355,786
Other assets, net	3,464			2,421			4,734			4,826
Deferred income taxes	4,108			1,255			5,791			6,215
Total assets	$	1,223,024		$	798,991		$	1,113,918		$	1,147,418
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	20,000		$	20,000		$	20,000		$	20,000
Accounts payable	51,946			22,364			40,794			47,817
Other accrued liabilities	75,112			49,796			90,803			79,904
Current liabilities of discontinued operations	2,328			—
Total current liabilities	149,386			92,160			151,597			147,721
Deferred income taxes	101,013			17,302			70,892			93,318
Long-term debt	405,731			351,383			337,188			346,911
Defined benefit pension liability	12,483			—			20,969			21,239
Other long-term liabilities	4,268			—			2,650			2,592
Total liabilities	672,881			460,845			583,296			611,781
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; 30,148,278 and 21,836,694 shares issued	9,044			6,552
Common stock, par value $0.30 per share, 60,000,000 shares authorized; 29,814,913 and 29,784,734 shares issued							8,943			8,934
Additional paid-in capital	334,813			120,126			338,734			336,756
Retained earnings	251,902			250,980			210,434			218,947
Accumulated other comprehensive loss	(16,885		)	(18,374		)	(27,489		)	(29,000		)
Treasury stock at cost, 821,087 and 546,977 shares	(28,731		)	(21,138		)
Total equity	550,143			338,146			530,622			535,637
Total liabilities and equity	$	1,223,024		$	798,991		$	1,113,918		$	1,147,418

See accompanying notes to unaudited condensed consolidated financial statements.

TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(in thousands, except per share data)

Three Months Ended
June 30, Six Months Ended
June 30,
2016 2015 2016 2015
Revenues $ 336,440
$ 235,399
$ 587,294
$ 427,806
Operating expenses 237,747
159,921
422,619
298,285
Gross margin 98,693
75,478
164,675
129,521
Selling, general and administrative expenses 82,501
53,444
155,863
99,788
Loss on revaluation of contingent consideration 2,184
—
2,184
—
Operating income 14,008
22,034
6,628
29,733
Interest expense, net 3,408
574
6,343
1,141
Foreign currency (gain) loss (137 ) (51 ) (99 ) 323
Other expense (income), net (29 ) (3 ) (39 ) 1,176
Earnings from continuing operations before income taxes 10,766
21,514
423
27,093
Less: Provision for income taxes 3,796
7,446
13
9,659
Income from continuing operations 6,970
14,068
410
17,434
Income from discontinued operations, net of income tax 386
—
512
—
Net income 7,356
14,068
922
17,434
Less: Income attributable to noncontrolling interest —
153
—
213
Net income available to Team shareholders $ 7,356
$ 13,915
$ 922
$ 17,221

Basic earnings per share:
Continuing operations $ 0.24
$ 0.69
$ 0.01
$ 0.85
Discontinued operations 0.01
—
0.02
—
Net income $ 0.25
$ 0.69
$ 0.03
$ 0.85
Diluted earnings per share:
Continuing operations $ 0.24
$ 0.65
$ 0.01
$ 0.80
Discontinued operations 0.01
—
0.02
—
Net income $ 0.25
$ 0.65
$ 0.03
$ 0.80

Amounts attributable to Team shareholders:
Income from continuing operations, net of tax $ 6,970
$ 13,915
$ 410
$ 17,221
Income from discontinued operations, net of tax 386
—
512
—
Net income $ 7,356
$ 13,915
$ 922
$ 17,221



	Three Months Ended March 31,
	2017			2016
Revenues	$	286,554		$	250,854
Operating expenses	211,750			184,872
Gross margin	74,804			65,982
Selling, general and administrative expenses	89,313			73,362
Exit costs and other related charges (credits) (see Note 16)	(1,247		)	—
Gain on revaluation of contingent consideration	(1,174		)	—
Operating loss	(12,088		)	(7,380		)
Interest expense, net	3,158			2,935
Foreign currency loss	334			38
Other expense (income), net	7			(10		)
Loss from continuing operations before income taxes	(15,587		)	(10,343		)
Less: Income tax benefit	(6,079		)	(3,783		)
Loss from continuing operations	(9,508		)	(6,560		)
Income from discontinued operations, net of income tax	—			126
Net loss	$	(9,508	)	$	(6,434	)

Basic earnings (loss) per common share:
Continuing operations	$	(0.32	)	$	(0.27	)
Discontinued operations	—			—
Net loss	$	(0.32	)	$	(0.27	)
Diluted earnings (loss) per common share:
Continuing operations	$	(0.32	)	$	(0.27	)
Discontinued operations	—			—
Net loss	$	(0.32	)	$	(0.27	)

See accompanying notes to unaudited condensed consolidated financial statements.

TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE ~~INCOME~~LOSS

(in thousands)

Three Months Ended
June 30, Six Months Ended
June 30,
2016 2015 2016 2015
Net income $ 7,356
$ 14,068
$ 922
$ 17,434
Foreign currency translation adjustment (3,176 ) 850
3,050
(6,899 )
Foreign currency hedge 310
(302 ) (243 ) 1,305
Tax (provision) benefit attributable to other comprehensive income (loss) (167 ) (432 ) (1,318 ) 554
Total comprehensive income 4,323
14,184
2,411
12,394
Less: Total comprehensive income attributable to noncontrolling interest —
136
—
179
Total comprehensive income available to Team shareholders $ 4,323
$ 14,048
$ 2,411
$ 12,215



	Three Months Ended March 31,
	2017			2016
Net loss	$	(9,508	)	$	(6,434	)
Other comprehensive income:
Foreign currency translation adjustment	2,108			6,226
Foreign currency hedge	(166		)	(553		)
Amortization of net actuarial loss on defined benefit pension plans	17			—
Other comprehensive income, before tax	1,959			5,673
Tax provision attributable to other comprehensive income	(448		)	(1,151		)
Other comprehensive income, net of tax	1,511			4,522
Total comprehensive loss	$	(7,997	)	$	(1,912	)

See accompanying notes to unaudited condensed consolidated financial statements.

TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

~~SHAREHOLDERS’ EQUITY~~

~~(in thousands)~~

Common Shares Treasury Shares Common Stock Treasury Stock Additional Paid-in Capital Non-controlling Interest Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity
Balance at January 1, 2016 21,837
(547 ) $ 6,552
$ (21,138 ) $ 120,126
$ —
$ 250,980
$ (18,374 ) $ 338,146
Net income —
—
—
—
—
—
922
—
922
Foreign currency translation adjustment, net of tax —
—
—
—
—
—
—
1,636
1,636
Foreign currency hedge, net of tax —
—
—
—
—
—
—
(147 ) (147 )
Non-cash compensation —
—
—
—
4,704
—
—
—
4,704
Vesting of stock awards 28
—
8
—
(162 ) —
—
—
(154 )
Tax benefit of exercise of stock options —
—
—
—
86
—
—
—
86
Issuance of common stock in Furmanite acquisition and conversion of Furmanite share-based awards 8,208
—
2,462
—
209,068
—
—
—
211,530
Exercise of stock options 75
—
22
—
1,042
—
—
—
1,064
Purchase of treasury stock —
(274 ) —
(7,593 ) —
—
—
—
(7,593 )
Other —
—
—
—
(51 ) —
—
—
(51 )
Balance at June 30, 2016 30,148
(821 ) $ 9,044
$ (28,731 ) $ 334,813
$ —
$ 251,902
$ (16,885 ) $ 550,143

Common Shares Treasury Shares Common Stock Treasury Stock Additional Paid-in Capital Non- controlling Interest Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity
Balance at January 1, 2015 20,700
—
$ 6,211
$ —
$ 109,700
$ 5,855
$ 225,747
$ (8,406 ) $ 339,107
Net income —
—
—
—
—
—
17,434
—
17,434
Foreign currency translation adjustment, net of tax —
—
—
—
—
—
—
(5,863 ) (5,863 )
Foreign currency hedge, net of tax —
—
—
—
—
—
—
823
823
Comprehensive income attributable to noncontrolling interest —
—
—
—
—
179
(213 ) 34
—
Non-cash compensation —
—
—
—
2,424
—
—
—
2,424
Vesting of stock awards 3
—
—
—
(41 ) —
—
—
(41 )
Tax benefit of exercise of stock options —
—
—
—
1,535
—
—
—
1,535
Exercise of stock options 201
—
61
—
2,489
—
—
—
2,550
Purchase of treasury stock —
(547 ) —
(21,138 ) —
—
—
—
(21,138 )
Balance at June 30, 2015 20,904
(547 ) $ 6,272
$ (21,138 ) $ 116,107
$ 6,034
$ 242,968
$ (13,412 ) $ 336,831

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~TEAM, INC. AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF~~ CASH FLOWS

(in thousands)


	Six Months Ended June 30,						Three Months Ended March 31,
	2016			2015			2017			2016
Cash flows from operating activities:
Net income	$	922		$	17,434
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on investment in Venezuela	—			1,177
Net loss							$	(9,508	)	$	(6,434	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	22,893			11,760			12,961			10,069
Amortization of deferred loan costs	242			112			157			113
Provision for doubtful accounts	2,496			389			1,774			757
Foreign currency (gain) loss	(99		)	323
Foreign currency loss							334			38
Deferred income taxes	(934		)	(5		)	(4,835		)	390
Loss on asset disposal	47			503
Loss on contingent consideration revaluation	2,184			—
Gain on revaluation of contingent consideration							(1,174		)	—
Gain on asset disposal							(976		)	(105		)
Non-cash compensation cost	4,704			2,424			1,747			2,089
Other, net	(525		)	—			(497		)	(155		)
(Increase) decrease, net of the effect of acquisitions:
Receivables	2,602			(22,331		)	(6,919		)	8,138
Inventory	156			(502		)	(795		)	929
Prepaid expenses and other current assets	(3,866		)	(3,579		)	1,746			1,508
Increase (decrease), net of the effect of acquisitions:
Accounts payable	14,379			408			(7,210		)	3,550
Other accrued liabilities	(3,900		)	16,510			12,681			5,321
Income taxes	(3,238		)	(2,967		)	(2,036		)	(4,709		)
Net cash provided by operating activities	38,063			21,656
Net cash (used in) provided by operating activities							(2,550		)	21,499
Cash flows from investing activities:
Capital expenditures	(21,853		)	(18,416		)	(10,718		)	(11,580		)
Business acquisitions, net of cash acquired	(48,382		)	(10,540		)	—			(33,077		)
Change in restricted cash	5,000			—
Proceeds from sale of assets	1,026			97			533			1,232
Decrease in other assets, net	213			120
Change related to Venezuelan operations	—			(621		)
Other							(570		)	92
Net cash used in investing activities	(63,996		)	(29,360		)	(10,755		)	(43,333		)
Cash flows from financing activities:
Net borrowings under revolving credit agreement	53,191			14,070
Net debt borrowings (payments)							(5,100		)	69,950
Payments under term loan							(5,000		)	(5,000		)
Purchase of treasury stock	(7,593		)	(21,138		)	—			(1,720		)
Debt issuance costs	(377		)	—			(10		)	(380		)
Corporate tax effect from share-based payment arrangements	86			1,535			—			107
Issuance of common stock from share-based payment arrangements	1,064			2,550			449			1,001
Payments related to withholding tax for share-based payment arrangements	(154		)	(41		)	(249		)	—
Net cash provided by (used in) financing activities	46,217			(3,024		)
Net cash (used in) provided by financing activities							(9,910		)	63,958
Effect of exchange rate changes on cash	331			(1,821		)	739			1,360
Net increase (decrease) in cash and cash equivalents	20,615			(12,549		)
Net (decrease) increase in cash and cash equivalents							(22,476		)	43,484
Cash and cash equivalents at beginning of period	44,825			44,426			46,216			44,825
Cash and cash equivalents at end of period	$	65,440		$	31,877		$	23,740		$	88,309

See accompanying notes to unaudited condensed consolidated financial statements.

TEAM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Introduction. Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “the Company,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of our consolidated subsidiaries or to all of them taken as a whole. ~~We are incorporated in the State of Delaware 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 we would change our fiscal year end to December 31 of each calendar year from May 31. Accordingly, we have recast the prior-period comparative financial information presented in this report to align with our new fiscal calendar.

~~Inspection and assessment services are offered in both TeamQualspec and Quest Integrity.~~ TeamQualspec provides ~~basic~~standard and advanced non-destructive testing (“NDT”) services for the process, pipeline and power sectors, pipeline integrity management services, field heat treating services, as well as associated engineering and assessment services. These services can be offered while facilities are running (on-stream), during facility turnarounds or during new construction or expansion activities.

TeamFurmanite, our mechanical services segment, provides turnaround and on-stream services. 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 services TeamFurmanite provides include field machining, technical bolting, field valve repair, heat exchanger repair, and isolation test plugging services. On-stream services offered by TeamFurmanite represent the services offered while plants are operating and under pressure. These services include leak repair, fugitive emissions control and hot tapping.

Quest Integrity provides integrity and reliability management solutions for the process, pipeline and power sectors. These solutions encompass two broadly-defined disciplines: (1) highly specialized in-line inspection services for unpiggable process piping and pipelines using proprietary in-line inspection tools and analytical software; and (2) advanced condition assessment services through a multi-disciplined engineering team. We believe there is a general growth in market demand for inspection and assessment services as improved inspection technologies enable better information about asset reliability to be available to facility owners and operators.

Turnaround services are offered in both TeamQualspec and TeamFurmanite. These 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. Turnaround services include the field machining, technical bolting, field valve repair, heat exchanger repair, and isolation test plugging services that are part of TeamFurmanite and the field heat treating services that are part of TeamQualspec.

We offer these services inglobally through over 220 locations in 2220 countries throughout the ~~world. Our industrial services are available 24 hours a day, 7 days a week, 365 days a year.~~world with more than 7,400 employees. We market our services to companies in a diverse array of heavy industries which include the petrochemical, refining, power, pipeline, steel, pulp and paper industries, as well as municipalities, shipbuilding, original equipment manufacturers (“OEMs”), distributors, and some of the world’s largest engineering and construction firms. ~~Our services are also provided across a broad geographic reach.~~

Basis for presentation. These interim financial statements are unaudited, but in the opinion of our management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results for such periods. The consolidated condensed balance sheet at December 31, ~~2015~~2016 is derived from the December 31, ~~2015~~2016 audited consolidated financial statements. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our ~~Transition~~Annual Report on Form 10-K for the ~~transition period from June 1, 2015 to~~year ended December 31, ~~2015.~~

~~Consolidation.~~ The consolidated financial statements include the accounts of Team, Inc. and our majority-owned subsidiaries where we have control over operating and financial policies. Investments in affiliates in which we have the ability to exert significant influence over operating and financial policies, but where we do not control the operating and financial policies, are accounted for using the equity method. All material intercompany accounts and transactions have been eliminated in consolidation.2016.

Use of estimates. Our accounting policies conform to Generally Accepted Accounting Principles in the U.S. (“GAAP”). ~~Our most significant accounting policies are described below.~~ The preparation of consolidated financial statements in conformity

with GAAP requires management to make estimates and judgments that affect our reported financial position and results of operations. We review significant estimates and judgments affecting our consolidated financial statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things, (1) aspects of revenue recognition, (2) valuation of ~~acquisition-related~~acquisition related tangible and intangible assets and assessments of all ~~long-lived~~long lived assets for possible impairment, (3) estimating various factors used to accrue liabilities for workers’ compensation, auto, medical and general liability, (4) establishing an allowance for uncollectible accounts receivable, (5) estimating the useful lives of our assets, (6) assessing future tax exposure and the realization of tax assets, (7) estimating the value associated with contingent consideration payment arrangements and (8) selecting assumptions used in the measurement of costs and liabilities associated with defined benefit pension plans. Our most significant accounting policies are described below.

Fair value of financial instruments. Our financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The

fair value of our banking facility is representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the banking facility.

Cash and cash equivalents. Cash and cash equivalents consist of all demand deposits and funds invested in highly liquid short-term investments with original maturities of three months or less. Included in our cash and cash equivalents at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 is ~~$14.9~~$8.6 million and ~~$17.5~~$14.0 million, respectively, of cash in certain foreign subsidiaries (located primarily in Europe and ~~Canada)~~Asia) where earnings are considered by the Company to be permanently reinvested. In the event that some or all of this cash were to be repatriated, we would be required to accrue and pay additional taxes. While not legally restricted from repatriating this cash, we consider all undistributed earnings of these foreign subsidiaries to be indefinitely reinvested and access to cash to be limited.

