SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-5083
XANSER CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 74-1191271
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(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
2435 North Central Expressway
Richardson, Texas 75080
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (972) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, Without Par Value New York Stock Exchange
8 3/4% Convertible Subordinated New York Stock Exchange
Debentures due 2008
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Subsection 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Aggregate market value of the voting stock held by non-affiliates of the
Registrant: $76,469,408. This figure is estimated as of March 22, 2002, at which
date the closing price of the Registrant's Common Stock on the New York Stock
Exchange was $2.50 per share, and assumes that only the Registrant's officers
and directors were affiliates of the Registrant.
Number of shares of Common Stock, without par value, of the Registrant
outstanding at March 22, 2002: 33,008,604.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K
is filed herewith.
PART I
Item 1. Business
GENERAL
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On August 7, 2001, the stockholders of Kaneb Services, Inc. approved an
amendment to its certificate of incorporation to change the name of the Company
from Kaneb Services, Inc. to "Xanser Corporation" ("Xanser" or the "Company").
Xanser conducts its principal businesses in two industry segments, specialized
technical services and information technology services. The technical services
and information technology services segments operate through subsidiaries of
Furmanite Worldwide, Inc. and Xtria LLC, respectively. Furmanite Worldwide,
Inc., and its domestic and international subsidiaries and affiliates
(collectively, "Furmanite"), provide specialized technical services, including
leak sealing under pressure, on-site machining, valve testing and repair and
other engineering products and services, primarily to electric power generating
plants, petroleum refineries and other process industries in the United Kingdom,
Continental Europe, North America, Latin America and Asia-Pacific. For
additional information see "Technical Services." Xtria LLC ("Xtria") is engaged
in the information technology services industry and offers products and services
that, among other functions, provide consulting services and computer hardware
to federal and state governmental agencies and private sector customers, provide
consulting services to hospitals and hospital networks implementing telemedicine
systems and enable financial institutions to monitor the insurance coverage of
their loan collateral. For additional information see "Information Technology
Services."
On November 27, 2000, the Board of Directors of the Company authorized the
distribution of its pipeline, terminaling and product marketing businesses (the
"Distribution") to its stockholders in the form of a new limited liability
company, Kaneb Services LLC ("KSL"). KSL now holds the 2% general partner
interest and a 25% limited partner interest in Kaneb Pipe Line Partners, L.P.
("KPP") and the Company's previously wholly-owned petroleum marketing
subsidiary. On June 29, 2001, the Distribution was completed, with each
shareholder of the Company receiving one common share of KSL for each three
shares of the Company's common stock held on June 20, 2001, the record date for
the Distribution, resulting in the distribution of 10.85 million KSL common
shares. As a result, the accompanying consolidated financial statements reflect
the results of operations of KSL prior to the Distribution as "Discontinued
operations - businesses distributed to common shareholders".
Xanser was incorporated in Delaware on January 23, 1953. The Company's
principal operating office is located at 2435 North Central Expressway,
Richardson, Texas 75080 and its telephone number is (972) 699-4000.
OPERATING SEGMENTS
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Financial information regarding the Company's operating segments and
foreign operations is presented under the caption "Business Segment Data" in
Note 9 to the Company's consolidated financial statements. Such information is
hereby incorporated by reference into this Item 1.
TECHNICAL SERVICES
- ------------------
The Furmanite group of companies offers specialized technical services to
an international base of clients. Founded in Virginia Beach, Virginia in the
1920s as a manufacturer of leak sealing kits, Furmanite Worldwide, Inc. has
evolved into an international service company that provides technical and
technology solutions. In the 1960s, Furmanite expanded within the United
Kingdom, primarily through its leak sealing products and services, and, during
the 1970's and 1980's, grew through geographic expansion and the addition of new
techniques, processes and services to become one of the largest leak sealing and
on-site machining companies in the world. The Company acquired Furmanite in 1991
to diversify the Company's operations and pursue international growth
opportunities. For the year ended December 31, 2001, Furmanite's revenues and
operating income were approximately $96.3 million and $5.6 million,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Products and Services
Furmanite provides on-line repairs of leaks ("leak sealing") in valves,
pipes and other components of piping systems and related equipment typically
used in flow-process industries. See "Customers and Markets." Other services
provided by Furmanite include on-site machining, bolting and valve testing and
repair on such systems and equipment. These services tend to complement
Furmanite's leak sealing service, since these "turnaround services" are usually
performed while a plant or piping system is off-line. In addition, Furmanite
provides hot tapping, fugitive emissions monitoring, passive fire protection,
concrete repair and heat exchanger repair. Furmanite also performs diagnostic
services on valves and motors by, among other methods, utilizing its patented
Trevitest(R) system and employing proprietary diagnostic equipment under license
from Framatome Technologies. In performing these services, Furmanite technicians
generally work at the customer's location, frequently responding on an emergency
basis. Over its history, Furmanite has established a reputation for delivering
quality service and helping its customers avoid or delay costly plant or
equipment shutdowns. For each of the years ended December 31, 2001, 2000, and
1999, under pressure services represented approximately 42%, 42% and 40%,
respectively, of Furmanite's revenues, while turnaround services accounted for
approximately 50%, 48% and 45%, respectively, and product sales and other
industrial services represented approximately 8%, 10% and 15%, respectively, of
Furmanite's revenues for each of such years.
Furmanite's on-line, leak sealing under pressure services are performed on
a variety of flow-process industry machinery, often in difficult situations.
Many of Furmanite's techniques and materials are proprietary and/or patented
and, the Company believes, provide Furmanite with a competitive advantage over
other organizations that provide similar services. Furmanite holds approximately
200 patents and trademarks for its techniques, products and materials. These
patents, which are registered in jurisdictions around the world, expire on dates
ranging from April 2003 to December 2012. Furmanite's skilled technicians work
with equipment in a manner designed to enhance safety and efficiency in
temperature environments ranging from cryogenic to 1,400 degrees Fahrenheit and
pressure environments ranging from vacuum to 5,000 pounds per square inch. In
many circumstances, Furmanite personnel are called upon to custom-design tools,
equipment or other materials to effect the necessary repairs. These efforts are
supported by an internal quality control group that works with the on-site
technicians in crafting these materials.
Customers and Markets
Furmanite's customer base includes petroleum refineries, chemical plants,
offshore energy production platforms, steel mills, nuclear power stations,
conventional power stations, pulp and paper mills, food and beverage processing
plants and other flow-process facilities in more than 25 countries. Over 80% of
Furmanite's revenues are derived from fossil and nuclear fuel power generation
companies, petroleum refiners and chemical producers, while other significant
markets include offshore oil producers and steel manufacturers. As the worldwide
industrial infrastructure continues to age, additional repair and maintenance
expenditures are expected to be required for the specialized services provided
by Furmanite and similarly situated organizations. Other factors that may
influence the markets served by Furmanite include regulations governing
construction of industrial plants, and safety and environmental compliance
requirements. No single customer accounted for more than 10% of this segment's
consolidated revenue during any of the past three fiscal years.
Furmanite believes that it is the most recognized brand in its industry.
With its 65-year history, Furmanite's customer relationships are long-term and
worldwide. Furmanite serves its customers from its Houston, Texas worldwide
headquarters and maintains a substantial presence in the United Kingdom,
Continental Europe and Asia-Pacific. Furmanite currently operates North American
offices in the United States in Baton Rouge, Beaumont, Charlotte, Chicago,
Houston, Merrillville and Salt Lake City. Furmanite's worldwide operations are
further supported by offices currently located in Australia (6 locations),
Belgium, France, Germany, Hong Kong, Malaysia, the Netherlands, New Zealand,
Norway, Singapore and the United Kingdom (6 locations) and by licensee, agency
and/or minority ownership interest arrangements in Argentina, Brazil, Chile,
Croatia, Cyprus, Czech Republic, Egypt, Finland, Hungary, India, Indonesia,
Italy, Japan, Kuwait, Macedonia, Poland, Portugal, Puerto Rico, Saudi Arabia,
Slovak Republic, Korea, Sweden, Thailand, Trinidad, Ukraine, the United Arab
Emirates and Venezuela. Sales by major geographic region for 2001 were 37% for
the United States, 50% for Europe and 13% for Asia-Pacific. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 9 to the Company's consolidated financial statements.
Furmanite's leak sealing under pressure and other specialty field services
are marketed primarily through direct sales calls on customers by salesmen and
technicians based at Furmanite's various operating locations, which are situated
to facilitate timely customer response, 24 hours a day, seven days a week.
