Mail Stop 4-7
March 22, 2005
Via U.S. Mail and Fax: 281.388.5583
Philip J. Hawk
Chief Executive Officer
Team, Inc.
200 Hermann Drive
Alvin, Texas 77511
RE: Team, Inc.
Form 10-K for the fiscal year ended May 31, 2004
Filed August 25, 2004
Forms 10-Q for the quarters ended August 31, 2004 and
November 30, 2004
Forms 8-K filed August 11, 2004 and January 13, 2005
File No. 1-08694
Dear Mr. Hawk:
We have reviewed your filings and have the following
comments.
Please file an amended Form 10-K in its entirety to revise your
Rule
13a-14(a) certifications within 10 business days of the date of
this
letter. As to all other comments, please confirm that you will
comply with our comments in your future periodic reports. If you
disagree with any of our comments, we will consider your
explanation
as to why our comment is inapplicable or a future revision is
unnecessary. Please be as detailed as necessary in your
explanation.
Where indicated, provide us with supplemental information so we
may
better understand your disclosure. After reviewing this
information,
we may or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended May 31, 2004
Item 1. Business, page 1
1. You state at the beginning of the Business section that you
conduct operations in Singapore, Aruba, Canada and Trinidad. With
a
view to disclosure, tell us the portion of your revenues generated
by
your operations in those countries, and whether you believe those
international operations are material to the company. In this
regard, we note that you do not provide further details about your
international operations in the Business section and then only
mention them briefly in your management`s discussion and analysis
of
operating results for fiscal year 2003 compared to 2002. See Item
101(d) of Regulation S-K.
Item 6: Selected Financial Data, page 9
2. In accordance with Item 301 of Regulation S-K, revise your
Selected Financial Data to describe factors such as accounting
changes, business combinations, or dispositions which may affect
the
comparability of information included in the selected financial
data.
Alternatively, you can cross-reference to a similar discussion of
the
above.
Item 7. Management`s Discussion and Analysis of Financial
Conditions
and Results of Operations, page 10
3. We encourage you to provide a forward-looking, executive-level
overview that provides context for the remainder of the discussion
in
management`s discussion and analysis. Generally, start your
discussion with an overview of your sources of revenue and
significant factors to consider in evaluating your financial
condition. This overview should contain only the most important
elements of the company`s business that management considers on a
day-to-day basis in running the company. In addition, when
considering future revisions to management`s discussion and
analysis,
please consult the Commission`s December 2003 interpretive release
on
management`s discussion and analysis, Release No. 34-48960,
available
on our website at <http://www.sec.gov/rules/interp/33-8350.htm>.
4. We note you discuss the line item for revenues, but do not
discuss
year-to-year changes in line items such as net income, operating
expenses, interest, and taxes. Please discuss changes in these
line
items (as well as changes in other material line items),
quantifying
the changes, disclosing the percentage change, and analyzing
whether
or not management believes these changes are known trends or
uncertainties that are reasonably likely to materially impact the
company`s business going forward.
5. Please discuss known trends or uncertainties that you
reasonably
expect will have a material favorable or unfavorable impact on net
sales, revenues or income from continuing operations, as required
by
Regulation S-K Item 303(a)(3)(ii). For example, we note that you
did
not experience revenue growth from non-destructive testing
services
for the fiscal years ended 2003 and 2004. Is this a known trend
that
you reasonably expect will continue to have a material unfavorable
impact on revenues? As another example, how do you anticipate
your
acquisitions will impact your results? Please revise your
Management`s Discussion and Analysis section to not only discuss
past
operating results, but the possible material impact of known
trends
or uncertainties on future operating results.
6. We note your presentation of "earnings before interest and
taxes,"
or EBIT, on a consolidated basis. Please identify this measure as
a
non-GAAP measure. Refer to Question 21 of our frequently asked
questions on non-GAAP measures which is available on our website
at
http://www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm. In
addition, disclose why management believes that the presentation
of
this non-GAAP financial measure provides useful information to
investors.