~~Restricted cash.~~ We recorded $5.0 million in restricted cash on our balance sheet at December 31, 2015 to reflect the amount held in escrow for contingent consideration as stipulated by the Qualspec Group LLC (“Qualspec”) purchase agreement. Based on Qualspec’s results through December 31, 2015, the contingent consideration did not become due and, accordingly, this cash became unrestricted in the second quarter of 2016.

Inventory. We use the first-in, first-out method to determine inventory cost, except that inventory cost of Furmanite Corporation (“Furmanite”) and its subsidiaries, which we acquired on February 29, 2016 (see Note 2), is determined based on weighted-average cost. Inventory includes material, labor and certain fixed overhead costs. Inventory is stated at the lower of cost ~~or market.~~and net realizable value. Inventory quantities on hand are reviewed periodically and carrying cost is reduced to net realizable value for inventories for which their cost exceeds their utility. The cost of inventories consumed or products sold are included in operating expenses.

Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvements are amortized over the shorter of their respective useful life or the lease term. Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives of the assets:



Classification	Useful Life
Buildings	20-40 years
Enterprise Resource Planning (“ERP”) System	15 years
Leasehold improvements	2-15 years
Machinery and equipment	2-12 years
Furniture and fixtures	2-10 years
Computers and computer software	2-5 years
Automobiles	2-5 years

Goodwill and intangible assets. We allocate the purchase price of acquired businesses to their identifiable tangible assets and liabilities, such as accounts receivable, inventory, property, plant and equipment, accounts payable and accrued liabilities. We also allocate a portion of the purchase price to identifiable intangible assets, such as non-compete agreements, trademarks, trade names, patents, technology and customer relationships. Allocations are based on estimated fair values of assets and liabilities. ~~The Company uses~~We use all available information to estimate fair values including quoted market prices, the carrying value of acquired assets, and widely accepted valuation techniques such as discounted cash flows. Certain estimates and judgments are required in the application of the fair value techniques, including estimates of future cash flows, selling prices, replacement costs, economic lives and the selection of a discount rate, and it involves using of ~~Level 3~~“Level 3” measurements as defined in Financial Accounting

Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosure (“ASC 820”). Deferred taxes are recorded for any differences between the assigned values and tax bases of assets and liabilities. Estimated deferred taxes are based on available information concerning the tax bases of assets acquired and liabilities assumed and loss carryforwards at the acquisition date, although such estimates may change in the future as additional information becomes known. Any remaining excess of cost over allocated fair values is recorded as goodwill. We typically engage third-party valuation experts to assist in determining the fair values for both the identifiable tangible and intangible assets. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, could materially impact ~~the Company’s~~our results of operations.

Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are instead tested for impairment at least annually in accordance with the provisions of the ASC 350 Intangibles—Goodwill and Other (“ASC 350”). Intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 350. We assess goodwill for impairment at the reporting unit level, which we have determined to be the same as our operating segments. Each reporting unit has goodwill relating to past acquisitions.

The test for impairment is performed at the reporting unit level which is deemed to be at the operating segment level. Prior to January 1, 2017, the test was a two-step process that involved comparing the estimated fair value of each reporting unit to the

reporting unit’s carrying value, including goodwill. If the fair value of a reporting unit exceeded its carrying amount, the goodwill of the reporting unit was not considered impaired; therefore, the second step of the impairment test would not be deemed necessary. If the carrying amount of the reporting unit exceeded its fair value, we would then perform athe second step to the goodwill impairment test, which involved the determination of the fair value of a reporting unit’s assets and liabilities as if those assets and liabilities had been acquired/assumed in a business combination at the impairment testing date, to measure the amount of goodwill impairment loss to be recorded. ~~With~~However, as discussed in the ~~change in our fiscal year end~~Newly Adopted Accounting Principles section below, effective January 1, 2017 we prospectively adopted a new accounting principle that eliminated the second step of the goodwill impairment test. Therefore, for goodwill impairment tests occurring after January 1, 2017, if the carrying value of a reporting unit exceeds its fair value, we will measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to ~~December 31~~exceed the total amount of ~~each calendar year, our~~goodwill allocated to that reporting unit.

Our goodwill annual test date ~~changed to~~is December 1. We performed our most recent impairment testing as of December 1, ~~effective December 1, 2015.~~

Due to the changes in the underlying assumptions surrounding our goodwill testing as a result of significant acquisitions (see Note 2), we performed a quantitative analysis of goodwill to test for impairment at December 1, 20152016 and concluded that there was no impairment.

The fair values of the reporting units at December 1, ~~2015~~2016 were determined using a method based on discounted cash flow models with estimated cash flows based on internal forecasts of revenue and expenses over a ~~four-year~~five-year period plus a terminal value period (the income approach). The income approach estimated fair value by discounting each reporting unit’s estimated future cash flows using a discount rate that approximated our weighted-average cost of capital. Major assumptions applied in an income approach include forecasted growth rates as well as forecasted profitability by reporting unit. The fair value derived from the income approach, in the aggregate, approximated our market capitalization. At December 1, ~~2015,~~2016, our market capitalization exceeded the carrying value of our consolidated net assets by approximately ~~$482~~$437 million or ~~141%~~80%, and the fair value of each reporting unit significantly exceeded its respective carrying amount as of that date. There have been no events that have required an interim assessment of the carrying value of goodwill during ~~2016.~~2017.

There was ~~$362.0~~$356.3 million and ~~$256.7~~$355.8 million of goodwill at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. ~~See Note 2 for additional information related to the acquisitions that increased goodwill in the period.~~ A rollforward of goodwill for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 is as follows (in thousands):


	Six Months Ended June 30, 2016								Three Months Ended March 31, 2017
	(unaudited)								(unaudited)
	TeamQualspec		TeamFurmanite		Quest Integrity		Total		TeamQualspec		TeamFurmanite		Quest Integrity		Total
Balance at beginning of period	$	207,497	$	19,874	$	29,283	$	256,654	$	213,475	$	109,059	$	33,252	$	355,786
Acquisitions	5,955		93,903		4,137		103,995
Foreign currency adjustments	917		159		236		1,312		214		222		125		561
Balance at end of period	$	214,369	$	113,936	$	33,656	$	361,961	$	213,689	$	109,281	$	33,377	$	356,347

Income taxes. We follow the guidance of ASC 740 Income Taxes (“ASC 740”), which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax payable and related tax expense together with assessing temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and accounting purposes. These differences can result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.

In accordance with ASC 740, we are required to assess the likelihood that our deferred tax assets will be realized and, to the extent we believe that it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance. We consider all available evidence to determine whether, based on the weight of the evidence, a valuation allowance is needed. Evidence used includes information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance, the reversal of existing taxable temporary differences and tax planning strategies.

For the six months ended June 30, 2016, income tax expense as a percentage of pre-tax income from continuing operations was 3.1% compared to 35.7% for the six months ended June 30, 2015. The effective tax rate for the current year was impacted by the effects of discrete items, primarily the settlement of prior years with the Internal Revenue Service, and permanent differences that had significant impacts on the effective rate due to the relatively low amount of pre-tax income from continuing operations.

During the three months ended June 30, 2016, we calculated a measurement-period adjustment associated with our acquisition of Furmanite (Note 2) that increased deferred tax liabilities and goodwill by $47.9 million. This adjustment represents the acquisition-date deferred tax liability associated with the accumulated undistributed earnings of Furmanite’s foreign subsidiaries, which we do not consider to be indefinitely reinvested outside the United States.

Workers’ compensation, auto, medical and general liability accruals. In accordance with ASC 450 Contingencies (“ASC 450”), we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant. For workers’ compensation, our self-insured retention is $1.0 million and our automobile liability self-insured retention is currently $500,000 per occurrence. For general liability claims, we have an effective self-insured retention of $3.0 million per occurrence. For medical claims, our self-insured retention is ~~$175,000~~$350,000 per individual claimant determined on an annual basis. For environmental liability claims, our self-insured retention is $1.0 million per occurrence. We maintain insurance for claims that exceed such self-retention limits. The insurance is subject to terms, conditions, limitations and exclusions that may not fully compensate us for all

losses. Furmanite was generally incorporated into our existing insurance coverage during the second quarter of 2016, but for certain items it continues to maintain separate insurance policies and accordingly has separate self-insurance retention amounts, with such self-retention amounts generally below the levels noted above. Our estimates and judgments could change based on new information, changes in laws or regulations, changes in management’s plans or intentions, or the outcome of legal proceedings, settlements or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts.

Revenue recognition. We determine our revenue recognition guidelines for our operations based on guidance provided in applicable accounting standards and positions adopted by the FASB and the Securities and Exchange Commission (“SEC”). Most of our projects are short-term in nature and we predominantly derive revenues by providing a variety of industrial services on a time and material basis. For all of these services our revenues are recognized when services are rendered or when product is shipped to the job site and risk of ownership passes to the customer. However, due to various contractual terms with our customers, at the end of any reporting period, there may be earned but unbilled revenue that is accrued to properly match revenues with related costs. At ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the amount of earned but unbilled revenue included in accounts receivable was ~~$73.3~~$84.9 million and ~~$47.1~~$39.7 million, respectively.

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

Concentration of credit risk. No single customer accounts for more than 10% of consolidated revenues.

Earnings (loss) per share. Basic earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) available to Team shareholders by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations or net income (loss) available to Team shareholders ~~less income or loss for the period attributable to the non-controlling interest,~~ by the sum of (1) the weighted-average number of shares of common stock, outstanding during the period and (2) the dilutive effect of the assumed exercise of share-based compensation using the treasury stock ~~method and (3) the dilutive effect of the assumed conversion of our non-controlling interest to our common stock prior to the acquisition of that interest.~~method.

Amounts used in basic and diluted earnings (loss) per share, for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ are as follows (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
	2016	2015	2016	2015	2017	2016
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
Weighted-average number of basic shares outstanding	29,452	20,296	26,738	20,366	29,804	24,030
Stock options, stock units and performance awards	76	315	70	324	—	—
Conversion of non-controlling interest	—	728	—	728
Total shares and dilutive securities	29,528	21,339	26,808	21,418	29,804	24,030

~~There were 0.3 million and 0.4 million stock options outstanding during~~For both the three months ended March 31, 2017 and ~~six months ended June 30,~~ 2016, ~~respectively,~~all outstanding share-based compensation awards were excluded from the ~~computation~~calculation of diluted earnings (loss) per share because their inclusion would be antidilutive due to the ~~options’ exercise prices were greater than the average market price of common shares during the~~loss from continuing operations in both periods. ~~There were no stock options outstanding during the three and six months ended June 30, 2015 excluded from the computation of diluted earnings per share.~~

Foreign currency. For subsidiaries whose functional currency is not the U.S. Dollar, assets and liabilities are translated at period ending rates of exchange and revenues and expenses are translated at period average exchange rates. Translation adjustments for the asset and liability accounts are included as a separate component of accumulated other comprehensive loss in shareholders’ equity. Foreign currency transaction gains and losses are included in our ~~consolidated~~ statements of ~~income.~~operations.

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,~~ Brazilian Real, British Pound, Canadian Dollar, Euro, Malaysian Ringgit, Mexican Peso and ~~Mexican Peso.~~Singapore Dollar. The impact from these swap contracts was not material for the three months ~~or six months~~ ended ~~June 30,~~March 31, 2017 or 2016 nor as of the balance sheet dates of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

Defined ~~Benefit Pension Plans.~~benefit pension plans. Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, expected investment return on plan assets, mortality rates and retirement rates. These rates are reviewed annually and adjusted to reflect current conditions. These rates are determined based on reference to yields. The expected return on plan assets is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations of returns among the asset classes that comprise the plans’ asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. Mortality and retirement rates are based on actual and anticipated plan experience. In accordance with GAAP, actual results that differ from

the assumptions are accumulated and ~~amortized~~are subject to amortization over future periods and, therefore, generally affect recognized expense in future periods. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the pension obligation and future expense.

Newly Adopted Accounting Principles

~~ASU No. 2015-03 and ASU No. 2015-15. In April 2015, the FASB issued ASU No. 2015-03,~~ ~~Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs~~ (“ASU 2015-03”), which requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as other assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement requirements for debt issuance costs.

~~In August 2015, the FASB issued ASU No. 2015-15,~~ ~~Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements~~ (“ASU 2015-15”), that adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015, Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, ASU 2015-15 states the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Team adopted ASU 2015-15 effective upon adoption of ASU 2015-03 on January 1, 2016. Because essentially all of Team’s deferred debt issuance costs relate to line-of-credit arrangements, we have elected to continue presenting such costs as

~~an asset. Therefore, adoption of ASU 2015-03 and ASU 2015-15 did not have any impact on our results of operations, financial position or cash flows.~~

~~ASU No. 2015-16. In September 2015, the FASB issued ASU No. 2015-16,~~ ~~Business Combinations- Simplifying the Accounting for Measurement-Period Adjustments~~ (“ASU 2015-16”), that requires the acquirer in a business combination to recognize in the reporting period in which adjustment amounts are determined, any adjustments to provisional amounts that are identified during the measurement period, calculated as if the accounting had been completed at the acquisition date. Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as of the acquisition date for adjustments to provisional amounts. Team adopted the update effective January 1, 2016. The adoption of ASU 2015-16 did not have a material impact on our results of operations, financial position or cash flows. We have included the required disclosures with respect to measurement-period adjustments in Note 2.

~~Accounting Principles Not Yet Adopted~~

~~ASU No. 2014-09. In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for us on January 1, 2018, with early application permitted as of January 1, 2017. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method or determined the effect ASU 2014-09 will have on our ongoing financial reporting.

ASU No. 2015-11. In July 2015, the FASB issued ~~ASU~~Accounting Standards Update (“ASU”) No. 2015-11, Inventory—Simplifying the Measurement of Inventory (“ASU 2015-11”), which requires entities that measure inventory using the first-in, first-out or average cost methods to measure inventory at the lower of cost and net realizable value to more closely align the measurement of inventory in GAAP with International Financial Reporting ~~Standards (“IFRS”).~~Standards. Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. ~~ASU 2015-11 is effective for fiscal years beginning after December 15, 2016~~Our adoption, on a prospective basis, ~~with earlier application permitted. The adoption~~ of ~~this update is not expected to have a material~~ASU 2015-11 on January 1, 2017 had no impact on our results of operations, financial position or cash flows.

ASU No. 2015-17. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. As a result of our prospective adoption of ASU 2015-17 ~~is effective for fiscal years beginning after~~on January 1, 2017, all deferred tax assets and liabilities have been classified as noncurrent on our consolidated balance sheet at March 31, 2017, while our consolidated balance sheet at December ~~15, 2016. The guidance may be adopted prospectively or retrospectively~~31, 2016 reflects classifications of deferred tax assets and ~~early adoption is permitted.~~liabilities in accordance with previous GAAP. The adoption of ~~this update is not expected to have a material~~ASU 2015-17 had no impact on our results of operations ~~financial position~~ or cash flows.

~~ASU No. 2016-02.~~ ~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (“ASU 2016-02”), which changes the accounting for leases, including a requirement to record all leases on the consolidated balance sheets as assets and liabilities. This update is effective for fiscal years beginning after December 15, 2018. We will adopt ASU 2016-02 effective January 1, 2019. We are currently evaluating the impact this standard will have on our ongoing financial reporting.

ASU No. 2016-09. In March 2016, the FASB issued ASU No. 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which makes several modifications to GAAP related to share-based payments including the accounting for forfeitures, employee taxes and the financial statement presentation and timing of recognition of excess tax benefits or deficiencies. Specifically, ASU 2016-09 requires excess tax benefits and deficiencies to be recognized in the statements of operations as part of the provision for income tax (benefit) whereas previous guidance generally resulted in such amounts being recognized in additional paid-in capital. ASU 2016-09 also clarifies the statement of cash flows presentation for certain ~~components of~~items associated with share-based awards. ~~The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The adoption of~~We adopted ASU 2016-09 ~~is not expected~~on January 1, 2017. With respect to ~~have a material impact on our financial position or cash flows. Upon adoption, on a prospective basis, our income tax expense will be impacted by future~~the requirement to recognize excess tax benefits or deficiencies in the statements of operations, we began recognizing such amounts, on a prospective basis, effective January 1, 2017 as a component of our provision (benefit) for income taxes as a discrete item. For the three months ended March 31, 2017, an immaterial amount of net excess tax benefits are included within the income tax benefit in the consolidated statement of operations. Also, beginning prospectively on January 1, 2017, excess tax benefits from share-based awards are classified as operating activities instead of financing activities in our consolidated statements of cash flows, as required by the ASU. Additionally, in connection with the adoption, we recorded a cumulative-effect adjustment of $1.0 million that increased the opening balance of retained earnings as of January 1, 2017, reflecting the recognition of certain excess tax benefits from share-based awards that did not yet qualify for recognition under previous guidance. The adoption of the other requirements in ASU 2016-09 had no impact on our results of operations, financial position or cash flows.

ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). Prior to adoption of ASU 2017-04, if an impairment of goodwill is indicated, entities are required to then calculate the implied fair value of goodwill to determine the amount of impairment loss. This procedure, referred to as the second step of the goodwill impairment test, required the determination of the fair value of the assets and liabilities of a reporting unit as if those assets and liabilities had been acquired/assumed in a business combination at the impairment testing date. ASU 2017-04 eliminated the second step and instead requires that the impairment loss be measured as the amount by which the carrying amount of a reporting unit exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. We elected to early adopt ASU 2017-04 prospectively effective January 1, 2017. The adoption of ASU 2017-04 had no impact on our consolidated financial statements, but we will apply the new guidance to the measurement of any future goodwill impairment losses that we may be required to recognize.

Accounting Principles Not Yet Adopted

ASU No. 2014-09. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP ~~were recognized within stockholders’ equity rather than through~~when it becomes effective. We did not elect to early adopt ASU 2014-09. Therefore, the ~~statement~~new standard is effective for us on January 1, 2018. ASU 2014-09 permits the use of ~~income.~~either the retrospective or cumulative effect transition method. To adopt the new standard, we anticipate applying the cumulative effect transition method, pursuant to which we will record an adjustment to the opening balance of retained earnings as of January 1, 2018 for the impact of applying ASU 2014-09 to all contracts existing as of the date of application. We are continuing our assessment of ASU 2014-09 and have engaged an outside specialist to assist us in the implementation. At this time, our assessment is not yet complete and therefore we are unable to quantify the potential impacts. However, as most of our

projects are short-term in nature and billed on a time and materials basis, we do not currently anticipate that the adoption of ASU 2014-09 will result in substantial changes to the overall pattern or timing of our revenue recognition.

ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which changes the accounting for leases, including a requirement to record essentially all leases on the consolidated balance sheets as assets and liabilities. This ASU is effective for fiscal years beginning after December 15, 2018. We will adopt ASU 2016-02 effective January 1, 2019. We are currently evaluating the impact this ASU will have on our ongoing financial reporting.

ASU No. 2016-13. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments(“ASU 2016-13”), which amends GAAP by introducing a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable. ~~The standard~~ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although it may be adopted one year earlier, and requires a modified retrospective transition approach. We are currently evaluating the impact this ~~standard~~ASU will have on our ongoing financial reporting.

ASU No. 2016-15. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies the classification in the statement of cash flows of certain items, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and cash receipts and payments having aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of this ASU to have a material impact on our statements of cash flows.

ASU No. 2016-16.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective on January 1, 2018 with early adoption permitted. We are currently evaluating the impact this ASU will have on our ongoing financial reporting.

ASU No. 2017-07.In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), which prescribes where in the statement of operations the components of net periodic pension cost and net periodic postretirement benefit cost should be reported. Under ASU 2017-07, the service cost component is required to be reported in the same line or line items that other compensation costs of the associated employees are reported, while the other components are reported outside of operating income (loss). The changes in presentation in ASU 2017-07 are required to be adopted for annual periods beginning after December 15, 2017 and are to be applied retrospectively. ASU 2017-07 will apply to the presentation, in our statements of operations, of the net periodic pension cost (credit) associated with our defined benefit pension plans, which are discussed in Note 9. We do not believe that the changes in presentation required under ASU 2017-07 will have a material impact on our results of operations.

2. ACQUISITIONS

~~Furmanite~~

In November 2015, Team and Furmanite entered into an Agreement and Plan of Merger (the “Merger Agreement”)~~. The merger was completed on February 29, 2016. Pursuant~~ pursuant to ~~the terms of the Merger Agreement,~~which we acquired all the outstanding shares of Furmanite in a stock transaction whereby Furmanite shareholders received 0.215 shares of Team common stock for each share of Furmanite common stock they owned. The merger was completed on February 29, 2016. Outstanding Furmanite share-based payment awards were generally converted into comparable share-based awards of Team, with certain awards vesting upon the closing of the merger, pursuant to the Merger Agreement. The combined company is a premier NDT inspection and specialty mechanical services company with a strong presence in North America and comprises more than 8,300 employees and 220 locations in 22 countries. 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. 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 acquisition-date fair value of the consideration transferred totaled $282.3 million, which consisted of the following (in thousands, except shares):


	February 29, 2016		February 29, 2016
	(unaudited)
Common stock (8,208,006 shares)	$	209,529	$	209,529
Converted share-based payment awards	2,001		2,001
Cash	70,811		70,811
Total consideration	$	282,341	$	282,341

The fair value of the 8,208,006 common shares issued was determined based on the closing market price of our common shares on the acquisition date of February 29, 2016. The issuance of common ~~shares~~stock in the acquisition is a non-cash financing activity that has been excluded from the consolidated statement of cash flows. The fair value of the converted share-based payment awards reflects an apportionment of the fair value of the awards, based on the closing market price of our common ~~shares~~stock and other assumptions as of the acquisition date, that is attributable to employee service completed prior to the acquisition date. The fair value of the awards attributable to service after the acquisition date is recognized as share-based compensation expense over the applicable vesting periods. The cash consideration represents amounts Team paid, immediately prior to the closing of the acquisition, to settle Furmanite’s outstanding debt and certain related liabilities, which were not assumed by Team. The cash portion of the consideration was financed through additional borrowings under our banking credit facility.

The following table presents the ~~preliminary~~ purchase price allocation for Furmanite (in thousands):


	February 29, 2016		February 29, 2016
	(unaudited)
Cash and cash equivalents	$	37,734	$	37,734
Accounts receivable	69,603		65,925
Inventory	27,800		25,847
Current deferred tax assets	11,563		19,857
Prepaid expenses and other current assets	24,026		23,044
Current assets of discontinued operations	14,760		18,623
Plant, property and equipment	70,526		63,259
Intangible assets	70,800		88,958
Goodwill	93,903		89,646
Non-current deferred tax assets			2,542
Other non-current assets	3,709		687
Total assets acquired	$	424,424	436,122

Accounts payable	$	12,360	12,359
Other accrued liabilities	26,894		33,127
Income taxes payable	229		229
Current liabilities of discontinued operations	1,434		1,434
Non-current deferred tax liabilities	84,963		91,431
Defined benefit pension liability	13,509		13,509
Other long-term liabilities	2,694		1,692
Total liabilities assumed	142,083		153,781
Net assets acquired	$	282,341	$	282,341

The preliminary purchase price allocation above reflects adjustments as a result of new information obtained during the three months ended June 30, 2016. The significant adjustments were an increase in deferred tax liabilities of $47.9 million, a decrease in inventory of $5.4 million, a decrease in accounts receivable of $2.1 million, an increase in other accrued liabilities of $1.4 million and a decrease in prepaid expenses and other current assets of $0.5 million. These adjustments resulted in an offsetting increase to goodwill of $57.3 million. Additionally, the allocation above reflects a reclassification adjustment of $5.7 million from inventory to prepaid expenses and other current assets as well as reclassification adjustments to segregate the preliminary fair values of assets and liabilities of acquired discontinued operations (see Note 15). These measurement period adjustments did not result in any material impacts to the consolidated statements of income.

~~The preliminary~~ purchase price allocation shown above ~~and the disclosures below are~~is based upon the fair values at the acquisition date and are subject to additional changes within the measurement period as additional information is obtained. The final valuation of assets acquired and liabilities assumed is expected to be completed as soon as possible, but no later than one year from the acquisition date. To the extent that our estimates require adjustment, we will modify the provisional amounts. Given the size, complexity and timing of the acquisition, the valuation of certain assets and liabilities is still being finalized. The fair value of the acquired working capital, which includes accounts receivable, inventory, prepaid expenses, accounts payable and accrued liabilities is provisional subject to the completion of our detailed review of the underlying accounts. The fair value of the acquired property, plant and equipment and identifiable intangible assets is provisional pending the completion of and our review of the valuation reports for those assets from a third-party valuation firm. The valuation of Furmanite’s tax accounts is provisional pending the completion of Furmanite’s tax returns to be filed for periods up to the acquisition date. The fair values recorded are “Level 3” measurements as defined in Note 10.

Of the ~~$70.8~~$89.0 million of acquired intangible assets, ~~$51.6~~$69.8 million was assigned to customer relationships with an estimated useful life of 12 years, $16.9 million was assigned to trade names with a weighted-average estimated useful life of 12 years and $2.3 million was assigned to developed technology with an estimated useful life of 10 years.

The ~~$93.9~~$89.6 million of goodwill was assigned to the TeamFurmanite segment. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Furmanite. None of the goodwill recognized is expected to be deductible for income tax purposes.

The fair value of accounts receivable acquired was ~~$69.6~~$65.9 million, ~~with the gross contractual amount being $73.8 million. We~~considering we expect ~~$4.2~~$7.9 million to be uncollectible. Additionally, we acquired accounts receivable with a fair value of ~~$14.0~~$13.6 million associated with discontinued operations, which is included in the current assets of discontinued operations line ~~above, with the~~above. The gross contractual amount of ~~these~~ receivables ~~being $14.1~~acquired was $88.0 million. ~~We expect $0.1~~

Current assets of discontinued operations as of the acquisition date includes $3.3 million of goodwill and $1.6 million of intangible assets that were allocated to ~~be uncollectible.~~a business that we sold in December 2016, as discussed in Note 15. The amount of current assets of discontinued operations acquired shown above is net of costs to sell of $1.1 million.

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2016, we recognized a total of ~~$0.5~~$6.1 million ~~and $6.6 million, respectively,~~ of acquisition costs related to the Furmanite acquisition, which were included in selling, general and administrative expenses in the consolidated statements of ~~income.~~operations.

Our unaudited condensed consolidated ~~statements~~statement of ~~income (unaudited) include~~operations for the three months ended March 31, 2016 includes the activity of Furmanite beginning on the acquisition date of February 29, 2016. Subsequent to the acquisition date, we commenced integration activities relative to Furmanite. As a result, certain business operations have been consolidated and/or transferred from legacy Furmanite operations to legacy Team operations to facilitate the new operating structure. Revenues of ~~$97.4~~$28.9 million and a net loss of ~~$1.6~~$1.7 million are included in the ~~six month period~~three months ended ~~June 30,~~March 31, 2016 and only include operating results that are directly attributable to legacy Furmanite operations. These amounts do not reflect any attempt to ~~account~~adjust for the effects of integration activities, which are not practicable to determine.

Certain transactions related to the Furmanite acquisition were recognized separately from the acquisition of assets and assumption of liabilities in accordance with GAAP. These transactions, which were attributable to certain compensation (both cash and share-based) that was paid or became payable in conjunction with the closing of the acquisition, totaled $4.7 million and were recognized as selling, general and administrative expenses during the ~~six months ended June 30, 2016. There were no such amounts recognized during the~~ three months ended ~~June 30,~~March 31, 2016.

~~Qualspec~~

In July 2015, we acquired 100% of Qualspec for total cash consideration of $255.5 million. Qualspec is a leading provider of NDT services in the United States, with significant operations in the West Coast, Gulf Coast and Mid-Western areas of the country. Qualspec is expected to add strength to our resident refinery inspection programs with major customer relationships across the U.S., and to add to our already strong capabilities in advanced inspection services, rope access services and the delivery of innovative technologies to our customers. The purchase of Qualspec was financed through borrowings under our banking credit facility.

The initial purchase price could have been increased by $10.0 million depending upon the operating results of Qualspec through the end of calendar year 2015. The fair value of the contingent consideration arrangement at the acquisition date was initially estimated at $5.8 million. However, based on Qualspec results through December 31, 2015, there was no additional amount payable and, accordingly, we have reversed our initial contingent consideration obligation of $5.8 million to zero with a corresponding decrease to goodwill.

~~The following table presents the purchase price allocation for Qualspec (in thousands):~~

July 7, 2015
(unaudited)
Cash and cash equivalents $ 3,981
Accounts receivable 21,495
Current deferred tax assets 279
Prepaid expenses 1,049
Plant, property and equipment 15,472
Intangible assets 78,100
Goodwill 148,482
Other assets 138
Total assets acquired $ 268,996

Accounts payable $ 2,892
Other accrued liabilities 7,581
Non-current deferred tax liability 2,982
Total liabilities assumed 13,455
Net assets acquired $ 255,541

~~The purchase price allocation shown above is based upon the fair values at the acquisition date. The fair values recorded are “Level 3” measurements as defined in Note 10.~~

Of the $78.1 million of acquired intangible assets, $75.2 million was assigned to customer relationships with an estimated useful life of 15 years, $1.6 million was assigned to non-compete agreements with an estimated useful life of 5 years and $1.3 million was assigned to trade names with an estimated useful life of 1 year.

The $148.5 million of goodwill was assigned to the TeamQualspec segment. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Qualspec. About $109.6 million of the goodwill is expected to be deductible for income tax purposes.

~~The fair value of accounts receivables acquired was $21.5 million, with the gross contractual amount being $22.5 million. We expect $1.0 million to be uncollectible.~~

~~Our consolidated results include the activity of Qualspec beginning on the acquisition date of July 7, 2015.~~

~~Pro Forma Information - Furmanite and Qualspec~~

Our unaudited pro forma consolidated results of operations are shown below as if the acquisition of Furmanite ~~and Qualspec~~ had occurred at the beginning of fiscal year 2015. These results are not necessarily indicative of the results which would actually have occurred if the ~~acquisitions~~acquisition had taken place at the beginning of fiscal year 2015, nor are they necessarily indicative of future results (in thousands, except per share data).


	Pro forma data			Pro forma data				Pro forma data
	Three Months Ended June 30,			Six Months Ended June 30,				Three Months Ended March 31,
	2015			2016		2015		2016
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues		$	370,616	$	631,064	$	693,167	$	294,624
Income from continuing operations attributable to Team shareholders		$	14,087	$	2,620	$	18,300
Earnings per share from continuing operations:
Loss from continuing operations								$	(4,871	)
Loss per share from continuing operations:
Basic		$	0.49	$	0.09	$	0.64	$	(0.17	)
Diluted		$	0.48	$	0.09	$	0.62	$	(0.17	)

These amounts have been calculated after applying Team’s accounting policies and adjusting the results of Furmanite ~~and Qualspec~~ to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on January 1, 2015, together with the related tax effects. Additionally, these pro forma results exclude discontinued operations as well as the impact of transaction and integration-related costs ~~related to~~associated with the Furmanite ~~and Qualspec acquisitions~~acquisition included in the historical results.

~~Quest Integrity~~

In November 2010, we purchased 95% of Quest Integrity Group, LLC, a leading provider of proprietary in-line inspection and advanced engineering and assessment services. Pursuant to a “Put/Call Agreement” that was executed at the time of the Quest Integrity acquisition, on August 31, 2015, we issued 728,266 shares of restricted common stock and paid $5.9 million in cash to acquire the non-controlling interest. Prior to August 31, 2015, these shares were included as dilutive securities in the earnings per share calculation as set forth herein.

~~Other~~

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 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 add about 65 employees to our organization in Europe and serve steel construction, ship repair, off-shore and storage tank customers, as well as the aerospace industry. QIS is the fourth largest NDT inspection company in the Netherlands and represents Team’s first inspection operation outside of North America. QIS and TiaT are reported in the TeamQualspec 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, included in the TeamFurmanite segment. The purchase price also included $1.8 million of contingent consideration. The contingent consideration is based upon the achievement of certain performance targets over a three-year period for an additional amount of up to $4.0 million. During the three and six months ended June 30, 2016, we recorded a loss of $2.2 million associated with the revaluation of the contingent consideration based on actual performance to date.