Customers are usually billed on a time and materials basis for services
typically performed pursuant to either job quotation sheets or purchase orders
issued under written customer agreements. Customer agreements are generally
short-term in duration and specify the range of and rates for the services to be
performed. Furmanite typically provides various limited warranties, depending
upon the services furnished, and has had no material warranty claims during the
three years ended December 31, 2001. Furmanite competes on the basis of service,
product performance and price, generally on a localized basis with smaller
companies and the in-house maintenance departments of its customers or potential
customers. In addition to staff reductions and the trend toward outsourcing,
Furmanite believes it currently has an advantage over in-house maintenance
departments because of the ability of its multi-disciplined technicians to use
Furmanite's proprietary and patented techniques to perform quality repairs on a
timely basis while customer equipment remains in service.
Safety, Environmental and Other Regulatory Matters
Many aspects of Furmanite's operations are subject to governmental
regulation. National, state and local authorities of the U.S. and various
foreign countries have each adopted safety, environmental and other regulations
relating to the use of certain methods, practices and materials in connection
with the performance of Furmanite's services and which otherwise affect its
operations. Further, because of its international operations, Furmanite is
subject to a number of political and economic risks, including taxation
policies, labor practices, currency exchange rate fluctuations, foreign exchange
restrictions, local political conditions, import and export limitations and
expropriation of equipment. Except in certain developing countries, where
payment in a specified currency is required by contract, Furmanite's services
are paid, and its operations are typically funded, in the currency of the
particular country in which its business activities are conducted. Furmanite's
operating results were impacted by foreign currency devaluations during the year
ended December 31, 2001. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Leak sealing under pressure and other Furmanite services are often
performed in emergency situations under circumstances involving exposure to high
temperatures and pressures, potential contact with caustic or toxic materials,
fire and explosion hazards and environmental contamination, any of which can
cause serious personal injury or property damage. Furmanite manages its
operating risks by providing its technicians with extensive on-going classroom
and field training and supervision, maintaining a technical support system
through its staff of specialists, establishing and enforcing strict safety and
competency requirements, standardizing procedures and evaluating new materials
and techniques for use in connection with its lines of service. Furmanite also
maintains insurance coverage for certain risks, although there is no assurance
that insurance coverage will continue to be available at rates considered
reasonable or that the insurance will be adequate to protect the Company against
liability and loss of revenues resulting from the consequences of a significant
accident.
INFORMATION TECHNOLOGY SERVICES
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Xtria provides a suite of information technology services and related
products to the U.S. Government and commercial sectors. The segment's primary
business is information technology services - consulting, design, development,
integration and maintenance - for database management, web-based, wireless,
Health Insurance Portability and Accountability ("HIPAA") compliance and
telemedicine applications. Xtria also provides these services in voice and data
networks, and network security systems. For the year ended December 31, 2001 the
information services segment's revenues and operating income were $48.4 million
and $3.7 million, respectively. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations". A substantial portion of the
revenues of this business segment is attributable to contracts with agencies of
the U.S. Government. Xtria manages its businesses from its headquarters in
Richardson, Texas, and maintains offices in Bryan, Texas, Chantilly, Manassas
and McLean, Virginia, Burlington, Vermont and Frederick, Maryland.
Products and Services
Database Management Services
Xtria provides comprehensive database management services to the financial
industry and to the U.S. Government sector. These services include consulting,
design, development and integration of database management applications, as well
as database monitoring and customized reporting.
Xtria developed and licenses a database management application for
financial institutions, primarily community banks. The application supports
internal accounting; tracking, monitoring, analyzing and managing loans and
deposits; and other banking functions. Xtria also developed and licenses a
professional lending system to loan companies, and an automated contingency
planning system for disaster recovery to commercial banks. These applications
are licensed on a per-user basis annually. Xtria has expanded its market for
similar data management applications and services to the equipment leasing
industry.
In addition to its software applications, Xtria provides a full suite of
services to the financial industry, including consultation on database
requirements, development of applications and systems, as well as ongoing
maintenance, reporting and support. Xtria charges monthly fees to its customers
for these services. As part of its services offering, Xtria monitors, on behalf
of its customers, the status of insurance coverage on automobiles pledged as
loan collateral and flood insurance on homes. It coordinates communications
among financial institutions, insurance companies and borrowers regarding the
status of insurance coverage protecting the financial institution's loan
collateral. Xtria uses its own software to cross-collate databases and generate
reports for lenders and insurance companies, charging monthly fees to its
customers. Some customers also pay fees to Xtria in instances where Xtria's
services result in the issuance of an insurance policy to replace lapsed
coverage. Xtria believes that the market for these services is fragmented among
a number of small competitors, and that competition in this market is primarily
based upon the quality of the service provided.
In the U.S. Government sector, Xtria provides database management
applications and services for the Head Start program of the Department of Health
and Human Services. Xtria contracts for these services on renewable annual
contracts, with pricing based principally on its General Services Administration
Schedule ("GSA Schedule").
Web-related Services
Xtria provides a full suite of web-related services to its customers,
including web site design, development and maintenance, e-commerce applications,
network engineering, and other web-enabled application development. Web-enabled
applications developed by Xtria include field research and program analysis
tools, shared statistical analysis tools, and logistics coordination tools.
Xtria's web-related services are provided through renewable annual
contracts to the U.S. Department of Health and Human Services, the U.S.
Department of Commerce and a number of commercial accounts. Xtria competes on
the basis of its expertise and its knowledge of customers' needs.
The Company believes that the capabilities Xtria offers in web-related
services with large database components offer opportunities for further
expanding its market. For example, during 2001 Xtria provided these services to
the state of California's Department of Education to improve the means of
delivering information to the U.S. Department of Health and Human Services. This
contract resulted from Xtria's reputation for performance with the Department of
Health and Human Services, as well as the significant previous efficiencies
gained by states' use of the same web-enabled platform as the Federal agency to
which data is delivered.
Telemedicine Services
Xtria provides full customer life cycle support (consulting, design,
implementation training and maintenance) to medical facilities of digital
imaging systems, known as Picture Archival and Communication Systems ("PACS").
PACS are used in connection with digitally recorded images, such as magnetic
resonance imaging, computer tomography scans, ultrasounds and digital x-rays,
among others. Xtria provides technical support at every stage of the
implementation of a PACS by a medical facility, including planning and
feasibility studies, workflow design, specification development, procurement
assistance, on-site technical supervision of PACS installers, quality assurance
and acceptance testing. Xtria also assists the medical facilities with warranty
and service issues that may arise with the manufacturer of the PACS components.
Xtria personnel who perform the consulting services are highly trained
electrical, biomedical, and clinical engineers.
Xtria has also developed a wireless Local Area Network device, the
LAN2GoTM, which was developed initially for a military application but has been
successfully deployed in the first wireless clinical teleradiology solution, for
the radiology department of Texas Tech University in El Paso, Texas. This system
delivers wireless connectivity between a hospital emergency department and
radiology workstations located elsewhere in the hospital and off-site at the
academic facility. The solution provides high-speed, highly secure encryption
and wireless transmission of diagnostic quality images, allowing radiologists in
separate facilities to read images and provide diagnoses. Xtria believes this
solution has market potential beyond the medical industry that could extend to
education, training and other government security applications.
Xtria was selected in 2001, by the Lahey Clinic Medical Center of
Burlington, Massachusetts for the design, implementation, integration and
support of a complete digital imaging and telemedicine solution, including a
PACS. Xtria Healthcare Services division has integrated PACS with Lahey Clinic's
Radiology Information System (RIS) and Hospital Information System (HIS) to
present digital radiology images, administrative and patient information
directly to staff workstations. This endeavor will dramatically improve patient
care and efficiency, as well as increase the clinical and financial contribution
of the radiology department to the Lahey Clinic.
Xtria's deployment of the first phase of this PACS system has allowed Lahey
Clinic physicians to accelerate patient care. The integrated communication
network has enabled physicians to share studies and results electronically while
the digital imaging technologies is projected to increase the throughput of
imaging studies by 200 to 300 percent. The system also allows information to be
shared between the Lahey Clinic facility and international locations through
secure web-based and dedicated wide area connections as the project progresses.
Beyond the benefits to patients and medical staff, the system has greatly
reduced the costs associated with traditional, film-based radiology imaging,
which requires processing, storing and distributing images in film libraries.
Xtria also performs work for PACS providers, such as General Electric and
Phillips, in connection with the sale and installation of PACS, and for end
users of the systems. Xtria's principal customer in the PACS consulting field
has been the Department of Defense, with whom Xtria contracted to provide
consulting services for eleven hospitals, with Brooke Army Medical Center, San
Antonio, Texas, as the hub. Xtria also provides these services to other military
hospitals and to major teaching hospitals.