7. Disclose if management considers consolidated EBIT to be an
indicator of operating performance or liquidity. If you present
consolidated EBIT as a measure of operating performance, please
refer
to the guidance in Questions 8 and 15 of our frequently asked
questions on non-GAAP measures. In this regard, if you present a
non-GAAP measure that excludes recurring charges, you must provide
detailed disclosures why management believes a performance measure
that excludes these recurring charges is useful. Your discussion
should, at a minimum, disclose the following:
* the manner in which management uses the non-GAAP measure to
conduct
or evaluate the business;
* the economic substance behind management`s decision to use such
a
measure;
* the material limitations associated with the use of the non-GAAP
measure as compared to the use of the most directly comparable
GAAP
measure, net income (loss); and
* the manner in which management compensates for these limitations
when using the non-GAAP financial measure.
8. We note that you also refer to EBIT as "operating profits." We
encourage you to use another term, since "operating profits" may
be
confused with the similarly titled GAAP measure "operating
income."
See Item 10(e)(1)(ii)(E) of Regulation S-K.
Liquidity and Capital Resources, page 12
9. Please provide a more detailed discussion of your short-term
and
long-term sources of funds, and why you believe you have
sufficient
funds and adequate financial sources available to meet your
anticipated liquidity needs. For example, while we recognize that
your liquid working capital for the 2004 fiscal year end equaled
$16.3 million and represented an increase of approximately 54%
over
the prior year, we also note the following:
* $16,160,000 of your long-term debt matures in the fiscal year
ended
2006;
* you purchased Thermal Solutions, Inc.;
* you increased your total outstanding debt by $7.5 million
* your lease commitments for the 2006 year end amount to
$2,029,000;
and
* you just purchased Cooperheat-MQS, Inc., a company that is
operating as debtor-in-possession in a Chapter 11 case.
How do these matters impact your liquidity and capital resources?
10. We note your discussion of "liquid working capital." Please
discuss cash flows from operating activities, cash flows from
investing activities, and cash flows from financial activities.
Critical Accounting Policies, page 13
11. Please explain how each accounting estimate could materially
affect your operations and financial condition. In this respect,
your discussions of revenue recognition, valuation of goodwill and
deferred income taxes do not contain any specific analysis of how
the
estimates used in each of these areas are significant to the
company,
and do not quantify the estimates you are making with regard to
each
critical accounting policy. For example, with regard to your
accounting for deferred income taxes, why does management believe
that it is more likely than not that Team will have sufficient
future
taxable income to realize the benefits of net deferred tax assets?
What would be the impact of recording an increase in your
valuation
allowance, and would that impact materially affect your operations
and financial condition? Please provide this detailed analysis
for
each critical accounting estimate.
Financial Statements, page 15
Consolidated statements of operations, page 17
12. Delete the line item "Earnings before interest and taxes" from
the face of the statement of operations and elsewhere. This line
item is not in accordance with Rule 5-03 of Regulation S-X and
further it represents a non-GAAP measure. You should only include
this line item in the segment footnote if "Earnings before
interest
and taxes" is your segment measure of profit/loss.
Footnote 1 - Summary of Significant Accounting Policies
Goodwill, page 21
13. In describing the company`s accounting for Goodwill, you
indicate
the company adopted the provisions of SFAS No. 142, `Goodwill and
Other Intangible Assets` effective June 1, 2002. SFAS No. 142
requires an impairment test, both on an annual basis and in the
instance of indicators of impairment. This impairment test is to
be
performed at the reporting unit level. Tell us specifically how
you
identified your reporting units, and revise your disclosures to
include this detail in this footnote and in your critical
accounting
policies. Also, tell us what those reporting units are in
accordance
with paragraph 30 of SFAS No. 142 and EITF D-101. Additionally,
tell
us how you have determined the amount of goodwill to be assigned
to
the reporting units.