3. RECEIVABLES

A summary of accounts receivable as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 is as follows (in thousands):


	June 30, 2016			December 31, 2015			March 31, 2017				December 31, 2016
	(unaudited)						(unaudited)
Trade accounts receivable	$	214,779		$	170,774		$	193,572		��	$	230,889
Unbilled revenues	73,284			47,098			84,891				39,719
Allowance for doubtful accounts	(5,739		)	(3,548		)	(9,182		)		(7,835		)
Total	$	282,324		$	214,324		$	269,281			$	262,773

4. INVENTORY

A summary of inventory as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 is as follows (in thousands):


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(unaudited)				(unaudited)
Raw materials	$	8,163	$	3,167	$	7,511	$	6,844
Work in progress	5,037		1,018		3,057		2,713
Finished goods	41,055		23,751		39,836		40,014
Total	$	54,255	$	27,936	$	50,404	$	49,571

5. PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 is as follows (in thousands):


	June 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
	(unaudited)						(unaudited)
Land	$	7,445		$	3,124		$	7,434		$	7,429
Buildings and leasehold improvements	41,533			29,690			46,525			42,257
Machinery and equipment	236,122			174,222			237,292			233,063
Furniture and fixtures	8,172			6,561			8,377			8,431
Capitalized ERP system development costs	35,207			25,606			46,120			44,876
Computers and computer software	11,641			8,062			11,830			11,775
Automobiles	5,763			5,280			5,392			5,370
Construction in progress	9,480			5,177			13,469			12,997
Total	355,363			257,722			376,439			366,198
Accumulated depreciation and amortization	(149,071		)	(132,739		)	(171,097		)	(163,068		)
Property, plant and equipment, net	$	206,292		$	124,983
Property, plant, and equipment, net							$	205,342		$	203,130

At the end of 2013, we initiated the design and implementation of a new ~~enterprise resource planning (“ERP”)~~ERP system, which is expected to be substantially installed by the end of ~~calendar year~~ 2017. Amortization of the ERP system development costs ~~will be~~began in March 2017 and is computed by the straight-line ~~method, commencing in the period when substantial testing is completed and the asset is ready for its intended use.~~method. Through ~~June 30, 2016,~~March 31, 2017, we have capitalized ~~$35.2~~$46.1 million associated with the project that includes ~~$0.9~~$1.6 million of capitalized ~~interest.~~interest and we have recognized $0.2 million of amortization expense.

6. INTANGIBLE ASSETS

A summary of intangible assets as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 is as follows (in thousands):


	June 30, 2016							December 31, 2015							March 31, 2017							December 31, 2016
	(unaudited)														(unaudited)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	156,840	$	(18,368	)	$	138,472	$	103,288	$	(12,995	)	$	90,293	$	174,805	$	(28,900	)	$	145,905	$	174,742	$	(25,508	)	$	149,234
Non-compete agreements	5,477		(3,711		)	1,766		4,898		(3,468		)	1,430		5,417		(4,031		)	1,386		5,397		(3,896		)	1,501
Trade names	24,710		(3,249		)	21,461		6,299		(1,940		)	4,359		24,644		(4,706		)	19,938		24,624		(4,216		)	20,408
Technology	7,834		(2,918		)	4,916		5,112		(2,541		)	2,571		7,817		(3,590		)	4,227		7,812		(3,364		)	4,448
Licenses	846		(265		)	581		683		(217		)	466		840		(356		)	484		838		(325		)	513
Total	$	195,707	$	(28,511	)	$	167,196	$	120,280	$	(21,161	)	$	99,119	$	213,523	$	(41,583	)	$	171,940	$	213,413	$	(37,309	)	$	176,104

Amortization expense for the three months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ was ~~$4.1~~$4.3 million and ~~$0.9 million, respectively. Amortization expense for the six months ended June 30, 2016 and 2015 was $7.2 million and $1.9~~$3.1 million, respectively.

7. OTHER ACCRUED LIABILITIES

A summary of other accrued liabilities as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 is as follows (in thousands):


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(unaudited)				(unaudited)
Payroll and other compensation expenses	$	34,476	$	21,878	$	46,207	$	38,214
Insurance accruals	10,102		7,008		14,275		13,896
Property, sales and other non-income related taxes	6,009		3,058		3,498		5,599
Lease commitments					1,912		2,119
Deferred revenue					6,234		3,433
Accrued commission					1,202		1,355
Accrued interest					508		603
Volume discount					956		1,067
Contingent consideration	5,966		3,638		1,000		2,103
Deferred revenue	3,136		1,355
Lease commitments	2,411		1,721
Accrued commission	1,854		1,159
Volume discount	626		1,280
Accrued interest	591		984
Acquisition-related costs	229		370
Professional fees					3,188		1,530
Other	9,712		7,345		11,823		9,985
Total	$	75,112	$	49,796	$	90,803	$	79,904

8. LONG-TERM DEBT, LETTERS OF CREDIT AND DERIVATIVES

In July 2015, we renewed our banking credit facility (the “Credit Facility”). In accordance with the second amendment to the Credit Facility, which was signed in February 2016, the Credit Facility has a borrowing capacity of up to $600 million and consists of a $400 million, five-year revolving loan facility and a $200 million five-year term loan facility. The swing line facility is ~~$35~~$35.0 million. The Credit Facility matures in July 2020, bears interest based on a variable Eurodollar rate option (LIBOR plus 2.25% margin at ~~June 30, 2016)~~March 31, 2017) and has commitment fees on unused borrowing capacity (0.40% at ~~June 30, 2016)~~March 31, 2017). The Credit Facility limits our ability to pay cash dividends without the consent of our bank syndicate. The Credit Facility also contains financial covenants, ~~requiring~~which were amended in May 2017 pursuant to the fifth amendment to the Credit Facility. The covenants, as amended, require the Company to maintain as of the end of each fiscal quarter (i) a maximum ratio of consolidated funded debt to consolidated EBITDA ~~(as~~(the “Total Leverage Ratio”, as defined in the Credit Facility agreement) of not more than ~~4.00~~5.00 to 1.00 ~~(until~~as of March 31, 2017 and June 30, ~~2016, at which point~~2017 and thereafter the maximum ratio ~~will decrease~~decreases by ~~0.25~~0.50 to 1.00 ~~every other~~each subsequent quarter until it reaches 3.00 to ~~1.00),~~1.00, (ii) a maximum ratio of senior secured debt to consolidated EBITDA of not more than 4.00 to 1.00 as of March 31, 2017, 4.25 to 1.00 as of June 30, 2017 and decreasing by 0.25 to 1.00 each subsequent quarter until it reaches 3.00 to 1.00 and (iii) an interest coverage ratio of less than 3.00 to 1.00. As of ~~June 30, 2016,~~March 31, 2017, we are in compliance with these covenants. AtNotwithstanding the foregoing, from and after the Permitted Debt Incurrence Date, which is a future date that will have occurred when and if the

Company incurs at least $125.0 million of certain unsecured debt, the maximum Total Leverage Ratios would be 5.00 to 1.00 at March 31, 2017, 5.25 to 1.00 at June 30, ~~2016,~~2017 and decreasing by 0.25 to 1.00 each subsequent quarter until reaching 4.00 to 1.00. Our Total Leverage Ratio stood at 4.77 to 1.00 as of March 31, 2017. At March 31, 2017, we had ~~$65.4~~$23.7 million of cash on hand and approximately ~~$29~~$18 million of available borrowing capacity through our Credit Facility. In connection with the renewal of our Credit Facility, as of March 31, 2017, we are amortizing ~~$2.6~~$3.0 million of associated debt issuance costs over the life of the Credit Facility.

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 ~~$22.5~~$20.7 million at ~~June 30, 2016~~March 31, 2017 and ~~$13.2~~$21.6 million at December 31, ~~2015.~~2016. 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.

ASC 815, Derivatives and Hedging (“ASC 815”), requires that derivative instruments be recorded at fair value and included in the balance sheet as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at the inception date of a derivative. Special accounting for derivatives qualifying as fair value hedges allows derivatives’ gains and losses to offset related results on the hedged item in the statement of ~~income.~~operations. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative cumulative changes in fair value between the derivative contract and the hedged item over time. Credit risks related to derivatives include the possibility that the counter-party will not fulfill the terms of the contract. We ~~considered~~consider counterparty credit risk to our derivative contracts when valuing our derivative instruments.

Our borrowing of €12.3 million under the Credit Facility serves as an economic hedge of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset translation

gains or losses attributable to our investment in our European operations. At ~~June 30, 2016,~~March 31, 2017, the €12.3 million borrowing had a U.S. Dollar value of ~~$13.7~~$13.1 million.

The amounts recognized in other comprehensive income, ~~(loss),~~ and reclassified into ~~income,~~earnings, for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ are as follows (in thousands):

Gain (Loss)
Recognized in
Other
Comprehensive
Income (Loss)

Gain
Reclassified from
Other
Comprehensive
Income (Loss) to
Earnings

Gain (Loss)
Recognized in
Other
Comprehensive
Income (Loss)

Gain (Loss)
Reclassified from
Other
Comprehensive
Income (Loss) to
Earnings
Three Months Ended
June 30, Three Months Ended
June 30, Six Months Ended
June 30, Six Months Ended
June 30,
(unaudited) (unaudited) (unaudited) (unaudited)
2016 2015 2016 2015 2016 2015 2016 2015
Net investment hedge $ 310
$ (302 ) $ —
$ —
$ (243 ) $ 1,305
$ —
$ —



	Loss Recognized in Other Comprehensive Income						Gain (Loss) Reclassified from Other Comprehensive Income to Earnings
	Three Months Ended March 31,						Three Months Ended March 31,
	(unaudited)						(unaudited)
	2017			2016			2017		2016
Net investment hedge	$	(166	)	$	(553	)	$	—	$	—

The following table presents the fair value totals and balance sheet classification for derivatives designated as hedges under ASC 815 (in thousands):

June 30, 2016 December 31, 2015
(unaudited)
Classification
Balance Sheet
Location

Fair
Value
Classification
Balance Sheet
Location

Fair
Value
Net investment hedge Liability Long-term debt $ (4,324 ) Liability Long-term debt $ (4,567 )

In connection with our acquisition of Furmanite in February 2016, we assumed additional obligations under various non-cancellable operating leases, primarily consisting of facility and auto leases. Future payments under these additional operating leases, which expire at various dates, were estimated at approximately $33 million as of the acquisition date.

March 31, 2017

December 31, 2016

(unaudited)

Classification

Balance Sheet

Location

Fair

Value

Classification

Balance Sheet

Location

Fair

Value

Net investment hedge

Liability

Long-term debt

(4,882

)

Liability

Long-term debt

(5,048

)

9. ~~RETIREMENT~~EMPLOYEE BENEFIT PLANS

In connection with our acquisition of Furmanite, we assumed liabilities associated with the defined benefit pension plans of two foreign subsidiaries, one plan covering certain United Kingdom employees (the “U.K. Plan”) and the other covering certain Norwegian employees (the “Norwegian Plan”). As the Norwegian Plan represents approximately ~~three~~one percent of both the

Company’s total pension plan liabilities and total pension plan assets, only the schedule of net periodic pension cost (credit) includes combined amounts from the two plans, while assumption and narrative information relates solely to the U.K. Plan.

Net periodic pension cost ~~from the date of the Furmanite acquisition,~~(credit) for the U.K. and Norwegian Plans includes the following components (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
	2016			2015		2016			2015		2017			2016
	(unaudited)			(unaudited)		(unaudited)			(unaudited)		(unaudited)			(unaudited)
Service cost	$	22		$	—	$	29		$	—	$	4		$	7
Interest cost	801			—		1,068			—		579			267
Expected return on plan assets	(820		)	—		(1,093		)	—		(738		)	(273		)
Net periodic pension cost	$	3		$	—	$	4		$	—
Amortization of net actuarial loss											17			—
Net periodic pension cost (credit)											$	(138	)	$	1

For the three months ended March 31, 2016, the net periodic pension cost presented in the table above is from the date of the Furmanite acquisition.

The expected long-term rate of return on invested assets is determined based on the weighted average of expected returns on asset investment categories as follows: ~~4.9%~~4.5% overall, ~~6.2%~~5.8% for equities and ~~2.2%~~1.8% for ~~bonds.~~debt securities. We expect to contribute ~~$1.3~~$1.4 million to the pension plan for ~~2016,~~2017, of which ~~$0.5~~$0.3 million has been contributed through ~~June 30, 2016.~~March 31, 2017.

10. FAIR VALUE MEASUREMENTS

We apply the provisions of ASC 820,~~Fair Value Measurements and Disclosures~~ ~~(“ASC 820”),~~ which among other things, requires enhanced disclosures about assets and liabilities carried at fair value.

As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy such that “Level 1” measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, “Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and “Level 3” measurements include those that are unobservable and of a highly subjective measure.

The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):


	June 30, 2016										March 31, 2017
	(unaudited)										(unaudited)
	Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level��2)			Significant Unobservable Inputs (Level 3)		Total
Liabilities:
Contingent consideration¹	$	—	$	—		$	7,626	$	7,626		$	—	$	—		$	2,693	$	2,693
Net investment hedge	$	—	$	(4,324	)	$	—	$	(4,324	)	$	—	$	(4,882	)	$	—	$	(4,882	)


	December 31, 2015										December 31, 2016
	Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
Liabilities:
Contingent consideration¹	$	—	$	—		$	3,638	$	3,638		$	—	$	—		$	3,739	$	3,739
Net investment hedge	$	—	$	(4,567	)	$	—	$	(4,567	)	$	—	$	(5,048	)	$	—	$	(5,048	)

__________________________

1¹Inclusive of both current and noncurrent portions.

There were no transfers in and out of Level 1, & Level 2 ~~during the six months ended June 30, 2016~~ and ~~2015. There was a transfer out of Level 3 of $5.8 million relating to a revaluation of contingent consideration during the year ended December 31, 2015 and no transfers in and out of~~ Level 3 during the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016.

The fair value of contingent consideration liabilities classified in the table above were estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include a combination of actual cash flows and probability-weighted assessments of expected future cash flows related to the acquired businesses, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreement.

The following table represents the changes in the fair value of Level 3 contingent consideration (in thousands):


	Six Months Ended June 30, 2016		Three Months Ended March 31, 2017
	(unaudited)		(unaudited)
Balance, beginning of period	$	3,638	$	3,739
Accretion of liability	144		104
Foreign currency effects			24
Revaluation	2,184		(1,174		)
Acquisitions	1,660
Balance, end of period	$	7,626	$	2,693

11. SHARE-BASED COMPENSATION

We have adopted stock incentive plans and other arrangements pursuant to which our Board of Directors (the “Board”) may grant stock options, restricted stock, stock units, stock appreciation rights, common stock or performance awards to officers, directors and key employees. At ~~June 30, 2016,~~March 31, 2017, there were approximately ~~1.0~~0.9 million stock options, restricted stock units and performance awards outstanding to officers, directors and key employees. The exercise price, terms and other conditions applicable to each form of share-based compensation under our plans are generally determined by the Compensation Committee of our Board at the time of grant and may vary.

Our share-based payments consist primarily of stock units, performance awards, common stock and stock options. ~~The governance~~In May 2016, our shareholders approved the 2016 Team, Inc. Equity Incentive Plan (the “Plan”), which replaced all of our previous equity

compensation plans. The Plan authorizes the issuance of share-based ~~compensation does not directly limit the number~~awards representing up to 2,000,000 shares of ~~future awards. However, the total number of shares ultimately issued may not exceed the total number of shares cumulatively authorized, which is 7,120,000 at June 30, 2016.~~common stock. Shares issued in connection with our share-based compensation are issued out of authorized but unissued common stock.

In connection with the acquisition of Furmanite in February 2016, we assumed the share plan related to Furmanite employee grants. As provided for in the Merger Agreement, each option to purchase Furmanite common stock outstanding immediately prior to the closing of the acquisition was converted into an option to purchase Team common stock, adjusted by the 0.215 exchange ratio. Similarly, each previously existing Furmanite restricted share, restricted stock unit or performance stock unit outstanding immediately prior to the acquisition were converted into Team restricted stock units, also at the 0.215 exchange ratio. The converted awards generally have the same terms and conditions as the replaced awards, except the vesting of certain awards was accelerated to the acquisition date and any performance conditions associated with the Furmanite awards no longer apply. The fair value of the options was determined using a Black-Scholes model, while the fair value of the restricted stock units was determined based on the market price on the acquisition date. The fair value of the converted Furmanite awards was allocated between consideration transferred in the acquisition and future share-based compensation expense, based on past service completed and future service required. The converted Furmanite awards have been identified, as applicable, in the tables that follow.