Voice and Data Network Services
Xtria provides an end-to-end network services solution for voice and data,
both wireline and wireless, that includes consulting services, specially
configured computers, system security and related networking equipment. Its
principal network services customers are commercial customers and agencies of
the U.S. Department of Justice, which it serves through teaming agreements on a
contract basis. The contract is renewable annually by the Department of Justice.
Under this contract, Xtria also provides installation and replacement services,
training, software and hardware security systems to the agencies. Hardware
components provided under this contract are fully compatible and
interchangeable, permitting routine upgrades and swaps.
ENVIRONMENTAL CONTROLS
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Many of the Company's operations are subject to national, state and local
laws and regulations relating to protection of the environment. Although the
Company believes that its operations are in general compliance with applicable
environmental regulation, risks of additional costs and liabilities are inherent
in its operations, and there can be no assurance that significant costs and
liabilities will not be incurred by the Company. Moreover, it is possible that
other developments, such as increasingly stringent environmental laws,
regulations, enforcement policies thereunder, and claims for damages to property
or persons resulting from the operations of the Company could result in
substantial costs and liabilities. See "Technical Services - Safety,
Environmental and Other Regulatory Matters."
EMPLOYEES
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At December 31, 2001, the continuing operations of the Company and its
subsidiaries employed 1,201 persons. The Furmanite group of companies employed a
total of 924 persons, and 257 persons were employed by the Xtria group of
companies. As of December 31, 2001, approximately 397 of the persons employed by
Furmanite were subject to representation by unions or other similar associations
for collective bargaining or other similar purposes; however, there were no
significant collective bargaining or other similar contracts covering the
Furmanite employees in effect at that date.
Item 2. Properties
The properties owned or utilized by the Company and its subsidiaries are
generally described in Item 1 of this Report. Additional information concerning
the obligations of the Company and its subsidiaries for lease and rental
commitments is presented under the caption "Commitments and Contingencies" in
Note 8 to the Company's consolidated financial statements. Such descriptions and
information are hereby incorporated by reference into this Item 2.
The Company's corporate headquarters is located in an office building in
Richardson, Texas, pursuant to a lease agreement that expires in 2007. The
facilities used in the operations of the Company's subsidiaries are generally
held under lease agreements having various expiration dates, rental rates and
other terms, except for two Furmanite properties located in the United Kingdom,
which are owned in fee.
Item 3. Legal Proceedings
The Company was the Plaintiff in a legal proceeding involving malpractice
issues with a professional service provider previously used by the Company. This
matter was settled in December 2001 with a payment to the Company which, net of
expenses, totaled $6.0 million and is included in other income (expense) in the
accompanying 2001 consolidated statement of income.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not hold a meeting of stockholders or otherwise submit any
matter to a vote of stockholders in the fourth quarter of 2001.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Shares of the Company Common Stock are listed and traded principally on the
New York Stock Exchange ("NYSE"), under the symbol XNR. Prior to the
Distribution of KSL on June 29, 2001, the Company's Common Stock was traded on
the NYSE under the symbol KAB. At March 22, 2002, there were approximately 4,000
holders of Common Stock of record. The following table sets forth, for the
fiscal periods indicated, the quoted high and low sales prices of the shares on
the New York Stock Exchange.
Quoted Stock Prices Quoted Stock Prices
for KAB for XNR
----------------------- -----------------------
Calendar Year High Low High Low
----- ----- ----- -----
2000:
First Quarter $5.88 $4.31 NA NA
Second Quarter 6.75 4.00 NA NA
Third Quarter 4.88 4.00 NA NA
Fourth Quarter 6.00 4.44 NA NA
2001:
First Quarter 6.50 5.69 NA NA
Second Quarter 7.75 5.56 NA NA
Third Quarter NA NA $3.13 $1.88
Fourth Quarter NA NA 2.25 1.81
2002:
First Quarter NA NA 2.60 1.95
(through March 22, 2002)
NA - Not Applicable
The Company currently intends to retain future earnings for the development
of its business and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. The Company's dividend policy is reviewed
periodically and determined by its Board of Directors on the basis of various
factors, including, but not limited to, its results of operations, financial
condition, capital requirements and investment opportunities. Additionally, the
credit facilities for the working capital of Furmanite contain restrictions on
the respective subsidiary's ability to pay dividends or distributions to the
Company, if an event of default exists.
Item 6. Summary Historical Financial Data
The following selected financial data (in thousands, except per share
amounts) is derived from the Company's consolidated financial statements and
should be read in conjunction with the consolidated financial statements and
related notes thereto included elsewhere in this report. As a result of the June
2001 Distribution of KSL (See Note 1 to the Consolidated Financial Statements),
the Company's pipeline, terminaling and product marketing businesses have been
reclassified as "Discontinued operations - businesses distributed to common
shareholders" for all periods presented. The Company has not declared a dividend
on its Common Stock for any of the periods presented.
Year Ended December 31,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- --------- ---------- ---------- ----------
Income Statement Data:
Revenues............................ $ 144,704 $ 127,641 $ 135,433 $ 135,825 $ 115,780
========== ========= ========== ========== ==========
Operating income (loss)............. $ 5,429 4,102 $ (4,566) $ 3,335 $ 3,361
========== ========= ========== ========== ==========
Income (loss) from continuing
operations before income taxes... $ 9,349 $ 889 $ (8,057) $ (791) $ (1,534)
Income tax benefit (expense)........ 13,039 5,894 38,507 (473) (1,191)
---------- --------- ---------- ---------- ----------
Income (loss) from continuing
operations....................... 22,388 6,783 30,450 (1,264) (2,725)
Income from discontinued operations -
businesses distributed to
common shareholders.............. 3,337 10,386 28,459 14,840 13,368
---------- --------- ---------- ---------- ----------
Net income.......................... $ 25,725 $ 17,169 $ 58,909 $ 13,576 $ 10,643
========== ========= ========== ========== ==========
Per Share Data:
Earnings (loss) per common share:
Basic:
Continuing operations.......... $ .68 $ .20 $ .95 $ (.06) $ (.10)
Discontinued operations........ .10 .33 .91 .47 .41
---------- --------- ---------- ---------- ----------
Total....................... $ .78 $ .53 $ 1.86 $ .41 $ .31
========== ========= ========== ========== ==========
Diluted:
Continuing operations.......... $ .64 $ .19 $ .92 $ (.06) $ (.10)
Discontinued operations........ .10 .31 .87 .47 .41
---------- --------- ---------- ---------- ----------
Total....................... $ .74 $ .50 $ 1.79 $ .41 $ .31
========== ========= ========== ========== ==========
Balance Sheet Data:
Cash and cash equivalents........... $ 29,545 $ 20,517 $ 14,516 $ 7,264 $ 15,626
Working capital..................... 71,789 81,185 42,191 18,709 24,796
Total assets........................ 186,219 226,643 219,540 158,796 151,866
Long-term debt...................... 37,801 39,593 44,223 43,958 48,934
Stockholders' equity................ 115,506 166,039 144,803 87,445 78,447
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the consolidated
financial statements of the Company and notes thereto included elsewhere in this
report.
GENERAL
- -------
On November 27, 2000, the Board of Directors of the Company authorized the
distribution of its pipeline, terminaling and product marketing businesses (the
"Distribution") to its stockholders in the form of a new limited liability
company, Kaneb Services LLC ("KSL"). KSL now holds the 2% general partner
interest and a 25% limited partner interest in Kaneb Pipe Line Partners, L.P.
("KPP") and the Company's previously wholly-owned petroleum marketing
subsidiary. On June 29, 2001, the Distribution was completed, with each
shareholder of the Company receiving one common share of KSL for each three
shares of the Company's common stock held on June 20, 2001, the record date for
the Distribution, resulting in the distribution of 10.85 million KSL common
shares. As a result of the Distribution, the Company's pipeline, terminaling and
product marketing businesses have been reclassified as "Discontinued operations
- - businesses distributed to common shareholders" for all periods presented.
The Company's continuing operations are conducted through two business
segments, specialized technical services and information technology services.