14. Specifically describe in your goodwill policy the manner in
which
you conduct annual impairment testing. For example, explain that
the
first step in the process is to identify potential goodwill
impairment by comparing the estimated fair value of the reporting
unit to its carrying amount. The second step measures the amount
of
the impairment based on a comparison of the `implied fair value`
of
goodwill with its carrying amount.
15. Provide the disclosures required by paragraph 45(c) of SFAS
142.
Footnote 13 - Acquisitions, page 35
16. Provide to us a condensed balance sheet for TSI, indicating
the
amount assigned to each major asset and liability caption of TSI
at
the acquisition date. Refer to SFAS 141, paragraph 51(e).
Item 9A. Controls and Procedures, page 38
17. Item 307 of Regulation S-K and Securities and Exchange Act
Rule
13a-15(b) require the evaluation of the effectiveness of the
company`s disclosure controls and procedures as of the end of the
period covered by the report. Please confirm to us supplementally
that your chief executive officer and chief financial officer
evaluated the effectiveness of the company`s disclosure controls
and
procedures as of the end of the period covered by the Form 10-K.
18. We note your disclosure that "[t]here have been no significant
changes in the Company`s internal controls or in other factors
that
could significantly affect these controls subsequent to the date
of
their evaluation" (emphasis added). Item 308(c) of Regulation S-K
requires the disclosure of any change in your internal control
over
financial reporting identified in connection with an evaluation
thereof that occurred during your last fiscal quarter (or your
fourth
fiscal quarter in the case of an annual report) that has
materially
affected, or is reasonably likely to materially affect, your
internal
control over financial reporting. Please confirm to us
supplementally that there was no change in your internal control
over
financial reporting that occurred during your fourth fiscal
quarter
in 2004 that has materially affected, or is reasonably likely to
materially affect, your internal control over financial reporting.
In addition, please provide similar confirmations with respect to
your Forms 10-Q for the quarters ended August 31, 2004 and
November
30, 2004. Please comply with Item 308(c) of Regulation S-K in
future
filings.
Exhibits 31.1 and 31.2
19. Your Rule 13a-14(a) certifications do not match the exact
language set forth in Item 601(b)(31) of Regulation S-K. Please
provide revised certifications so that the certifications conform
exactly to the form of Rule 13a-14(a) certification set forth in
Item
601(b)(31) of Regulation S-K. Please note that, when filing your
amendment to revise your Rule 13a-14(a) certifications, you must
re-
file your Form 10-K in its entirety.
Form 10-Q for the quarterly period ended November 30, 2004
Footnote 2 - Acquisitions, page 5
20. Provide to us a condensed balance sheet for Cooperheat,
indicating the amount assigned to each major asset and liability
caption of Cooperheat at the acquisition date. Refer to SFAS 141,
paragraph 51 (e).
Form 8-K filed August 12, 2004
21. We note that you didn`t file the financial information
required
by Item 9.01(a)(4) and (b)(2) of Form 8-K in the prescribed time
period. We advise you that this may impact your eligibility to
use
particular forms, such as Form S-3.
Form 8-K filed January 13, 2005
22. Please comply with the applicable comments on EBIT in your
future
Forms 8-K furnished under Item 2.02.
* * * *
Please amend your Form 10-K and respond to these comments
within 10 business days or tell us when you will provide us with a
response. You may wish to provide us with marked copies of the
amendment to expedite our review. Please furnish a cover letter
with
your amendment that keys your responses to our comments and
provides
any requested supplemental information, and file that cover letter
on
EDGAR. Detailed cover letters greatly facilitate our review.
Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact David Walz, Staff Accountant, at (202) 824-
5686, or Ivette Leon, Assistant Chief Accountant, at (202) 942-
1982
if you have questions regarding comments on the financial
statements
and related matters. Please contact Derek Swanson, Staff
Attorney,
at (202) 824-5526, Kathleen Krebs, Special Counsel, at (202) 942-
1990, or me at (202) 942-1990 with any other questions.
Sincerely,
Larry Spirgel
Assistant Director
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Team, Inc.
March 22, 2005
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