Compensation expense related to share-based compensation totaled ~~$4.7~~$1.7 million and ~~$2.4~~$2.1 million for the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively. Share-based compensation expense reflects an estimate of expected forfeitures. At ~~June 30, 2016, $13.3~~March 31, 2017, $18.2 million of unrecognized compensation expense related to share-based compensation is expected to be recognized over a remaining weighted-average period of ~~2.5~~2.7 years. The excess tax benefit derived when share-based awards result in a tax deduction for the Company was ~~$0.1 million and $1.5 million~~not material for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 and ~~2015, respectively.~~

2016.

Stock units are settled with common stock upon vesting unless it is not legally feasible to issue shares, in which case the value of the award is settled in cash. We determine the fair value of each stock unit based on the market price on the date of grant. Stock units generally vest in annual installments over four years and the expense associated with the units is recognized over the same vesting period. We also grant common stock to our directors which typically vest immediately. Compensation expense related to stock units and director stock grants totaled ~~$4.1~~$1.7 million and ~~$2.0~~$1.8 million for the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively. Transactions involving our stock units and director stock grants during the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ are summarized below:


	Six Months Ended June 30, 2016				Six Months Ended June 30, 2015				Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
	(unaudited)				(unaudited)				(unaudited)				(unaudited)
	No. of Stock Units		Weighted Average Fair Value		No. of Stock Units		Weighted Average Fair Value		No. of Stock Units		Weighted Average Fair Value		No. of Stock Units		Weighted Average Fair Value
	(in thousands)				(in thousands)				(in thousands)				(in thousands)
Stock and stock units, beginning of period	371		$	36.26	328		$	36.14	535		$	35.11	371		$	36.26
Changes during the period:
Granted	86		$	26.19	—		$	—	2		$	33.27	70		$	25.30
Assumed - Furmanite acquisition	40		$	25.63	—		$	—	—		$	—	40		$	25.63
Vested and settled	(34	)	$	27.87	(4	)	$	30.73	(21	)	$	25.33	—		$	—
Cancelled	(9	)	$	27.81	(22	)	$	35.32	(3	)	$	31.58	(3	)	$	28.09
Stock and stock units, end of period	454		$	34.22	302		$	36.27	513		$	35.55	478		$	33.83

~~Under~~We have a performance stock unit award program ~~adopted on November 4, 2014,~~whereby we grant Long-Term Performance Stock Unit (“LTPSU”) awards ~~granted~~ to our executive ~~officers are subject to a three-year performance period and a concurrent three-year service period.~~officers. Under this program, the Company communicates “target awards” to the executive officers at the beginning of a performance period. LTPSU awards cliff vest with the achievement of the performance goals and completion of the required service period. Settlement occurs with common stock within 20 business days of vesting. LTPSU awards granted on November 4, 2014 and October 15, 2015 are subject to a three-year performance period and a concurrent three-year service period. The performance target is based on results of operations over the three-year performance period with possible payouts ranging from 0% to 300% of the “target ~~awards”.~~awards.” LTPSU awards ~~cliff vest~~granted on March 15, 2017 are subject to a two-year performance period and a concurrent two-year service period. For these awards, the performance goal is separated into three independent performance factors based on (i) relative shareholder total return (“RTSR”) as measured against a designated peer group, (ii) RTSR as measured against a designated index and (iii) results of operations over the two-year performance period, with ~~achievement~~possible payouts ranging from 0% to 200% of the “target awards” for the first two performance ~~goals~~factors and ~~completion~~ranging from 0% to 300% of the ~~three year service period. Settlement occurs with common stock within 20 business days of vesting.~~ “target awards” for the third performance factor.

We determine the fair value of each LTPSU award based on the market price on the date of grant. However, for the portion of the LTPSU awards that are subject to the RTSR performance factors, we determine the fair value of that portion of the award based on the results of a Monte Carlo simulation, which uses market-based inputs as of the date of grant to simulate future stock returns. Compensation expense is recognized on a straight-line basis over the vesting ~~term~~term. For LTPSU awards (or portions thereof) subject to a results of ~~three years~~operations performance goal, compensation expense is recognized based upon the ~~probable~~ performance target that ~~will be~~is probable of being met. For the portion of LTPSU awards subject to the RTSR performance factors, because the expected outcome is incorporated into the grant date fair value, compensation expense is not subsequently adjusted for changes in the expected or actual performance outcome. Compensation expense related to performance awards totaled ~~$0.4~~$0.1 million and $0.2 million for the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively. Transactions involving our performance awards during the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ are summarized below:

Six Months Ended
June 30, 2016 Six Months Ended
June 30, 2015
(unaudited) (unaudited)

No. of Stock
Units

Weighted
Average
Fair Value

No. of Stock
Units

Weighted
Average
Fair Value
(in thousands) (in thousands)
Long-term performance stock units, beginning of period 59
$ 37.16
23
$ 42.25
Changes during the period:
Granted —
$ —
—
$ —
Vested and settled —
$ —
—
$ —
Cancelled —
$ —
—
$ —
Long-term performance stock units, end of period 59
$ 37.16
23
$ 42.25

Performance awards are settled with common stock upon vesting unless it is not legally feasible to issue shares, in which case the value of the award is settled in cash. We determine the fair value of each performance award based on the market price on the date of grant. Performance awards granted to our Chairman of our Board vest over the longer of four years or the achievement of performance goals based upon our future results of operations. Compensation expense related to performance awards totaled $0.2 million for both the six months ended June 30, 2016 and 2015. Transactions involving our performance awards during the six months ended June 30, 2016 and 2015 are summarized below:


	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Three Months Ended March 31, 2017			Three Months Ended March 31, 2016
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
	No. of Performance Awards	Weighted Average Fair Value		No. of Performance Awards	Weighted Average Fair Value		No. of Stock Units	Weighted Average Fair Value		No. of Stock Units	Weighted Average Fair Value
	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Performance awards, beginning of period	13	$	35.15	28	$	32.86
Long-term performance stock units, beginning of period							59	$	37.16	59	$	37.16
Changes during the period:
Granted	—	$	—	—	$	—	167	$	20.24	—	$	—
Vested and settled	—	$	—	—	$	—	—	$	—	—	$	—
Cancelled	—	$	—	—	$	—	—	$	—	—	$	—
Performance awards, end of period	13	$	35.15	28	$	32.86
Long-term performance stock units, end of period							226	$	24.64	59	$	37.16

We determine the fair value of each stock option at the grant date using a Black-Scholes model and recognize the resulting expense of our stock option awards over the period during which an employee is required to provide services in exchange for the awards, usually the vesting period. Compensation expense related to stock options for the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016 ~~related to the recently converted Furmanite awards,~~ was not material. ~~There was no compensation expense related to stock options for the six months ended June 30, 2015 as all stock option awards were fully vested.~~ Our options typically vest in equal annual installments over a four-year service period. Expense related to an option grant is recognized on a straight line basis over the specified vesting period for those options. Stock options generally have a ten-year term. Transactions involving our stock options during the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ are summarized below:


	Six Months Ended June 30, 2016				Six Months Ended June 30, 2015				Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
	(unaudited)				(unaudited)				(unaudited)				(unaudited)
	No. of Options		Weighted Average Exercise Price		No. of Options		Weighted Average Exercise Price		No. of Options		Weighted Average Exercise Price		No. of Options		Weighted Average Exercise Price
	(in thousands)				(in thousands)				(in thousands)				(in thousands)
Shares under option, beginning of period	376		$	25.71	691		$	21.26	203		$	30.63	376		$	25.71
Changes during the period:
Granted	—		$	—	—		$	—	—		$	—	—		$	—
Assumed - Furmanite acquisition	132		$	33.20	—		$	—	—		$	—	132		$	33.20
Exercised	(69	)	$	15.52	(201	)	$	12.65	(16	)	$	27.91	(64	)	$	15.67
Cancelled	(4	)	$	44.62	—		$	—	—		$	—	(2	)	$	50.10
Expired	(4	)	$	30.33	—		$	—	(1	)	$	32.05	(5	)	$	30.33
Shares under option, end of period	431		$	29.39	490		$	24.80	186		$	30.87	437		$	29.26
Exercisable at end of period	427		$	29.30	490		$	24.80	185		$	30.71	419		$	28.92

Options exercisable at ~~June 30, 2016~~March 31, 2017 had a weighted-average remaining contractual life of ~~2.0~~2.6 years. For total options outstanding at ~~June 30, 2016,~~March 31, 2017, the range of exercise prices and remaining contractual lives are as follows:


Range of Prices	No. of Options	Weighted Average Exercise Price		Weighted Average Remaining Life	No. of Options	Weighted Average Exercise Price		Weighted Average Remaining Life
	(in thousands)			(in years)	(in thousands)			(in years)
$10.09 to $20.19	34	$	12.94	0.3
$20.20 to $30.28	80	$	26.41	2.0
$20.18 to $30.28					29	$	24.81	2.2
$30.29 to $40.38	306	$	31.22	2.1	150	$	31.08	2.5
$40.39 to $50.47	11	$	50.40	5.1	7	$	50.47	7.1
Total	431	$	29.39	2.0	186	$	30.87	2.6

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

A summary of changes in accumulated other comprehensive loss included within shareholders’ equity is as follows (in thousands):


	Six Months Ended June 30, 2016												Six Months Ended June 30, 2015										Three Months Ended March 31, 2017															Three Months Ended March 31, 2016
	(unaudited)												(unaudited)										(unaudited)															(unaudited)
	Foreign Currency Translation Adjustments			Foreign Currency Hedge			Tax Provision			Total			Foreign Currency Translation Adjustments			Foreign Currency Hedge		Tax Provision		Total			Foreign Currency Translation Adjustments			Foreign Currency Hedge			Defined Benefit Pension Plans			Tax Provision			Total			Foreign Currency Translation Adjustments			Foreign Currency Hedge			Tax Provision			Total
Balance, beginning of period	$	(28,124	)	$	4,567		$	5,183		$	(18,374	)	$	(13,718	)	$	3,028	$	2,284	$	(8,406	)	$	(31,973	)	$	5,048		$	(10,518	)	$	8,443		$	(29,000	)	$	(28,124	)	$	4,567		$	5,183		$	(18,374	)
Other comprehensive income (loss) before tax	3,050			(243		)	(1,318		)	1,489			(6,899		)	1,305		554		(5,040		)
Noncontrolling interest	—			—			—			—			34			—		—		34
Other comprehensive income (loss)																							2,108			(166		)	17			(448		)	1,511			6,226			(553		)	(1,151		)	4,522
Balance, end of period	$	(25,074	)	$	4,324		$	3,865		$	(16,885	)	$	(20,583	)	$	4,333	$	2,838	$	(13,412	)	$	(29,865	)	$	4,882		$	(10,501	)	$	7,995		$	(27,489	)	$	(21,898	)	$	4,014		$	4,032		$	(13,852	)

The following table represents the related tax effects allocated to each component of other comprehensive income (loss) (in thousands):


	Six Months Ended June 30, 2016									Six Months Ended June 30, 2015									Three Months Ended March 31, 2017									Three Months Ended March 31, 2016
	(unaudited)									(unaudited)									(unaudited)									(unaudited)
	Gross Amount			Tax Effect			Net Amount			Gross Amount			Tax Effect			Net Amount			Gross Amount			Tax Effect			Net Amount			Gross Amount			Tax Effect			Net Amount
Foreign currency translation adjustments	$	3,050		$	(1,414	)	$	1,636		$	(6,899	)	$	1,036		$	(5,863	)	$	2,108		$	(508	)	$	1,600		$	6,226		$	(1,363	)	$	4,863
Foreign currency hedge	(243		)	96			(147		)	1,305			(482		)	823			(166		)	63			(103		)	(553		)	212			(341		)
Defined benefit pension plans																			17			(3		)	14			—			—			—
Total	$	2,807		$	(1,318	)	$	1,489		$	(5,594	)	$	554		$	(5,040	)	$	1,959		$	(448	)	$	1,511		$	5,673		$	(1,151	)	$	4,522

13. COMMITMENTS AND CONTINGENCIES

Con Ed Matter—We have, from time to time, provided temporary leak repair services ~~for~~to the steam ~~operations~~system of Consolidated Edison Company of New York (“Con Ed”) located in New York City. In July 2007, a Con Ed steam main located in midtown Manhattan ruptured ~~causing~~resulting in one death and other injuries and property damage. As of ~~June 30, 2016, ninety-two~~March 31, 2017, sixty-eight lawsuits are currently pending against Con Ed, the City of New York and Team in the Supreme ~~Courts~~Court of New York, ~~located in Kings, New York and Bronx County,~~ alleging that our temporary leak repair services may have contributed to the cause of the ~~rupture.~~rupture, allegations which we dispute. The lawsuits seek generally unspecified compensatory damages for personal injury, property damage and business interruption. Additionally, ~~on March 31, 2008, we received a letter from~~ Con Ed is alleging that our contract with Con Ed requires us to fully indemnify and defend Con Ed for ~~additional~~all claims ~~filed~~asserted against Con Ed including those amounts that Con Ed has paid to settle with certain plaintiffs for undisclosed sums as ~~a result of the rupture.~~well as Con Ed’s own alleged damages to its infrastructure. Con Ed filed an action to join Team and the City of New York as defendants in all lawsuits filed against Con Ed that did not include Team and the City of New York as direct defendants. We are vigorously defending the lawsuits and Con Ed’s claim for indemnification. We are unable to estimate the amount of liability to us, if any, associated with these lawsuits and the claim for indemnification. We filed a motion to dismiss in April 2016. Based upon the current briefing schedule, a ruling on the motion is anticipated in the fall of 2017. We maintain insurance coverage, subject to a deductible limit of $250,000, which we believe should cover these claims. We have not accrued any liability in excess of the deductible limit for the lawsuits. We do not

believe the ultimate outcome of these matters will have a material

adverse effect on our financial position, results of operations, or cash flows. ~~We anticipate~~A trial on the merits ~~during the first half of~~is scheduled to commence in October 2017.

Patent Infringement Matters—In December 2014, our subsidiary, Quest Integrity Group, LLC, filed three patent infringement lawsuits against three different defendants, two in the U.S. District of Delaware ~~(“Delaware~~(the “Delaware Cases”) and one in the U.S. District of Western Washington ~~(“Washington~~(the “Washington Case”). Quest Integrity alleges that the three defendants infringed Quest Integrity’s patent, entitled “2D and 3D Display System and Method for Furnace Tube Inspection”. This Quest Integrity patent generally teaches a system and method for displaying inspection data collected during the inspection of furnace tubes in petroleum and petro-chemical refineries. The subject patent litigation is specific to the visual display of the collected data and does not relate to Quest Integrity’s underlying advanced inspection technology. In these lawsuits Quest Integrity is seeking temporary and permanent injunctive relief, as well as monetary damages. Defendants have denied they infringe any valid claim of Quest Integrity’s patent, and have asserted declaratory judgment counterclaims that the patent at issue is invalid and/or unenforceable, and not infringed. In June 2015, the U.S. District of Delaware denied our motions for preliminary injunctive relief in the Delaware Cases (that is, our request that the defendants stop using our patented systems and methods during the pendency of the actions). ~~The~~In March 2017, the judge in the Delaware Cases ~~are expected~~granted summary judgment against Quest Integrity, finding the asserted patent invalid; consequentially, one of the Delaware Cases is ready for appeal, and the Company reasonably expects the other Delaware Case will be ready for appeal shortly. Quest Integrity intends to ~~proceed to trial in the first calendar quarter of 2017.~~appeal both Delaware Cases. The Washington Case ~~does not have a trial date scheduled.~~is ongoing.

We are involved in various other lawsuits and are subject to various claims and proceedings encountered in the normal conduct of business. In our opinion, any uninsured losses that might arise from these lawsuits and proceedings will not have a materially adverse effect on our consolidated financial statements.

We establish a liability for loss contingencies, when information available to us indicates that it is it probable that a liability has been incurred and the amount of loss can be reasonably estimated.