CONSOLIDATED RESULTS OF OPERATIONS
- ----------------------------------
Year Ended December 31,
--------------------------------------------
2001 2000 1999
----------- ----------- -----------
(in thousands)
Revenues.................................................. $ 144,704 $ 127,641 $ 135,433
=========== =========== ==========
Operating income.......................................... $ 5,429 $ 4,102 $ (4,566)
=========== =========== ==========
Income from continuing operations before income taxes..... $ 9,349 $ 889 $ (8,057)
=========== =========== ==========
Net income:
Continuing operations.................................. $ 22,388 $ 6,783 $ 30,450
Discontinued operations - businesses
distributed to common shareholders................... 3,337 10,386 28,459
----------- ----------- ----------
Net income ........................................ $ 25,725 $ 17,169 $ 58,909
=========== =========== ==========
Capital expenditures from continuing operations,
excluding acquisitions................................. $ 4,625 $ 2,690 $ 2,719
=========== =========== ==========
For the year ended December 31, 2001, revenues increased by $17.1 million,
or 13%, when compared to 2000, due to a $12.9 million increase in revenues from
the information technology services business and a $4.2 million increase in
revenues from the technical services business. Operating income increased by
$1.3 million, or 32%, in 2001, compared to 2000, due to a $2.5 million decrease
in general and administrative expenses due to lower costs in the second half of
the year as a result of the Distribution and a non-cash charge of $1.4 million
in 2000 for increases in the estimated redemption value of a preferred stock
series, partially offset by a $0.7 million decrease in technical services
operating income and a $0.5 million decrease in information technology services
operating income.
Income from continuing operations before income taxes increased by $8.5
million in 2001, compared to 2000, due to the recognition of $6.0 million of
other income, net of expenses, from the resolution of a legal proceeding in 2001
and the $2.5 million decrease in general and administrative expenses. Income
from continuing operations was $22.4 million for the year ended December 31,
2001 and includes $18.1 million in income tax benefits resulting from the
recapitalization of a foreign subsidiary.
For the year ended December 31, 2000, revenues decreased $7.8 million, or
6%, when compared to 1999, due to a $5.9 million decrease in revenues from the
technical services business and a $1.9 million decrease in revenues from the
information technology services business. Operating income increased by $8.7
million in 2000, compared to 1999, due to an increase in technical services
operating income of $6.6 million and a decrease in general and administrative
expenses of $3.5 million due to lower non-cash expenses resulting from the
estimated redemption value of a preferred stock series, partially offset by a
$1.4 million decrease in information technology operating income.
Income from continuing operations before income taxes increased $8.9
million for the year ended December 31, 2000, compared to 1999, due to the
increase in operating income. Income from continuing operations was $6.8 million
for the year ended December 31, 2000 and includes $6.3 million in expected
benefits from prior years' tax losses (change in valuation allowance) that are
available to offset future taxable income (See "Income Taxes"). Income from
discontinued operations - businesses distributed to common shareholders
decreased by $18.1 million for the year ended December 31, 2000, compared to
1999, which includes a gain on sale of units by KPP of $10.4 million, net of
deferred income taxes.
TECHNICAL SERVICES
- ------------------
The Company's technical services business is conducted through its
Furmanite group of subsidiaries. Furmanite provides specialized services,
including leak sealing under pressure, on-site machining, safety and relief
valve testing and repair, passive fire protection and fugitive emissions
inspections to the process, power and heavy industries worldwide.
Year Ended December 31,
----------------------------------------
2001 2000 1999
--------- --------- ---------
(in thousands)
Revenues:
United States........................................ $ 35,788 $ 31,743 $ 29,787
Europe............................................... 48,554 50,446 57,258
Asia-Pacific......................................... 11,979 9,953 11,030
--------- --------- --------
$ 96,321 $ 92,142 $ 98,075
========= ========= ========
Operating income:
United States........................................ $ 1,306 $ 1,624 $ 972
Europe............................................... 7,011 6,997 3,292
Asia-Pacific......................................... 879 862 557
Headquarters......................................... (3,615) (3,163) (3,225)
--------- --------- --------
5,581 6,320 1,596
Severance and other costs............................ - - (1,851)
--------- --------- --------
$ 5,581 $ 6,320 $ (255)
========= ========= ========
Capital expenditures, excluding acquisitions............ $ 3,331 $ 2,160 $ 2,328
========= ========= ========
For the year ended December 31, 2001, technical services revenues increased
by $4.2 million, or 5%, compared to 2000. In the United States, revenues
increased by $4.1 million, or 13%, compared to 2000, due to increases in
turnaround and leak sealing services. In Europe, revenues decreased by $1.9
million, or 4%, compared to 2000, due to foreign currency exchange differences
and lower levels of fire protection services in the United Kingdom. In Asia
Pacific, revenues increased by $2.0 million, or 20%, compared to 2000, due to
increases in turnaround services in Australia and Singapore and increases in
product sales in Australia. Overall, 2001 operating income decreased by $0.7
million in 2001, compared to 2000, due to slightly lower operating margins in
the United States and increases in general and administrative expenses due to
planned investments in management, marketing and product development costs.
For the year ended December 31, 2000, Furmanite's revenues decreased by
$5.9 million, or 6%, when compared to 1999, primarily due to devaluations in
foreign currencies and an overall weak market for technical services worldwide.
In the United States, revenues increased by $2.0 million, or 7%, due to an
increased level of turnaround services. In Europe, revenues decreased by $6.8
million, or 12%, due primarily to the devaluations of foreign currencies and
decreases in demand for turnaround and other technical services in Continental
Europe, which more than offset increased business levels in the United Kingdom.
The 2000 decrease of $1.1 million, or 10%, in Asia-Pacific revenues is primarily
due to devaluations in foreign currencies and, to a lesser extent, decreases in
turnaround and other services provided. Overall, Furmanite's operating income,
before severance and other costs, increased by $4.7 million, or 296%, in 2000,
compared to 1999, due to improved general market conditions in the United States
and overall operation efficiencies realized as a result of streamlining the
segment's workforce in 1999 to match the market conditions in each of the
operating regions. These improvements were partially offset by devaluations in
foreign currencies.
INFORMATION TECHNOLOGY SERVICES
- -------------------------------
The information technology services group provides knowledge management
services to the commercial (financial and insurance ), government (federal,
state, county and local) and healthcare sectors. The group focuses on evaluating
customer's people (employees and customers), processes and technology to develop
solutions that helps them achieve better outcomes and results. Services are
tailored to the specific needs of the customers and include consulting, design,
development, integration of third party hardware, maintenance, training and
customer service of custom technology solutions.
Year Ended December 31,
----------------------------------------
2001 2000 1999
--------- --------- ---------
(in thousands)
Revenues................................................ $ 48,383 $ 35,499 $37,358
========= ========= =======
Operating income........................................ $ 3,651 $ 4,134 $ 5,496
========= ========= =======
Capital expenditures, excluding acquisitions............ $ 1,294 $ 530 $ 391
========= ========= =======
In November 2000, the Company, through a wholly-owned subsidiary, acquired
Double Eagle Communications and Cabling, Inc. ("Double Eagle"). Double Eagle is
a full service provider of voice and data cabling and network support services.
On March 23, 1999, the Company, through a wholly-owned subsidiary, acquired the
capital stock of Ellsworth Associates, Inc. ("Ellsworth"). Ellsworth provides
information technology services, including network, database and systems design,
and application programming, primarily to government agencies.
For the year ended December 31, 2001, revenues increased by $12.9 million,
or 36%, compared to 2000, due to increases in service revenues and the Double
Eagle acquisition. 2001 operating income decreased by $0.5 million, or 12%,
compared to 2000, as increases in services operating results were more than
offset by planned investments in management, marketing and product development
costs.
For the year ended December 31, 2000, revenues decreased $1.9 million, or
5%, and operating income decreased $1.4 million, or 25%, when compared to 1999.
Increases in services revenues were more than offset by declines in equipment
sales. Revenues from equipment sales, furnished at the request of selected
customers, declined in 2000, compared to 1999, due to fluctuations in customer
needs.
INCOME TAXES
- ------------
For the year ended December 31, 2001, income from continuing operations
includes $18.1 million in income tax benefits resulting from the
recapitalization of a foreign subsidiary. Additionally, income taxes for the
years ended December 31, 2001, 2000 and 1999 include benefits of $0.6 million,
$1.1 million and $1.6 million, respectively, related to favorable developments
pertaining to certain state and foreign income tax issues.
For the years ended December 31, 2000 and 1999, the Company recognized
expected benefits from prior years' tax losses (change in valuation allowance)
that were available to offset future taxable income of $6.3 million and $37.1
million, respectively. The Company reduced the valuation allowance as a result
of its reevaluation of the realizability of income tax benefits from future
operations. The Company considered positive evidence, including the effect of
the Distribution, recent historical levels of taxable income, the scheduled
reversal of deferred tax liabilities, tax planning strategies, revised estimates
of future taxable income growth, and expiration periods of NOLs among other
things, in making this evaluation and concluding that it is more likely than not
that the Company will realize the benefit of its net deferred tax assets. Upon
completion of the Distribution, all remaining deferred tax assets relating to
previously recorded net operating loss carryforwards ($38.8 million), which were
utilized to offset federal income taxes resulting from the Distribution, were
charged directly to stockholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by (used in) operating activities of continuing operations
was $3.1 million, $8.8 million and $(4.9) million during the years 2001, 2000
and 1999, respectively. The decrease in 2001, compared to 2000, was due
primarily to increases in working capital requirements in the expanded
information technology services business. The increase in 2000, compared to
1999, was due primarily to improvements in the technical services business and
normal fluctuations in working capital accounts.