14. ENTITY WIDE DISCLOSURES

ASC 280, Segment Reporting, requires us to disclose certain information about our operating segments where operating segments are defined as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.” We conduct operations in three segments: TeamQualspec, TeamFurmanite and Quest Integrity. All three operating segments operate under a business segment manager who reports directly to Team’s Chief Executive Officer who operates as the chief operating decision maker. Furmanite, which we acquired in the first quarter of 2016 (see Note 2), is included in the TeamFurmanite segment, except that Furmanite’s corporate-related activities are included within corporate and shared support services in the tables below. Discontinued operations are not allocated to the segments. Segment data for our three operating segments are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2016		2015		2016		2015		2017		2016
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues:
TeamQualspec	$	157,238	$	130,221	$	293,500	$	237,412	$	142,956	$	136,262
TeamFurmanite	159,681		81,103		260,275		150,455		121,822		100,594
Quest Integrity	19,521		24,075		33,519		39,939		21,776		13,998
Total	$	336,440	$	235,399	$	587,294	$	427,806	$	286,554	$	250,854


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2016			2015			2016			2015			2017			2016
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating income (loss):
TeamQualspec	$	16,677		$	18,331		$	24,621		$	28,706		$	8,125		$	7,944
TeamFurmanite	11,982			9,451			19,021			13,892			451			7,039
Quest Integrity	3,221			6,742			2,464			8,005			4,191			(757		)
Corporate and shared support services	(17,872		)	(12,490		)	(39,478		)	(20,870		)	(24,855		)	(21,606		)
Total	$	14,008		$	22,034		$	6,628		$	29,733		$	(12,088	)	$	(7,380	)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2016		2015		2016		2015		2017		2016
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Capital expenditures:
TeamQualspec	$	2,222	$	4,418	$	5,211	$	6,686	$	2,512	$	2,989
TeamFurmanite	3,154		2,142		6,131		3,192		4,320		2,977
Quest Integrity	263		583		894		1,291		446		631
Corporate and shared support services	4,749		3,625		9,732		7,247		3,440		4,983
Total	$	10,388	$	10,768	$	21,968	$	18,416	$	10,718	$	11,580


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2016		2015		2016		2015		2017		2016
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Depreciation and amortization:
TeamQualspec	$	5,051	$	2,257	$	10,105	$	4,397	$	4,855	$	5,054
TeamFurmanite	6,020		2,067		9,344		3,912		5,863		3,324
Quest Integrity	1,284		1,446		2,566		2,881		1,269		1,282
Corporate and shared support services	515		300		878		570		974		363
Total	$	12,870	$	6,070	$	22,893	$	11,760	$	12,961	$	10,023

Separate measures of Team’s assets by operating segment are not produced or utilized by management to evaluate segment performance.

A geographic breakdown of our revenues for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ and total assets as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2016		2015		2016		2015		2017		2016
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues:
Total Revenues: ¹
United States	$	241,064	$	168,519	$	443,117	$	317,483	$	215,212	$	202,053
Canada	41,836		39,241		63,821		62,943		27,248		21,985
Europe	33,152		13,287		50,041		25,358		25,999		16,889
Other foreign countries	20,388		14,352		30,315		22,022		18,095		9,927
Total	$	336,440	$	235,399	$	587,294	$	427,806	$	286,554	$	250,854


	June 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
	(unaudited)				(unaudited)
Total assets:
United States	$	995,136	$	682,124	$	776,238	$	788,780
Canada	61,350		59,626		59,258		66,056
Europe	115,468		33,271		227,621		234,847
Other foreign countries	51,070		23,970		50,801		57,735
Total	$	1,223,024	$	798,991	$	1,113,918	$	1,147,418

______________

1Revenues attributable to individual countries/geographic areas are based on the country of domicile of the legal entity that performs the work.

15. DISCONTINUED OPERATIONS

As part of our acquisition of Furmanite, we acquired a pipeline inspection business from Furmanite that primarily performs process management inspection services to contractors and operators participating primarily in the midstream oil and gas market in the United States. ~~The business generates approximately $60 million in annual revenues.~~ We ~~have~~previously concluded that this business iswas not a strategic fit for Team and ~~therefore~~ we ~~have decided not to retain it and are marketing the business to prospective buyers. We expect to complete~~completed the sale of the business ~~within one year of the Furmanite acquisition date.~~ in December 2016.

We ~~have~~ concluded that this business ~~qualifies~~qualified as a discontinued operation upon its acquisition under GAAP. Therefore, we ~~have~~ classified the operating results ~~and related assets and liabilities~~ as discontinued operations in our ~~condensed~~ consolidated ~~financial statements.~~statements of operations. Discontinued operations does not include any allocation of corporate overhead expense or interest expense.

Income from discontinued operations, net of income tax, ~~from the date of the Furmanite acquisition,~~ consists of the following (in thousands):

Three Months Ended
June 30, 2016 Six Months Ended
June 30, 2016
(unaudited) (unaudited)
Revenues $ 15,906
$ 21,674
Operating expenses 14,686
19,961
Gross margin 1,220
1,713
Selling, general and administrative expenses 577
858
Income from discontinued operations, before income tax 643
855
Less: Provision for income taxes 257
343
Income from discontinued operations, net of income tax $ 386
$ 512

~~Assets and liabilities of discontinued operations classified as held for sale in the condensed consolidated balance sheet as of June 30, 2016 consist of the following (in thousands):~~

June 30, 2016
(unaudited)
Current assets of discontinued operations:
Receivables $ 14,467
Prepayments and other assets 343
Total assets of discontinued operations 14,810
Current liabilities of discontinued operations:
Other accrued liabilities $ 2,328

As discussed in Note 2, the Furmanite purchase price allocation is based on provisional measurements and is subject to change. Accordingly, the amounts of assets and liabilities attributable to discontinued operations may be adjusted upon completion of the final valuation of the acquisition.



	Three Months Ended March 31, 2016
	(unaudited)
Revenues	$	5,768
Operating expenses	5,275
Gross margin	493
Selling, general and administrative expenses	281
Income from discontinued operations, before income tax	212
Less: Provision for income taxes	86
Income from discontinued operations, net of income tax	$	126

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2016, there were no material amounts of depreciation, amortization, capital expenditures or significant operating or investing non-cash items related to discontinued operations.

16. EXIT COSTS AND OTHER RELATED CHARGES (CREDITS)

Exit costs and other related charges (credits) are associated with the restructuring/closure of the acquired Furmanite operations in Belgium and the Netherlands in the TeamFurmanite segment. Due to continued economic softness in these particular markets and unfavorable costs structures, we committed to a plan to exit these operations in the fourth quarter of 2016 and communicated the plan to the affected employees.We expect the closures to be substantially complete by the end of the second quarter of 2017. During the three months ended March 31, 2017, we recorded a reduction to severance costs of $0.2 million and a disposal gain of $1.1 million. The disposal gain resulted from an asset sale of the Furmanite operations in Belgium, which was completed during the first quarter of 2017, whereby we conveyed the business operations, $0.3 million cash and approximately $0.2 million of other assets to the purchaser in exchange for the assumption by the purchaser of certain liabilities, primarily severance-related liabilities of $1.6 million associated with the employees who transferred to the purchaser in connection with the transaction.

A rollforward of our accrued severance liability associated with these exit activities is presented below (in thousands):



	Three Months Ended March 31, 2017
	(unaudited)
Balance, beginning of period	$	4,846
Charges (credits), net	(192		)
Payments	(1,254		)
Disposal	(1,601		)
Balance, end of period	$	1,799

With respect to these exit activities, to date we have incurred cumulatively $4.6 million of severance-related costs and an impairment loss on property, plant and equipment of $0.7 million, partially offset by a disposal gain of $1.1 million. We estimate that we will incur additional costs, primarily related to lease terminations, of approximately $1 million during the remainder of 2017 as the closures are completed.

17. REPURCHASE OF COMMON STOCK

On June 23, 2014, our Board authorized an increase in the stock repurchase plan limit to $50.0 million. We ~~repurchased 274,110~~did not repurchase any shares ~~for a total cost of $7.6 million~~ during the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. At ~~June 30, 2016,~~March 31, 2017, $7.9 million remained available to repurchase shares under the stock repurchase plan. Under the Credit Facility, the Company is limited in its ability to make stock repurchases unless the ~~leverage ratio~~Total Leverage Ratio is below 2.50 to 1.00. Notwithstanding such provision, in the event the ~~leverage ratio~~Total Leverage Ratio is equal to or greater than 2.50 to 1.00 but is ~~at least 0.25~~ less than ~~the maximum permitted leverage ratio,~~or equal to 4.00 to 1.00, the Credit Facility generally permits ~~the~~ the Company to make stock repurchases provided that such repurchases, plus any payments of cash dividends, do not exceed $50.0 million in the aggregate.



ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “the Company,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of our consolidated subsidiaries or to all of them taken as a whole. We are incorporated in the State of Delaware 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 under the symbol “TISI.”

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this report, and the consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Contractual Obligations and Critical Accounting Policies, included in our ~~Transition~~Annual Report on Form 10-K for the ~~transition period from June 1, 2015 to~~year ended December 31, ~~2015.~~2016.

We based our forward-looking statements on our reasonable beliefs and assumptions, and our current expectations, estimates and projections about ourselves and our industry. We caution that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. We wish to ensure that such statements are accompanied by meaningful cautionary statements, so as to obtain the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. 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”. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Differences between actual results and any future performance suggested in these forward-looking statements could result from a variety of factors, including those listed beginning on page 98 of our ~~Transition~~Annual Report on Form 10-K for the ~~transition period from June 1, 2015 to~~year ended December 31, ~~2015.~~2016.

General Description of Business

We are a leading provider of standard to specialty industrial services, including inspection, engineering assessment and ~~assessment,~~mechanical repair and remediation required in maintaining high temperature and high pressure piping systems and vessels that are utilized extensively in the refining, petrochemical, power, pipeline and other heavy industries. We conduct operations in three segments: TeamQualspec Group (“TeamQualspec”), TeamFurmanite Group (“TeamFurmanite”) and Quest ~~Integrity. While our services are aligned~~Integrity Group (“Quest Integrity”). Through the capabilities and resources in these three ~~business groups,~~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, our 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 ~~broadly fall into three different classifications that have unique customer demand drivers: inspection and assessment services, turnaround~~to some of the most advanced services and ~~on-stream services.~~expertise available in the industry.

On-stream services are offered by TeamFurmanite and represent the services offered while plants are operating and under pressure. These services include leak repair, fugitive emissions control and hot tapping. We believe demand for on-stream services is a function of the population of the existing infrastructure of operating industrial facilities.

We offer these services inglobally through over 220 locations in 2220 countries throughout the ~~world. Our industrial services are available 24 hours a day, 7 days a week, 365 days a year.~~world with more than 7,400 employees. We market our services to companies in a diverse array of heavy industries which include the petrochemical, refining, power, pipeline, steel, pulp and paper industries, as well as municipalities, shipbuilding, ~~OEMs,~~original equipment manufacturers (“OEMs”), distributors, and some of the world’s largest engineering and construction firms. ~~Our services are also provided across a broad geographic reach.~~

Three Months Ended ~~June 30, 2016~~March 31, 2017 Compared to Three Months Ended ~~June 30, 2015~~March 31, 2016

The following table sets forth the components of revenue and operating income (loss) from our operations for the three months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ (in thousands):


	Three Months Ended June 30,						Increase (Decrease)					Three Months Ended March 31,						Increase (Decrease)
	2016			2015			$			%		2017			2016			$			%
	(unaudited)			(unaudited)								(unaudited)			(unaudited)
Revenues by business segment:
TeamQualspec	$	157,238		$	130,221		$	27,017		20.7	%	$	142,956		$	136,262		$	6,694		4.9	%
TeamFurmanite	159,681			81,103			78,578			96.9	%	121,822			100,594			21,228			21.1	%
Quest Integrity	19,521			24,075			(4,554		)	(18.9	)%	21,776			13,998			7,778			55.6	%
Total	$	336,440		$	235,399		$	101,041		42.9	%	$	286,554		$	250,854		$	35,700		14.2	%
Operating income (loss):
TeamQualspec	$	16,677		$	18,331		$	(1,654	)	(9.0	)%	$	8,125		$	7,944		$	181		2.3	%
TeamFurmanite	11,982			9,451			2,531			26.8	%	451			7,039			(6,588		)	(93.6	)%
Quest Integrity	3,221			6,742			(3,521		)	(52.2	)%	4,191			(757		)	4,948			NM¹
Corporate and shared support services	(17,872		)	(12,490		)	(5,382		)	43.1	%	(24,855		)	(21,606		)	(3,249		)	15.0	%
Total	$	14,008		$	22,034		$	(8,026	)	(36.4	)%	$	(12,088	)	$	(7,380	)	$	(4,708	)	63.8	%

______________

1 NM - Not meaningful

Revenues. Total revenues grew ~~$101.0~~$35.7 million or ~~42.9%~~14.2% from the prior year quarter, with TeamQualspec revenues growing $6.7 million, TeamFurmanite revenues growing $21.2 million and Quest Integrity revenues growing $7.8 million. Changes in foreign exchange rates had an insignificant impact on revenues. The increases in TeamQualspec and TeamFurmanite were largely due to acquisitions completed in 2016, including two small acquisitions in April 2016 (reported in TeamQualspec) and the acquisition of Furmanite Corporation (“Furmanite”) in February 2016 (reported primarily in TeamFurmanite). The TeamQualspec revenue increase also reflects improving market conditions, including sales volume increases in heat treating services, which are typically associated with large, more complex turnaround projects. The increase in Quest Integrity revenues was primarily associated with overall higher volumes across inspection services, reflecting improvements in market conditions. Although reported TeamFurmanite revenues increased over the prior year quarter due to the Furmanite and Qualspec acquisitions, which were completed in July 2015 and February 2016, respectively, partially offset by lower Quest Integrity revenues and an adverse impact of $1.8 million due to changes in foreign exchange rates. Onacquisition, on a pro forma basis, ~~which assumes that~~assuming the Furmanite ~~and Qualspec acquisitions~~acquisition had ~~occurred at the beginning of 2015,~~been completed prior to January 1, 2016, total TeamFurmanite revenues declined by ~~$34.2 million.~~approximately $22.5 million or 15.6%. Market softness, which began in the second half of 2015, ~~has continued in 2016 across all three business segments. Weak~~is continuing to impact the TeamFurmanite segment. The weak market conditions ~~for our customers led to~~have resulted in a combination of project deferrals, orscope reductions and maintenance deferrals in ~~project scope, size or duration. We expect these market headwinds~~end markets. However, we are optimistic that end markets could begin to ~~continue throughout~~improve during the remainder of ~~2016.~~2017, as total revenues, on a pro forma basis, increased slightly from the prior year in each of the last two months of the quarter after 13 consecutive months of declines.

Operating ~~income.~~loss. Overall operating ~~income~~loss was ~~$14.0~~$12.1 million in the current year quarter compared to ~~$22.0~~operating loss of $7.4 million in the prior year ~~quarter.~~quarter, as the improved operating results in Quest Integrity were more than offset by unfavorable changes in operating income (loss) associated with TeamFurmanite and corporate and shared support services. The current year quarter includes net non-routine expenses totaling ~~$6.1~~$3.6 million ~~resulting from $2.2~~consisting of $4.1 million ~~for~~in costs related to the implementation of our new ERP system, $1.1 million in professional fees and other costs associated with mergers and acquisitions integration activity and $0.8 million in intellectual property defense legal costs, partially offset by a $1.2 million gain on the revaluation of contingent consideration ~~from~~and a $1.2 million benefit associated with exit activities, primarily comprised of a gain on the disposal of the legacy Furmanite operations in Belgium. The non-routine expenses (benefit) were attributed to our ~~acquisition~~operating segments as follows: $(1.2) million in each of ~~DK Amans Valve (included~~TeamQualspec and TeamFurmanite and $6.0 million in ~~TeamFurmanite), $1.9~~corporate and shared support services. The prior year included non-routine expenses of $9.7 million consisting of $8.3 million in professional fees and other costs associated with mergers and acquisitions activity, and a change in fiscal year end ($1.6 million included in corporate and shared support services, $0.2 million included in TeamQualspec and $0.1 million included in Quest Integrity), $1.2 million in costs related to the implementation of our new ERP system (included in corporate and shared support services), $0.6 million in intellectual property defense legal costs (included in Quest Integrity) and $0.1 million related to the wildfire in Alberta, Canada that damaged our Fort McMurray location (included in TeamFurmanite). The prior year included $3.6 million in professional fees and other costs associated with mergers and acquisitions activity and $0.6$1.3 million in cost related to the implementation of our new ERP system, ~~(all included in corporate and shared support services) as well as $0.3~~$0.1 million in legal fees associated with a legal defense of Quest (included in Quest Integrity). Excluding the impact of these non-routine items, operating income decreased $6.4 million or 24.3% as the effect of acquisition-related growth was largely offset by the market softness and project deferrals described above as well an increase in corporate and shared support services of $6.8 million, primarily reflecting higher share-based compensation expense and the absorption of Furmanite’s corporate-related costs.