At December 31, 2001, $16.3 million was outstanding under a credit
facility, as amended, that provides working capital for the Technical Services
group. The credit facility, which is without recourse to the parent company, is
due in April 2003, bears interest at the option of the borrower at variable
rates (4.52% at December 31, 2001) based on either the LIBOR rate or the prime
rate plus a differential of up to 150 basis points, contains certain financial
and operational covenants with respect to the technical services group of
companies, and restricts the subsidiary from paying dividends to the Company
under certain circumstances.
The Company's 8.75% subordinated debentures ($21.4 million outstanding at
December 31, 2001) are convertible into shares of the Company's common stock at
the conversion price, adjusted in 2001 for the Distribution of KSL, of $5.26 per
share. On March 1, 2002, the Company purchased $10.0 million of subordinated
debentures at par value, which satisfies its sinking fund requirements on these
subordinated debentures through 2007.
Annual sinking fund requirements and debt maturities on consolidated debt,
including capital leases, are as follows: $2.2 million; $18.9 million; $2.3
million; $2.1 million; and $2.1 million, respectively, for each of the five
years ending December 31, 2006.
Consolidated capital expenditures for 2002 have been budgeted at $3 million
to $5 million, depending on the economic environment and the needs of the
business. Capital expenditures (excluding acquisitions) in 2001 are expected to
be funded from existing cash and anticipated cash flows from operations.
Pursuant to the Distribution, the Company entered into an agreement (the
"Distribution Agreement") with KSL, whereby, KSL will pay the Company an amount
equal to the expenses incurred by the Company in connection with the
Distribution. These expenses include approximately $6.1 million in costs
incurred in connection with the redemption of the Company's Series A Preferred
Stock and approximately $2.1 million in legal and professional and other
expenses incurred in connection with the Distribution. The distribution of KSL
common shares is taxable to the Company, which will recognize taxable income to
the extent of the excess of the value of KSL's common shares distributed over
the tax basis of KSL's assets in the hands of the Company. The Company will use
all of its available net operating loss carryforwards to reduce that taxable
income, but the total amount of taxable income is expected to exceed such net
operating loss carryforwards, and the Distribution Agreement obligates KSL to
pay the Company amounts calculated based on whatever tax is due on the net
amount of income. The Company cannot currently determine exactly what this
amount will be and what the tax will be, but the Company estimates that the tax
will approximate $14.6 million, after utilization of all available net operating
loss carryforwards and $4.4 million of alternative minimum tax credits. Included
in receivable from businesses distributed to common shareholders at December 31,
2001 is $14.7 million for such costs and expenses. The Distribution Agreement
also requires KSL to pay the Company an amount calculated based on any income
tax liability of the Company that, in the sole judgement of the Company, (i) is
attributable to increases in income tax from past years arising out of
adjustments required by Federal and state tax authorities, to the extent that
such increases are properly allocable to the businesses that became part of KSL,
or (ii) is attributable to the distribution of KSL's common shares and the
operations of KSL's businesses in the current year and the preceding years. In
the event of an examination of the Company by Federal or state tax authorities,
the Company will have unfettered control over the examination, administrative
appeal, settlement or litigation that may be involved, notwithstanding that KSL
has agreed to pay any additional tax.
On March 30, 2001, the Company's Series A Preferred Stock was redeemed for
cash at the stated redemption price of $10.67 per share, plus accrued and unpaid
dividends, for a total cost of approximately $6.1 million. The redemption cost
included a $0.4 million redemption premium, which was recognized as dividends
and redemption premium applicable to preferred stock in 2001. Additionally, on
June 12, 2001, the Company exchanged, in non-cash transactions, 1,356,777 shares
of the Company's common stock for all Series C Preferred and Series F Preferred
shares outstanding.
Additional information related to the sources and uses of cash is presented
in the financial statements included in this report.
CRITICAL ACCOUNTING POLICY
- --------------------------
The carrying value of the Company's excess of cost over fair value of net
assets of acquired businesses is periodically evaluated using management's
estimates of undiscounted future cash flows as the basis of determining if
impairment exists under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". To the extent that impairment is
indicated to exist, an impairment loss is recognized under SFAS No. 121 based on
fair value. The application of SFAS No. 121 did not have a material impact on
the results of operations of the Company for the years ended December 31, 2001,
2000 or 1999. Effective January 1, 2002, the Company will adopt the provisions
of SFAS No. 142 (see "Recent Accounting Pronouncements").
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In July of 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141 "Business Combinations", which requires that all business
combinations initiated after June 30, 2001 be accounted for under the purchase
method of accounting. SFAS No. 141 also specifies the criteria for recording
intangible assets other than goodwill in a business combination.
Additionally, in July of 2001, the FASB issued SFAS No. 142 "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Company is currently
assessing the impact of SFAS No. 142, which must be adopted in the first quarter
of 2002.
Also, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations", which establishes requirements for the removal-type costs
associated with asset retirements. The Company is currently assessing the impact
of SFAS No. 143, which must be adopted in the first quarter of 2003.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144, which supercedes SFAS No. 121, is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years
with earlier application encouraged. The Company is currently assessing the
impact on its financial statements.
Item 7(a). Quantitative and Qualitative Disclosure About Market Risk
The principal market risks (i.e., the risk of loss arising from the adverse
changes in market rates and prices) to which the Company is exposed are interest
rates on the Company's debt and investment portfolios. The Company centrally
manages its debt and investment portfolios considering investment opportunities
and risks, tax consequences and overall financing strategies. The Company's
investment portfolio consists of cash equivalents; accordingly, the carrying
amounts approximate fair value. The Company's investments are not material to
the financial position or performance of the Company. Assuming variable rate
debt of $16.3 million at December 31, 2001, a one percent increase in interest
rates would increase interest expense by approximately $0.2 million.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data of the Company
begin on page F-1 of this report. Such information is hereby incorporated by
reference into this Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
BOARD OF DIRECTORS
- ------------------
The following table sets forth: (i) the name and age of each member of the
Board of Directors for the Company; (ii) the principal occupation of such
person; (iii) the year during which such person first became a Director of
Xanser; and (iv) the number of shares of Company Common Stock beneficially owned
by such person as of March 22, 2002.
Shares of Common Percent
Year First Stock Beneficially of Out-
Became a Owned at standing
Name Principal Occupation Director Age March 22, 2002(1) Shares
- ------------------- ------------------------------- ------------- --- ------------------- ---------
John R. Barnes Chairman of the Board, 1986 57 1,419,320(8) 4.30%
President and Chief Executive
Officer (2)
Sangwoo Ahn Founding Partner of Morgan 1989 63 281,669 *
Lewis Githens & Ahn, an
investment banking firm (3)
Frank M. Burke, Jr. Chairman and Managing General 1997 62 149,219 *
Partner of Burke, Mayborn
Company, Ltd., a private
investment company (4)
Charles R. Cox Chairman of the Board and 1995 59 168,437 *
Chief Executive Officer of
WRS Infrastructure and
Environment, Inc., a
technical services company (5)
Hans Kessler Chairman and Managing Director 1998 52 81,579 *
of KMB Kessler + Partner GmbH,
a private management consulting
company (6)
James R. Whatley Investments (7) 1956 75 174,933 *
*Less than one percent.
(1) Shares listed include those beneficially owned by the person indicated, his
spouse or children living at home, as well as those shares that such person
has the right to acquire beneficial ownership of within 60 days of March
22, 2002.
(2) Mr. Barnes also serves as a director of Kaneb Services LLC and Kaneb Pipe
Line Company LLC.
(3) Mr. Ahn, a founding partner of Morgan Lewis Githens & Ahn since 1982,
currently serves as a director of Kaneb Services LLC, Kaneb Pipe Line
Company LLC, PAR Technology Corporation and Quaker Fabric Corporation.
(4) Mr. Burke has been Chairman and Managing General Partner of Burke, Mayborn
Company, Ltd., for more than the past five years. Mr. Burke also currently
serves as a director of Kaneb Services LLC and Kaneb Pipe Line Company LLC,
AVIDYN, Inc. and Arch Coal, Inc.
(5) Mr. Cox has been Chairman of the Board and Chief Executive Officer of WRS
Infrastructure and Environment, Inc., a technical services company, since
March 2001. He served as a private business consultant following his
retirement in January 1998, from Fluor Daniel, Inc., where he served in
senior executive level positions during a 29 year career with that
organization. Mr. Cox also currently serves as a director of Kaneb Services
LLC and Kaneb Pipe Line Company LLC.
(6) Mr. Kessler has served as Chairman and Managing Director of KMB Kessler +
Partner GmbH since 1992. He was previously a Managing Director and Vice
President of a European Division of Tyco International Ltd. Mr. Kessler
also currently serves as a director of Kaneb Services LLC and Kaneb Pipe
Line Company LLC.
(7) Mr. Whatley, a director of Xanser since 1956 also served as Chairman of the
Board of Directors of Xanser Corporation (formerly Kaneb Services, Inc.)
from February 1981 until April 1989, and continues to serve as a member of
the Board. Mr. Whatley also currently serves as a director of Kaneb
Services LLC and Kaneb Pipe Line Company LLC.
(8) Includes 198,652 shares with sole voting and investment power and 1,220,668
shares with shared voting and investment power.
EXECUTIVE OFFICERS
- ------------------
The following table sets forth the names, ages, positions with the Company
and ownership of the Company's Common Stock for the executive officers of the
Company.
Shares of Common Percent
Years of Stock Beneficially of Out-
Service in Owned at standing
Name Office Office Age March 22, 2002(1) Shares
- ------------------- -------------------------- ----------- --- ------------------- ---------
John R. Barnes Chairman of the Board, 15 57 1,419,320(4) 4.30%
President and Chief
Executive Officer
Howard C. Wadsworth Vice President, Treasurer 11 57 145,684 *
and Secretary
William H. Kettler, Jr. Vice President (2) 5 48 71,036 *
Michael R. Bakke Controller (3) 4 42 16,902 *
*Less than one percent.
(1) Shares listed include those beneficially owned by the person indicated or
his spouse or children living at home, as well as those shares that such
person has the right to acquire beneficial ownership of within 60 days of
March 22, 2002.
(2) Mr. Kettler was elected Vice President in April 1997, prior to which he
served as Director of Human Resources for the Company from 1989.
(3) Mr. Bakke joined the Company in January 1998 and was elected Controller in
February 1998. From 1995 to 1997, Mr. Bakke served as Director of Finance
and Planning for Enserch Exploration, Inc.
(4) Includes 198,652 shares with sole voting and investment power and 1,220,668
shares with shared voting and investment power.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE STATEMENT
- -----------------------------------------------------------------
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers and directors, among others, to file reports of ownership and changes
of ownership in the Company's equity securities with the SEC and the NYSE. Such
persons are also required by related regulations to furnish the Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during fiscal year 2001, its officers and directors
complied with all applicable filing requirements under Section 16(a) with
respect to the Company's equity securities, except that, rather than being
reported on a timely filed Form 4, certain transactions that were exempt from
the provisions of Section 16(b) (specifically, the conversion of deferred stock
units to common stock by Mr. Ahn, Mr. Burke and Mr. Kessler, and the exercise of
a stock option by Mr. Kettler), were reported on a timely filed Form 5.
Item 11. Executive Compensation.
Named Officers and Key Personnel
The following table sets forth information concerning the annual and
long-term compensation for services to the Company in all capacities paid for
the fiscal years ended December 31, 2001, 2000 and 1999 to the Chief Executive
Officer and the other four most highly compensated officers of Xanser and key
personnel of its subsidiaries (the "Named Officers and Key Personnel").
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long Term Compensation
----------------------- --------------------------------------
DSUs Options
Related to Related to Other
Name and Annual Compensation Deferred Deferred Stock All Other
Principal Position Year Salary Bonus Compensation Compensation Options Compensation(2)
- -------------------- ---- -------- ------- ------------ ------------ --------- ---------------
John R. Barnes 2001 $ 231,275 $ -0- 6,285 -0- 300,000 $ 7,633
Chairman of the Board, 2000 226,236 -0- 6,358 -0- -0- 8,908
President and Chief 1999 209,341 -0- 6,853 -0- -0- 8,554
Executive Officer
Arthur Chavoya 2001 212,730 (3) -0- 10,388 -0- 300,000 103
President and Chief
Executive Officer
Xtria
C. Jeffery Chick 2001 (4)
President and Chief
Executive Officer
Furmanite Worldwide
Joseph P. Lahey (5) 2001 214,087 -0- 390 -0- -0- 3,423
President and Chief 2000 192,915 -0- 227 -0- -0- 3,538
Executive Officer 1999 192,540 -0- 297 -0- -0- 3,413
Furmanite Worldwide
Kenneth R. Falknor 2001 162,115 -0- -0- -0- -0- 6,355
Senior Vice President 2000 142,885 -0- 6,000 6,000 20,000 2,051
Chief Operating Officer (6)
Furmanite Worldwide
Howard C. Wadsworth 2001 160,942 50,000 1,053 -0- -0- 7,142
Vice President 2000 192,368 -0- 749 -0- 25,000 8,908
Treasurer & Secretary 1999 183,873 -0- 879 -0- -0- 8,554
(1) Amounts for 2001, 2000 and 1999, respectively, exclude compensation
voluntarily deferred for the purchase of Deferred Stock Units ("DSUs")
pursuant to Xanser's Deferred Stock Unit Plan (the "DSU Plan") by Mr.
Barnes ($117,000, $208,000 and $208,000); Mr. Lahey ($20,288, $32,460 and
$32,460); Mr. Falknor ($15,385 and $10,961) and Mr. Wadsworth ($5,850,
$9,360 and $9,360) and/or for the purchase of DSU's pursuant to the Xanser
Supplemental Deferred Compensation Plan (the "SDC Plan") by Mr. Barnes
($13,428, $16,818 and $16,380); Mr. Chavoya ($12,270) and Mr. Wadsworth
($2,250, $1,980 and $2,100).
(2) Includes the amount of the Company's contribution to the Savings Investment
Plan (the "401(k) Plan") and the imputed value of the Company-paid group
term life insurance exceeding $50,000. For 2001, the amounts were on behalf
of Mr. Barnes ($7,375 and $258); Mr. Chavoya ($-0- and $103); Mr. Lahey
($3,400 and $23); Mr. Falknor ($8,650 and $41) and Mr. Wadsworth ($6,884
and $258).
(3) Represents salary earned by Mr. Chavoya from the date he joined the Company
(April 1, 2001) through December 31, 2001.
(4) Mr. Chick was appointed President and Chief Executive Officer of the
Company's Furmanite Worldwide subsidiary on January 28, 2002 at an annual
base salary of $250,000 and received a stock option grant applicable to
250,000 shares of the Company's common stock effective February 20, 2002 at
an exercise price of $2.27 per share, which was the market value per share
on the date of the grant.
(5) Mr. Lahey resigned to pursue other business interests on January 28, 2002.
(6) Mr. Falknor was appointed Chief Operating Officer of the Company's
Furmanite Worldwide subsidiary on June 10, 2000.
OPTIONS/SAR'S GRANTED DURING LAST FISCAL YEAR
- ---------------------------------------------
The following table includes the details of stock options granted to the
Named Officers and Key Personnel during 2001. All stock options were priced at
100% of the closing price of Xanser's Common Stock on the date of grant. For
illustrative purposes only, the Black-Scholes option pricing model has been used
to estimate the value of stock options issued by Xanser. The assumptions used in
the calculations under such model include stock price variance or volatility
based on weekly average variances of the stock for the five-year period
preceding issuance, a risk-free rate of return based on the 30-year U.S.
Treasury bill rate for the five-year expected life of the options, and exercise
of the options at the end of their expected life. The actual option value
realized, if such option is exercised, will be based upon the excess of the
market price of Xanser's Common Stock over the exercise price of the option on
the date of exercise. There is no relationship between the actual option value
upon exercise and the illustration below.