~~Interest expense.~~ Interest expense increased from $0.6 million in the prior year quarter to $3.4 million in the current year quarter. The increase is due primarily to additional debt financing used to fund acquisitions, including the July 2015 acquisition of Qualspec and a portion of the February 2016 acquisition of Furmanite.

~~Foreign currency gain~~. Foreign currency gains were consistent with the prior year quarter at $0.1 million in both periods. Foreign currency gains in both periods reflect the effects of fluctuations in the U.S. Dollar relative to the currencies we have exposure to, including but not limited to, the Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Euro, Malaysian Ringgit and Mexican Peso.

~~Taxes.~~ The provision for income tax was $3.8 million on pre-tax income from continuing operations of $10.8 million in the current year quarter compared to the provision for income tax of $7.4 million on pre-tax income of $21.5 million in the prior year

~~quarter. The effective tax rate was 35.3% for the three months ended June 30, 2016, comparable to the effective tax rate of 34.6% for the three months ended June 30, 2015.~~

~~Discontinued operations.~~ Income from discontinued operations, net of income tax, was $0.4 million for the three months ended June 30, 2016 and relates to the operating results of an acquired Furmanite business that we do not intend to retain.

~~Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015~~

~~The following table sets forth the components of revenue and operating income from our operations for the six months ended June 30, 2016 and 2015 (in thousands):~~

Six Months Ended
June 30,

Increase
(Decrease)
2016 2015 $ %
(unaudited) (unaudited)
Revenues by business segment:
TeamQualspec $ 293,500
$ 237,412
$ 56,088
23.6 %
TeamFurmanite 260,275
150,455
109,820
73.0 %
Quest Integrity 33,519
39,939
(6,420 ) (16.1 )%
Total $ 587,294
$ 427,806
$ 159,488
37.3 %
Operating income (loss):
TeamQualspec $ 24,621
$ 28,706
$ (4,085 ) (14.2 )%
TeamFurmanite 19,021
13,892
5,129
36.9 %
Quest Integrity 2,464
8,005
(5,541 ) (69.2 )%
Corporate and shared support services (39,478 ) (20,870 ) (18,608 ) 89.2 %
Total $ 6,628
$ 29,733
$ (23,105 ) (77.7 )%

~~Revenues~~. Total revenues grew $159.5 million or 37.3% from the same period in the prior year, primarily due to the Furmanite and Qualspec acquisitions, which were completed in July 2015 and February 2016, respectively, partially offset by lower Quest Integrity revenues and an adverse impact ofIntegrity. Approximately $4.8 million due to changes in foreign exchange rates. On a pro forma basis, which assumes that the Furmanite and Qualspec acquisitions had occurred at the beginning of 2015, total revenues declined by $62.1 million. Market softness, which began in the second half of 2015, has continued in 2016 across all three business segments. Weak market conditions for our customers led to a combination of project deferrals or reductions in project scope, size or duration. We expect these market headwinds to continue throughout the remainder of 2016.

~~Operating income.~~ Overall operating income was $6.6 million in the current year compared to $29.7 million in the same period in the prior year. The current year includes non-routine expenses totaling $15.7 million resulting from $10.2 million in professional fees and other costs associated with mergers and acquisitions activity and a change in fiscal year end ($9.9 million included in corporate and shared support services, $0.2 million included in TeamQualspec and $0.1 million included in Quest Integrity), $2.5 million in costs related to the implementation of our new ERP system (included in corporate and shared support services), $2.2 million for the revaluation of contingent consideration from our acquisition of DK Amans Valve (included in TeamFurmanite), $0.7 million in intellectual property defense legal costs (included in Quest Integrity) and $0.1 million related to the wildfire in Alberta, Canada that damaged our Fort McMurray location (included in TeamFurmanite). Approximately $4.6 million of the merger-related costs were attributable

to Furmanite obligations, primarily for change of control and severance payments. The ~~prior year included $5.9 million of~~ non-routine expenses ~~resulting from $3.6~~were attributed to our operating segments as follows: $0.1 million in ~~professional fees~~Quest Integrity and ~~other costs associated with mergers and acquisitions activity (included~~$9.6 million in corporate and shared support services), $1.3 million in legal fees associated with a legal defense of Quest Integrity intellectual property (included in Quest Integrity), $0.6 million in costs related to the implementation of our new ERP system (included in corporate and shared support services) and $0.4 million of a fixed asset write-down (included in TeamFurmanite).services. Excluding the impact of these non-routine items in both periods, operating income ~~decreased~~(loss) changed unfavorably by ~~$13.3~~$10.7 million, ~~or 37.4%~~ as improvements in the ~~effect of acquisition-related growth was~~Quest Integrity segment were more than offset by unfavorable changes in the TeamFurmanite segment, reflecting a continuation of the market softness and ~~project deferrals~~reduced customer spending described ~~above as well as~~above. Further, the operating loss for the current year quarter was negatively affected by an increase in corporate and shared support services of ~~$10.4~~$6.9 million, ~~primarily reflecting higher share-based compensation expense and~~which includes the ~~absorption~~addition of Furmanite’s ongoing corporate-related costs.

Interest expense. Interest expense increased from ~~$1.1~~$2.9 million in the ~~prior year~~prior-year quarter to ~~$6.3~~$3.2 million in the ~~current year.~~current-year quarter. The increase is ~~due~~ primarily ~~to additional debt financing used to fund acquisitions, including the July 2015 acquisition of Qualspec and a portion of the February 2016 acquisition of Furmanite.~~driven by higher interest rates, partially offset by lower average borrowings outstanding.

Foreign currency ~~(gain)~~ loss. ~~Foreign currency gains were $0.1 million in the six months ended June 30, 2016 compared to foreign currency losses of~~Non-operating results include $0.3 million in foreign currency transaction losses in the ~~same period last year.~~current year quarter compared to $38 thousand in the prior year quarter. Foreign currency ~~gains and~~transaction losses in both periods reflect the effects of fluctuations in the U.S. Dollar relative to the currencies to which we have exposure, ~~to,~~ including but not limited to, the ~~Australian Dollar,~~ Brazilian Real, British Pound, Canadian Dollar, Euro, Malaysian Ringgit, Mexican Peso and ~~Mexican Peso.~~

~~Venezuelan Impairment Loss.~~ During the six months ended June 30, 2015, management began reporting the results of our Venezuelan operations using the cost method of accounting. This change resulted in a one-time pre-tax charge of $1.2 million, which is included in other expense (income), net. This decision was made given the other-than-temporary lack of exchangeability in the Venezuelan currency combined with other recent Venezuelan regulations that negatively impacted our ability to control operations and maintain normal service levels.Singapore Dollar.

Taxes. The ~~provision~~benefit for income tax was ~~less than $0.1~~$6.1 million on the pre-tax ~~income~~loss from continuing operations of ~~$0.4~~$15.6 million in the current year quarter compared to the ~~provision~~benefit for income tax of ~~$9.7~~$3.8 million on pre-tax ~~income~~loss from continuing operations of ~~$27.1~~$10.3 million in the prior ~~year.~~year quarter. The effective tax rate was ~~3.1%~~39% for the ~~six~~three months ended ~~June 30, 2016 and 35.7% for~~March 31, 2017, compared to the ~~six months ended June 30, 2015. The~~ effective tax rate of 37% for the ~~current year was impacted by the effects of discrete items, primarily the settlement of prior years with the Internal Revenue Service, and permanent differences that had significant impacts on~~three months ended March 31, 2016. The increase in the effective tax rate was primarily due to year-over-year differences in the ~~relatively low amount~~annual estimated effective tax rate, reflecting differences in both permanent items as well as the mix of ~~pre-tax~~ income ~~from continuing operations.~~(loss) between domestic and foreign jurisdictions.

Discontinued operations. Income from discontinued operations, net of income tax, was ~~$0.5~~$0.1 million for the ~~six~~three months ended ~~June 30,~~March 31, 2016 and relates to the operating results of an acquired Furmanite business that we ~~do not intend to retain.~~sold in December 2016.

Liquidity and Capital Resources

Financing for our operations consists primarily of vendor financing and leasing arrangements, our banking credit facility and cash flows attributable to our operations, which we believe are sufficient to fund our business needs.

In July 2015, we renewed our ~~Credit Facility.~~banking credit facility (the “Credit Facility”). In accordance with the second amendment to the Credit Facility, which was signed in February 2016, the Credit Facility has a borrowing capacity of up to $600 million and consists of a $400 million, five-year revolving loan facility and a $200 million five-year term loan facility. The swing line facility is ~~$35~~$35.0 million. The Credit Facility matures in July 2020, bears interest based on a variable Eurodollar rate option (LIBOR plus 2.25% margin at ~~June 30, 2016)~~March 31, 2017) and has commitment fees on unused borrowing capacity (0.40% at ~~June 30, 2016)~~March 31, 2017). The Credit Facility limits our ability to pay cash dividends without the consent of our bank syndicate. The Credit Facility also contains financial covenants, ~~requiring~~which were amended in May 2017 pursuant to the fifth amendment to the Credit Facility. The covenants, as amended, require the Company to maintain as of the end of each fiscal quarter (i) a maximum ratio of consolidated funded debt to consolidated EBITDA (the “Total Leverage Ratio”, as defined in the Credit Facility agreement) of not more than ~~4.00~~5.00 to 1.00 ~~(until~~as of March 31, 2017 and June 30, ~~2016, at which point~~2017 and thereafter the maximum ratio ~~will decrease~~decreases by ~~0.25~~0.50 to 1.00 ~~every other~~each subsequent quarter until it reaches 3.00 to ~~1.00),~~1.00, (ii) a maximum ratio of senior secured debt to consolidated EBITDA of not more than 4.00 to 1.00 as of March 31, 2017, 4.25 to 1.00 as of June 30, 2017 and decreasing by 0.25 to 1.00 each subsequent quarter until it reaches 3.00 to 1.00 and (iii) an interest coverage ratio of less than 3.00 to 1.00. As of ~~June 30, 2016,~~March 31, 2017, we are in compliance with these covenants. AtNotwithstanding the foregoing, from and after the Permitted Debt Incurrence Date, which is a future date that will have occurred when and if the Company incurs at least $125.0 million of certain unsecured debt, the maximum Total Leverage Ratios would be 5.00 to 1.00 at March 31, 2017, 5.25 to 1.00 at June 30, ~~2016,~~2017 and decreasing by 0.25 to 1.00 each subsequent quarter until reaching 4.00 to 1.00. Our Total Leverage Ratio stood at 4.77 to 1.00 as of March 31, 2017. At March 31, 2017, we had ~~$65.4~~$23.7 million of cash on hand and approximately ~~$29~~$18 million of available borrowing capacity through our Credit Facility. In connection with the renewal of our Credit Facility, as of March 31, 2017, we are amortizing ~~$2.6~~$3.0 million of associated debt issuance costs over the life of the Credit Facility. WeWhile we are ~~planning~~in compliance with our financial covenants as of March 31, 2017, management continues to ~~amend~~execute various initiatives designed to reduce the Company’s obligations outstanding under the Credit Facility and improve operating cash flows. However, there can be no assurance that these actions will be successful or that we will be able to maintain compliance with ~~our bank group. Such amendment is intended to defer, until September 30, 2017,~~ the ~~point at which the Total Leverage Ratio requirement would decrease below 4.00 to 1.00.~~financial covenants as of any future date.

by letters of credit totaling ~~$22.5~~$20.7 million at ~~June 30, 2016~~March 31, 2017 and ~~$13.2~~$21.6 million at December 31, ~~2015.~~2016. 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.

At the end of 2013, we initiated the design and implementation of a new ERP system, which is expected to be ~~fully~~substantially installed by the end of 2017. Amortization of the ERP system development costs began in March 2017 and is computed by the straight-line method. Through ~~June 30, 2016,~~March 31, 2017, we have capitalized ~~$35.2~~$46.1 million associated with the project that includes ~~$0.9~~$1.6 million of capitalized ~~interest.~~interest and we have recognized $0.2 million of amortization expense.

generally permits ~~the~~ the Company to make stock repurchases provided that such repurchases, plus any payments of cash dividends, do not exceed $50.0 million in the aggregate.

In October 2016, we filed universal shelf registration statement on Form S-3 with the SEC (the “Shelf Registration Statement”). The Shelf Registration Statement allows us to issue common stock, preferred stock, debt securities, warrants and units from time to time in one or more offerings. Issuances of securities pursuant to the Shelf Registration Statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.

Restrictions on cash. Included in our cash and cash equivalents at ~~June 30, 2016~~March 31, 2017 is ~~$14.9~~$8.6 million of cash in certain foreign subsidiaries (located primarily in Europe and ~~Canada)~~Asia) where earnings are considered by the Company to be permanently reinvested. In the event that some or all of this cash were to be repatriated, we would be required to accrue and pay additional taxes. While not legally restricted from repatriating this cash, we consider all undistributed earnings of these foreign subsidiaries to be indefinitely reinvested and access to cash to be limited.

Cash flows attributable to our operating activities. For the ~~six~~three months ended ~~June 30,~~March 31, 2017, net cash used in operating activities was $2.6 million. Negative operating cash flow was primarily attributable to the net loss of $9.5 million, non-cash deferred tax benefits of $4.8 million and an increase in working capital of $2.5 million, partially offset by depreciation and amortization of $13.0 million.

For the three months ended March 31, 2016, net cash provided by operating activities was ~~$38.1 million compared with $21.7 million for the six months ended June 30, 2015. The increase is~~$21.5 million. Positive operating cash flow was primarily attributable to ~~higher cash receipts from customers, attributable to the higher revenues,~~a decrease in working capital of $14.7 million, depreciation and ~~lower cash payments for income taxes,~~amortization of $10.1 million and non-cash compensation cost of $2.1 million partially offset by ~~increases in cash paid to employees and suppliers as well as higher cash paid for interest.~~a net loss of $6.4 million.

Cash flows attributable to our investing activities. For the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, net cash used in investing activities was ~~$64.0~~$10.8 million, consisting primarily of ~~$48.4~~$10.7 million for ~~business acquisitions (net of cash acquired) and $21.9 million of~~ capital expenditures. Capital expenditures included ~~$9.3~~$1.2 million in costs related to our ERP project. Capital expenditures can vary depending upon specific customer needs that may arise unexpectedly.

For the ~~six~~three months ended ~~June 30, 2015,~~March 31, 2016, net cash used in investing activities was ~~$29.4~~$43.3 million, consisting primarily of ~~$18.4 million of capital expenditures and $10.5~~$33.1 million for business acquisitions (net of cash acquired). and $11.6 million of capital expenditures. Capital expenditures included ~~$6.8~~$4.9 million in costs related to our ERP project.

Cash flows attributable to our financing activities. For the ~~six~~three months ended ~~June 30,~~March 31, 2017, net cash used in financing activities was $9.9 million consisting primarily of $10.1 million of net debt payments under our Credit Facility.

For the three months ended March 31, 2016, net cash provided by financing activities was ~~$46.2~~$64.0 million consisting primarily of ~~$53.2~~$65.0 million of net borrowings related to our Credit Facility, principally to fund the cash portion of the Furmanite acquisition, ~~as well as the acquisitions of QIS, TiaT~~ and ~~Turbinate and $1.1~~$1.0 million from the issuance of common stock from share-based payment arrangements. These amounts were partially offset by ~~$7.6~~$1.7 million in cash related to the purchase of stock pursuant to our stock repurchase plan and $0.4 million related to debt issuance costs.

For the six months ended June 30, 2015, net cash used in financing activities was $3.0 million consisting primarily of $21.1 million in payments related to the purchase of stock pursuant to our stock repurchase plan offset by $14.1 million of net borrowings related to our bank credit facility, $2.6 million from the issuance of common stock from share-based payment arrangements and $1.5 million attributable to the corporate tax effect from share-based payment arrangements.