% of Total Computed Value
Number of Granted Using Black
Options/SAR's To Employees Exercise Price Expiration Scholes Option
Name Granted During Year ($/Share) Date Pricing Model
- -------------------- --------------- -------------- -------------- ------------ ---------------
John R. Barnes 300,000 29.5% $2.48 09/10/11 $261,000
Arthur Chavoya 300,000 29.5% 2.81 07/05/11 306,000
AGGREGATED FISCAL YEAR END OPTION VALUES
- ----------------------------------------
Number of Unexercised Value of Unexercised
Options Held In-the-Money Options
Shares at Fiscal Year End at Fiscal Year End
Acquired on Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------- ----------- ----------- ------------- ----------- -------------
John R. Barnes -0- $ -0- 310,979 300,000 $ 212,616 $ -0-
Arthur Chavoya -0- -0- 50,000 250,000 -0- -0-
Joseph P. Lahey -0- -0- 177,570 -0- 157,857 -0-
Kenneth R. Falknor 26,000 51,380 -0- -0- -0- -0-
Howard C. Wadsworth -0- -0- 122,066 20,000 132,003 582
In connection with the Distribution, the exercise price for each option to
purchase shares of the Company's common stock that was issued prior to the
Distribution was reduced to an amount equal to the result of (1) the fair market
value of a share of the Company's common stock on the ex-dividend date
multiplied by (2) a fraction, the numerator of which is the original exercise
price for the option and the denominator of which was the fair market value of a
share of the Company's common stock on the last trading date prior to the
ex-dividend date. The number of shares subject to the Company's stock options
were not changed as a result of the Distribution. Additionally, KSL agreed to
issue to the Company's option holders an option to purchase KSL shares. The
exercise price applicable to a given KSL option was that price that created the
same ratio of exercise price to market price as in the adjusted exercise price
applicable to the holder's Company option. The number of common shares subject
to KSL options was such number as was necessary to produce an intrinsic value
(determined as of the ex-dividend date) that, when added to the intrinsic value
of the adjusted Company option (determined as of the ex-dividend date), equaled
the pre-distribution intrinsic value of the Company's option, if any (determined
as of the last trading date prior to the ex-dividend date). However, options to
purchase fractional KSL common shares were not granted. The fair market values
of shares of the Company's common stock and KSL common shares were based upon
the closing sales price of the stock on the last trading date prior to the
ex-distribution date and the opening sales price of the shares on the
ex-distribution date. Further, excluding the Company's corporate staff, the
Company removed restrictions on exercise or "vested" all Company options which
were not yet exercisable prior to the Distribution.
BENEFIT PLANS AND OTHER COMPENSATION
- ------------------------------------
Deferred Stock Unit Plan - In 1996, the Company initiated a Deferred Stock
Unit Plan (the "DSU Plan"), pursuant to which key employees of the Company have,
from time to time, been given the opportunity to defer a portion of their
compensation for a specified period toward the purchase of deferred stock units
("DSUs"), an instrument designed to track the Company's common stock. Under the
plan, as amended in 1998, DSUs are purchased at a value equal to the closing
price of the Company's common stock on the day by which the employee must elect
(if they so desire) to participate in the DSU Plan; which date is established by
the Compensation Committee, from time to time (the "Election Date"). During a
vesting period of one to three years following the Election Date, a
participant's DSUs vest only in an amount equal to the lesser of the
compensation actually deferred to date or the value (based upon the then-current
closing price of the Company's common stock) of the pro-rata portion (as of such
date) of the number of DSUs acquired. After the expiration of the vesting
period, which is typically the same length as the deferral period, the DSUs
become fully vested, but may only be distributed through the issuance of a like
number of shares of the Company's common stock on a pre-selected date, which is
irrevocably selected by the participant on the Election Date and which is
typically at or after the expiration of the vesting period and no later than ten
years after the Election Date, or at the time of a "change of control" of the
Company, if earlier. DSU accounts are unfunded by the Company and do not bear
interest. Each person that elects to participate in the DSU Plan is awarded,
under the Company's Stock Incentive Plan, an option to purchase a number of
shares of the Company's common stock ranging from one-half to one and one-half
times (depending on the length of deferral) the number of DSUs purchased by such
person at 100% of the closing price of the Company's common stock on the
Election Date, which options become exercisable over a specified period after
the grant, according to a schedule determined by the Compensation Committee.
Supplemental Deferred Compensation Plan - The Supplemental Deferred
Compensation Plan (the "SDC Plan") was established to allow officers and key
employees of Xanser to defer a portion of their salary that, because of
statutory limitations, could not otherwise be set aside for retirement purposes
in the Company's 401(k) Plan. The non-qualified SDC Plan permits a participant
to defer a portion of their total base salary that is in excess of the amounts
elected by the participant to be deferred under Xanser's 401(k) Plan, but no
greater than approximately 6% of their total base salary when such person's SDC
Plan deferral is combined with their 401(k) Plan deferral plus the amount by
which their 401(k) Plan deferral was reduced due to participation in the DSU
Plan. The Company credits contributions to the SDC Plan under the same formula
as those contributions made to the 401(k) Plan. However, such contributions and
participant deferrals are made to the SDC Plan in the form of DSUs, equivalent
in value to 100% of the price of Xanser's Common Stock at the time of the
participant's deferral of salary to the SDC Plan. All amounts deferred under the
SDC Plan are memorandum bookkeeping accounts, and such accounts do not bear
interest. Vesting in the SDC Plan accounts occurs ratably over the first five
years of the participant's employment, in the same manner as the 401(k) Plan.
SDC Plan accounts are not distributed until the earlier of a date predetermined
by the participant, at the time of a "change of control" of the Company, or a
qualifying event substantially similar to qualifying distribution events
established under the 401(k) Plan. Distributions from the SDC Plan will be made
in the form of shares of the Company's Common Stock. The value of an account at
the time of distribution will be equal to the value of the participant's vested
DSUs, which are equivalent in value to shares of Xanser's Common Stock at that
time.
In connection with the Distribution, KSL agreed to issue to all DSU holders
the number of DSUs equivalent in price to KSL shares issuable in the
Distribution. All other terms remained the same. Similarly, the Company agreed
to issue to employees of KSL who hold DSUs, the number of shares of the
Company's common stock subject to the DSUs held by those employees.
Approximately 600,000 shares will be issuable to employees of the Company and
KSL under this arrangement and the terms of the DSU and SDC Plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- -----------------------------------------------------------
Xanser Compensation Committee Chairman, Mr. Whatley, was an executive
officer of the Company prior to 1987 and was a "non-employee" Chairman of the
Board of the Company until April 1989.
DIRECTORS' FEES
- ---------------
For serving in 2001, each non-employee member of the Xanser Board of
Directors was paid an annual retainer of $16,250. Each non-employee Board member
was also eligible to participate in programs comparable to the Company's DSU
Plan, such as the Company's Non-Employee Directors Deferred Stock Unit Plan (the
"Directors DSU Plan").
During 2001, each incumbent non-employee Director holding office at that
time was issued, under the Company's 2001 Stock Incentive Plan, an option to
purchase up to 20,000 shares of the Company's Common Stock at a price of $2.48,
until September 10, 2011. All of such options were issued at 100% of the closing
price of the Company's Common Stock on September 11, 2001.
As of March 22, 2002, incumbent non-employee Directors had been granted,
under the Company's 2001 Stock Incentive Plan, the 1996 Directors' SIP and
pursuant to individual agreements, non-qualified options to purchase a
cumulative total of 529,178 shares of Common Stock at an average price of $1.49
per share, representing 100% of the fair market value of the Common Stock on the
respective dates of grant after adjusting for the Distribution as described
above, and had purchased a total of 12,632 DSUs at an average price of $1.50 per
DSU, under the Directors DSU Plan after adjusting for the Distribution as
described previously. Except as stated above, all of such stock options vest
immediately and expire at the earlier of ten years from the date of grant or
within three months after such person ceases to be a Director of the Company.
TERMINATION AGREEMENTS
- -----------------------
In order to attract and retain qualified employees, Xanser has periodically
entered into termination agreements with key employees of Xanser and its
subsidiaries which provide that the Company will pay certain amounts into an
escrow account if a third party takes certain steps which could result in a
change-of-control. Under the agreements, a "change-of-control" occurs if, under
certain specified circumstances: (i) a third person, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
becomes the beneficial owner of shares of the Company having 20% or more of the
total number of votes that may be cast for the election of Directors of the
Company; or (ii) as a result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, restructuring or
proceeding under the bankruptcy laws, sale of assets or contested election, or
any combination of the foregoing transactions, the persons (or any combination
thereof) who are Directors of the Company 60 days prior to the closing of any
such transaction(s) cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company; or (iii) as a consequence of a
tender or exchange offer or a proxy contest of third party consent solicitation,
a majority of the fair market value of the assets of the Company are distributed
to the Company's securities holders. If a change-of-control occurs and, among
other things, the employment of the employee terminates, voluntarily or
involuntarily, for any reason, the escrowed sum will be paid to the employee.