Effect of exchange rate changes on cash. For the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ the effect of exchange rate changes on cash was a positive ~~(negative)~~ impact of ~~$0.3~~$0.7 million and ~~$(1.8)~~$1.4 million, respectively. The positive impact in the current year is primarily attributable to favorable fluctuations in U.S. Dollar exchange rates with the Australian Dollar, the Canadian Dollar, the Euro and the Mexican Peso. The impact in the prior year is primarily due to favorable fluctuations in U.S. Dollar exchange rates with the Canadian Dollar, the Euro and the ~~British Pound. The negative impact in the prior year is primarily due to fluctuations in U.S. Dollar exchange rates with the Canadian Dollar and the Euro.~~Australian Dollar.

~~Contractual Obligations~~

Information on our contractual obligations is set forth on page 32 of our Transition Report on Form 10-K for the transition period from June 1, 2015 to December 31, 2015. Subsequent to year end, we assumed additional contractual obligations in connection with our acquisition of Furmanite. Specifically, we borrowed an additional $71.5 million on our Credit Facility, of which the proceeds were primarily used to settle Furmanite’s outstanding debt and certain related liabilities, which were not assumed by Team. We also assumed additional obligations under various non-cancellable operating leases of Furmanite, primarily consisting of facility and auto leases. Future payments under these additional operating leases, which expire at various dates, were estimated at approximately $33 million as of the acquisition date. Further, we assumed obligations related to Furmanite’s defined benefit pension plans. For additional information on the Furmanite acquisition, see Note 2 to the unaudited condensed consolidated financial statements included in Item 1 of this report. Except as described above, there have been no material changes in our contractual obligations during the six months ended June 30, 2016.



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 ~~gains (losses)~~losses for the ~~six~~three months ended ~~June 30,~~March 31, 2017 and March 31, 2016 ~~and June 30, 2015~~ were ~~$0.1~~$0.3 million and ~~$(0.3) million,~~$38 thousand, respectively. The foreign currency transaction losses realized relate primarily to fluctuations in the U.S. Dollar in relation to the ~~Australian Dollar,~~Brazilian Real, British Pound, Canadian Dollar, Euro, Malaysian Ringgit, Mexican Peso and ~~Mexican Peso.~~Singapore Dollar.

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, Canadian Dollar, Euro, Malaysian Ringgit, Mexican Peso and ~~Mexican Peso.~~Singapore Dollar. The impact from these swap contracts was not material for the three months ~~or six months~~ ended ~~June 30, 2016 nor as of June 30,~~March 31, 2017 and March 31, 2016.

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 gains recognized in other comprehensive income were ~~$3.1~~$2.1 million for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017.

Based on the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, foreign currency-based revenues and operating income of approximately ~~$144.2~~$71.3 million and ~~$6.8~~$0.5 million, respectively, a hypothetical 10% adverse change in all applicable foreign currencies would result in a change in revenues and operating income of ~~$14.0~~$7.1 million and ~~$0.7~~$0.1 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.

We hold certain floating-rate obligations. We are exposed to market risk primarily related to potential increases in interest rates related to our debt.



ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2016~~March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION



ITEM 1.	LEGAL PROCEEDINGS

Con Ed Matter—We have, from time to time, provided temporary leak repair services ~~for~~to the steam ~~operations~~system of Consolidated Edison Company of New York (“Con Ed”) located in New York City. In July 2007, a Con Ed steam main located in midtown Manhattan ruptured ~~causing~~resulting in one death and other injuries and property damage. As of ~~June 30, 2016, ninety-two~~March 31, 2017, sixty-eight lawsuits are currently pending against Con Ed, the City of New York and Team in the Supreme ~~Courts~~Court of New York, ~~located in Kings, New York and Bronx County. The lawsuits allege~~alleging that our temporary leak repair services may have contributed to the cause of the ~~rupture.~~rupture, allegations which we dispute. The lawsuits seek generally unspecified compensatory damages for personal injury, property damage and business interruption. Additionally, ~~on March 31, 2008, we received a letter from~~ Con Ed is alleging that our contract with Con Ed requires us to fully indemnify and defend Con Ed for ~~additional~~all claims ~~filed~~asserted against Con Ed including those amounts that Con Ed has paid to settle with certain plaintiffs for undisclosed sums as ~~a result of the rupture.~~well as Con Ed’s own alleged damages to its infrastructure. Con Ed filed an action to join Team and the City of New York as defendants in all lawsuits filed against Con Ed that did not include Team and the City of New York as direct defendants. We are vigorously defending the lawsuits and Con Ed’s claim for indemnification. We are unable to estimate the amount of liability to us, if any, associated with these lawsuits and the claim for indemnification. We filed a motion to dismiss in April 2016. Based upon the current briefing schedule, a ruling on the motion is anticipated in the fall of 2017. We maintain insurance coverage, subject to a deductible limit of $250,000, which we believe should cover these claims. We have not accrued any liability in excess of the deductible limit for the lawsuits. We do not believe the ultimate outcome of these matters will have a material adverse effect on our financial position, results of operations, or cash flows. ~~We anticipate~~A trial on the merits ~~during the first half of~~is scheduled to commence in October 2017.

Patent Infringement Matters—In December 2014, our subsidiary, Quest Integrity Group, LLC, filed three patent infringement lawsuits against three different defendants, two in the U.S. District of Delaware and one in the U.S. District of Western Washington. Quest Integrity alleges that the three defendants infringed Quest Integrity’s patent, entitled “2D and 3D Display System and Method for Furnace Tube Inspection”. This Quest Integrity patent generally teaches a system and method for displaying inspection data collected during the inspection of furnace tubes in petroleum and petro-chemical refineries. The subject patent litigation is specific to the visual display of the collected data and does not relate to Quest Integrity’s underlying advanced inspection technology. In these lawsuits Quest Integrity is seeking temporary and permanent injunctive relief, as well as monetary damages. Defendants have denied they infringe any valid claim of Quest Integrity’s patent, and have asserted declaratory judgment counterclaims that the patent at issue is invalid and/or unenforceable, and not infringed. In June 2015, the U.S. District of Delaware denied our motions for preliminary injunctive relief in the Delaware Cases (that is, our request that the defendants stop using our patented systems and methods during the pendency of the actions). ~~The~~In March 2017, the judge in the Delaware Cases ~~are expected~~granted summary judgment against Quest Integrity, finding the asserted patent invalid; consequentially, one of the Delaware cases is ready for appeal, and the Company reasonably expects the other Delaware Case will be ready for appeal shortly. Quest Integrity intends to ~~proceed to trial on our claims during the first calendar quarter of 2017.~~appeal both Delaware Cases. The Washington Case ~~does not have a trial date scheduled.~~is ongoing.



ITEM 1A.	RISK FACTORS

See page 98 of our ~~Transition~~Annual Report on Form 10-K for the ~~transition~~ period ~~from June 1, 2015 to~~ending December 31, ~~2015~~2016 for a detailed discussion of our risk factors.



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On June 23, 2014, our Board authorized an increase in the stock repurchase plan limit to $50.0 million. We ~~repurchased 274,110~~did not repurchase any shares ~~for a total cost of $7.6 million~~ during the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. At ~~June 30, 2016,~~March 31, 2017, $7.9 million remained available to repurchase shares under the stock repurchase plan. Under the Credit Facility, the Company is limited in its ability to make stock repurchases unless the leverage ratio is below 2.50 to 1.00. Notwithstanding such provision, in the event the ~~leverage ratio~~Total Leverage Ratio is equal to or greater than 2.50 to 1.00 but is ~~at least 0.25~~ less than ~~the maximum permitted leverage ratio,~~or equal to 4.00 to 1.00, the Credit Facility generally permits ~~the~~ the Company to make stock repurchases provided that such repurchases, plus any payments of cash dividends, do not exceed $50.0 million in the aggregate.



ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

NONE



ITEM 4.	MINE SAFETY DISCLOSURES

NOT APPLICABLE



ITEM 5.	OTHER INFORMATION

(a) ~~In connection~~On May 5, 2017, we entered into that certain Fifth Amendment to Credit Agreement with ~~Philip Hawk’s transition from Executive Chairman~~Bank of America, N.A., as administrative agent, and the lenders party thereto (the “Fifth Amendment”). The Fifth Amendment amends certain portions of the ~~Board and an employee to non-employee director and Chairman~~Credit Facility (a copy of the Board, on August 8, 2016, the Board of Directors of the Company approved and the Company entered into a non-disclosure, non-competition and non-solicitation agreement (the “non-compete agreement”) with Mr. Hawk. The terms of the non-compete agreement include the acceleration of the vesting of certain restricted stock units and the suspension of the requirement to be an employee of the Company for vesting under the long term performance stock units. With regard to the accelerated vesting of awards, the Company estimates that it will recognize a pre-tax charge of approximately $0.6 million in the third quarter of 2016. Through the next Annual Meeting of Shareholders, expected to be held in May 2017, Mr. Hawk will receive $167,000 in director fees for service. The non-compete agreementwhich is filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2015), which was amended by that certain First Amendment to Credit Agreement dated December 2, 2015, that certain Second Amendment and Commitment Increase to Credit Agreement dated February 29, 2016, that certain Third Amendment to Credit Agreement dated August 17, 2016 and that certain Fourth Amendment and Limited Waiver to Credit Agreement dated December 19, 2016 (as amended, the “Existing Credit Agreement”). The Fifth Amendment makes certain revisions to the scheduled changes in the maximum Total Leverage Ratio covenant. The table below sets forth the maximum Total Leverage Ratio applicable as of the end of the fiscal quarters specified as amended by the Fifth Amendment:



Fiscal Quarter Ending	Maximum Total Leverage Ratio
March 31, 2017 and June 30, 2017	5.00 to 1.00
September 30, 2017	4.50 to 1.00
December 31, 2017	4.00 to 1.00
March 31, 2018	3.50 to 1.00
June 30, 2018 and each Fiscal Quarter thereafter	3.00 to 1.00

Notwithstanding the foregoing, from and after the Permitted Debt Incurrence Date (as defined in the Credit Facility), which is a future date that will have occurred when and if the Company incurs at least $125.0 million of certain unsecured debt (as defined and described further in the Fifth Amendment), the maximum Total Leverage Ratios would be 5.00 to 1.00 at March 31, 2017, 5.25 to 1.00 at June 30, 2017 and decreasing by 0.25 to 1.00 each subsequent quarter until reaching 4.00 to 1.00. With regard to the Senior Secured Leverage Ratio (as defined in the Credit Facility), the Fifth Amendment increases the maximum permitted ratio to 4.00 to 1.00 as of March 31, 2017, 4.25 to 1.00 as of June 30, 2017 and decreasing by 0.25 to 1.00 each subsequent quarter until reaching 3.00 to 1.00.

Additionally, the Fifth Amendment amends the definition of Applicable Rate by modifying the pricing grids to generally increase the Applicable Rate when the Total Leverage Ratio is greater than or equal to 4.00 to 1.00. Further, an additional pricing grid has been added that specifies certain lower pricing levels to be in effect from and after the Permitted Debt Incurrence Date. In addition, the Fifth Amendment makes a change to the definition of Consolidated EBITDA to increase the maximum amounts of certain add-back items in the calculation through September 30, 2017.

The Fifth Amendment also modifies the prepayment provisions of the Existing Credit Agreement to add a mandatory prepayment requirement of 100% of the net cash proceeds the Company was to receive in the event that we issue certain unsecured debt securities, which are referred to as the Permitted Notes and are further described in the Fifth Amendment. Additionally, a mandatory prepayment provision is added with respect to 100% of the net cash proceeds realized with respect to certain dispositions of property or assets, generally pertaining to those occurring outside the ordinary course of business.

The Fifth Amendment also revises the restrictions with regard to certain investment and intercompany transactions, acquisitions, and the incurrence of capital lease and other obligations until such time as the Company’s Total Leverage Ratio is not less than 4.00 to 1.00 for at least two consecutive fiscal quarters. With regard to the Company’s ability to repurchase its equity or to declare and pay cash dividends when its Total Leverage Ratio as of the most recently ended fiscal quarter is greater than 2.50 to 1.00, the Fifth Amendment revises the requirement for using the aggregate $50 million basket from being at least 0.25 less than the maximum Total Leverage Ratio to a flat 4.00 to 1.00 maximum Total Leverage Ratio on a pro forma basis after giving effect to such transactions.

The Existing Credit Agreement, as amended by the Fifth Amendment, continues to provide us with the option to increase the aggregate principal amount of the revolving loan facility by up to $100,000,000, subject to satisfaction of certain specified conditions. For any such increase, we may ask one or more lenders to increase their existing commitments and/or invite additional eligible lenders to become lenders under the Credit Facility.

The foregoing summary of the Fifth Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Fifth Amendment, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.



ITEM 6.	EXHIBITS



Exhibit Number		Description


10.1		~~Non-Disclosure, Non-Competition and Non-Solicitation~~ Fifth Amendment to Credit Agreement, ~~between Philip J. Hawk,~~dated May 5, 2017, among Team, ~~Industrial Services,~~ Inc., certain Team, Inc. Subsidiary Guarantors, Bank of America, N.A., as Administrative Agent, Swing Line Lender and ~~their affiliated entities, effective as of August 8, 2016.~~L/C Issuer, and other Lenders party thereto.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS—		XBRL Instance Document.

101.SCH—		XBRL Taxonomy Schema Document.

101.CAL—		XBRL Calculation Linkbase Document.

101.DEF—		XBRL Definition Linkbase Document.

101.LAB—		XBRL Label Linkbase Document.

101.PRE—		XBRL Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.



		TEAM, INC. (Registrant)

Date: ~~August 9, 2016~~May 10, 2017		/S/ TED W. OWEN
		Ted W. Owen President and Chief Executive Officer (Principal Executive Officer)

		/S/ GREG L. BOANE
		Greg L. Boane Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

3834



	Common Shares	Treasury Shares		Common Stock		Treasury Stock			Additional Paid-in Capital			Non-controlling Interest		Retained Earnings		Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at January 1, 2016	21,837	(547	)	$	6,552	$	(21,138	)	$	120,126		$	—	$	250,980	$	(18,374	)	$	338,146
Net income	—	—		—		—			—			—		922		—			922
Foreign currency translation adjustment, net of tax	—	—		—		—			—			—		—		1,636			1,636
Foreign currency hedge, net of tax	—	—		—		—			—			—		—		(147		)	(147		)
Non-cash compensation	—	—		—		—			4,704			—		—		—			4,704
Vesting of stock awards	28	—		8		—			(162		)	—		—		—			(154		)
Tax benefit of exercise of stock options	—	—		—		—			86			—		—		—			86
Issuance of common stock in Furmanite acquisition and conversion of Furmanite share-based awards	8,208	—		2,462		—			209,068			—		—		—			211,530
Exercise of stock options	75	—		22		—			1,042			—		—		—			1,064
Purchase of treasury stock	—	(274	)	—		(7,593		)	—			—		—		—			(7,593		)
Other	—	—		—		—			(51		)	—		—		—			(51		)
Balance at June 30, 2016	30,148	(821	)	$	9,044	$	(28,731	)	$	334,813		$	—	$	251,902	$	(16,885	)	$	550,143



	July 7, 2015
	(unaudited)
Cash and cash equivalents	$	3,981
Accounts receivable	21,495
Current deferred tax assets	279
Prepaid expenses	1,049
Plant, property and equipment	15,472
Intangible assets	78,100
Goodwill	148,482
Other assets	138
Total assets acquired	$	268,996

Accounts payable	$	2,892
Other accrued liabilities	7,581
Non-current deferred tax liability	2,982
Total liabilities assumed	13,455
Net assets acquired	$	255,541



	Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Gain Reclassified from Other Comprehensive Income (Loss) to Earnings				Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Gain (Loss) Reclassified from Other Comprehensive Income (Loss) to Earnings
	Three Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,					Six Months Ended June 30,
	(unaudited)					(unaudited)				(unaudited)					(unaudited)
	2016		2015			2016		2015		2016			2015		2016		2015
Net investment hedge	$	310	$	(302	)	$	—	$	—	$	(243	)	$	1,305	$	—	$	—



	Three Months Ended June 30, 2016		Six Months Ended June 30, 2016
	(unaudited)		(unaudited)
Revenues	$	15,906	$	21,674
Operating expenses	14,686		19,961
Gross margin	1,220		1,713
Selling, general and administrative expenses	577		858
Income from discontinued operations, before income tax	643		855
Less: Provision for income taxes	257		343
Income from discontinued operations, net of income tax	$	386	$	512