Messrs. Barnes, Chavoya, Chick and Wadsworth have termination agreements which
provide that, in the event that their employment is terminated as a consequence
of a change-of-control, the Company will pay each individual an amount equal to
299% of their average annual base salary for the five years prior to the
change-of-control. Additionally, two other employees each have similar
agreements pursuant to which they would be paid 100% of their respective annual
salaries prior to the change-of-control. If such a change-of-control of the
Company were to occur at March 22, 2002, an aggregate of $3,815,000 would be
payable to these individuals.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
- -------------------------------------------------------------
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for recommending the types and levels of compensation for executive
officers of Xanser. The Committee is comprised of three independent,
non-employee Directors, though Mr. Whatley served as an officer of Xanser prior
to 1987. Following thorough review and approval by the Committee, decisions
relating to executive compensation are reported to and approved by the full
Board of Directors. The Committee has directed the preparation of this report
and has approved its contents and its submission to the stockholders. As
provided by the rules of the SEC, this report is not deemed to be filed with the
SEC nor incorporated by reference into any prior or future fillings under the
Securities Act of 1933, as amended, or the Exchange Act.
In the Committee's opinion, levels of executive compensation should
generally be based upon the performance of the Company, the contributions of
individual officers to such performance and the comparability to persons with
similar responsibilities in business enterprises similar in size or nature to
Xanser. The Committee believes that compensation plans should align executive
compensation with returns to stockholders, giving due consideration to the
achievement of both long-term and short-term objectives. The Committee believes
that such compensation policies and practices have allowed Xanser to attract,
retain and motivate its key executives.
The compensation of Xanser's Named Officers and Key Personnel consists
primarily of base salaries and the opportunity to participate in certain
incentive arrangements, including, among other programs, the 2001 SIP, the
granting of contractual non-qualified stock options, the Company's DSU Plan and
the Company's SDC Plan. The value of these plan benefits directly relates to the
future performance of Xanser's Common Stock. The Committee continues to believe
that the utilization of incentive programs that are linked to the performance of
Xanser's Common Stock closely aligns the interests of the executive with those
of Xanser's stockholders. Consistent with all other full-time Company employees,
the Named Officers and Key Personnel are also eligible to participate in
Xanser's 401(k) Plan. The Committee believes that this plan encourages
longer-term employment through gradual service-based vesting of Company
contributions. As with other plans offered to Xanser employees, the 401(k) Plan
provides an opportunity to Xanser employees, including the Named Officers and
Key Personnel, to tie their own financial interests, in part, to those of
Xanser's stockholders by offering employer-matching contributions in Xanser
Common Stock and the choice of investing their own contribution in Company stock
as well.
The base salaries of the Named Officers and Key Personnel, including the
Chief Executive Officer, are based upon a subjective assessment of each
individual's performance, experience and other factors that are believed to be
relevant in comparison with compensation data contained in published and
recognized surveys. The Committee believes their current base salaries are close
to the median level of most of the comparative compensation data. In addition to
the foregoing, two of the Company's Named Officers and Key Personnel, Messrs.
Chavoya and Chick, are each eligible to receive, on a year-to-year basis, an
incentive bonus based upon the actual operational results achieved, as compared
to budget targets, in a given fiscal year by the subsidiaries of the Company
that are under their respective direct supervision. The Committee believes that
an improvement in earnings from the prior year and a comparison of actual
performance versus budget are appropriate standards for measuring performance
and directly link the individual participant's total potential remuneration with
the accomplishment of established growth targets.
Eligibility for participation in the various Company plans and the awards
granted under 2001 SIP were determined after the Committee had thoroughly
reviewed and taken into consideration the respective relative accountability,
anticipated performance requirements and contributions to the Company by the
prospective participants, including the Named Officers and Key Personnel. All
outstanding stock options that have been granted pursuant to these plans and
programs were granted at prices not less than 100% of the fair market value of
the Company's Common Stock on the dates such options were granted. The Committee
believes that stock options and deferred stock units are desirable forms of
long-term compensation that allow the Company to recruit and retain senior
executive talent and closely connect the interests of management with
stockholder value.
Compensation Committee
James R. Whatley, Chairman
Charles R. Cox
Hans Kessler
PERFORMANCE GRAPH
- -----------------
The following graph compares, for the period January 1, 1997 to December
31, 2001, the cumulative total stockholder return on the Common Stock of the
Company with the New York Stock Exchange ("NYSE") Market Index and an
industry-based index prepared by Media General Financial Services, Inc. The
industry-based index is comprised of companies that share the same code as
Xanser, which consists of companies that offer a diverse array of services. The
graph assumes an initial investment of $100 and the reinvestment of all
dividends, including the KSL shares received at the Distribution. The KSL shares
received are assumed sold, at market price, with proceeds reinvested in Xanser
stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
- -----------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------- -------- -------- -------- -------- --------
XANSER CORPORATION $100 $159.62 $123.08 $134.62 $180.77 $186.90
INFORMATION TECHNOLOGY SERVICES $100 $107.99 $136.17 $166.51 $101.97 $108.97
NYSE MARKET INDEX $100 $131.56 $156.55 $171.42 $175.51 $159.87
Item 12. Security Ownership of Certain Beneficial Owners and Management.
COMMON STOCK OUTSTANDING AND PRINCIPAL HOLDERS THEREOF
- ------------------------------------------------------
As of March 22, 2002, all Directors and executive officers of the Company
as a group owned beneficially an aggregate of 2,508,779 shares, representing
approximately 7.60% of the outstanding shares of Xanser Common Stock. Such
ownership amount includes 704,734 shares which can be acquired by Directors and
executive officers of the Company pursuant to the exercise of outstanding stock
options within 60 days of March 22, 2002.
The following table sets forth information with respect to the shares of
Xanser's Common Stock owned of record or beneficially as of March 22, 2002, by
all persons other than Directors and executive officers of the Company who own
of record or are known by Xanser to own beneficially more than 5% of such class
of securities:
Name and Address Type of Number Percent
of Stockholder Ownership of Shares of Class
---------------------------- ---------- --------- --------
Franklin Resources, Inc.(1) Beneficial 2,992,500 9.2%
777 Mariners Island Blvd.
San Mateo, California 94404
(1) The information included herein was obtained from information contained in
Schedule 13G, dated February 14, 2002, filed by the stockholder with the
Securities and Exchange Commission ("SEC"), pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Item 13. Certain Relationships and Related Transactions.
In November 2000, the Company authorized the exchange, in a non-cash
transaction, of all of the issued and outstanding shares of its Adjustable Rate
Cumulative Class A Preferred Stock, Series F held by an entity for the benefit
of Mr. Barnes' family, for 1,351,351 shares of the Company's Common Stock. The
exchange was completed in June of 2001.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Beginning
(a) (1) Financial Statements Page
---------
Set forth below are financial statements appearing in this report.
Xanser Corporation and Subsidiaries Financial Statements:
Independent Auditors' Report........................................................ F - 1
Consolidated Statements of Income - Three Years Ended
December 31, 2001, 2000 and 1999.................................................. F - 2
Consolidated Balance Sheets - December 31, 2001 and 2000............................ F - 3
Consolidated Statements of Cash Flows - Three Years Ended
December 31, 2001, 2000 and 1999.................................................. F - 4
Consolidated Statements of Changes in Stockholders'
Equity - Three Years Ended December 31, 2001, 2000 and 1999....................... F - 5
Notes to Consolidated Financial Statements.......................................... F - 6
(a) (2) Financial Statement Schedules
Set forth are the financial statement schedules appearing in this
report.
Schedule I - Xanser Corporation (Parent Company) Condensed Financial Statements:
Statements of Income - Three Years Ended December 31, 2001,
2000 and 1999..................................................................... F - 22
Balance Sheets - December 31, 2001 and 2000......................................... F - 23
Statements of Cash Flows - Three Years Ended
December 31, 2001, 2000 and 1999.................................................. F - 24
Schedule II - Xanser Corporation Valuation and Qualifying Accounts -
Three Years Ended December 31, 2001, 2000 and 1999.................................. F - 25
Schedules, other than those listed above, have been omitted
because of the absence of the conditions under which they are required
or because the required information is included in the consolidated
financial statements or related notes thereto.
(a) (3) List of Exhibits
3.1 Restated Certificate of Incorporation of the Registrant, dated
September 26, 1979, filed as Exhibit 3.1 of the exhibits to the
Registrant's Registration Statement on Form S-16, which exhibit is
hereby incorporated by reference.
3.2 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, dated April 30, 1981, filed as
Exhibit 3.2 of the exhibits to the Registrant's Annual Report on
Form 10-K ("Form 10-K") for the year ended December 31, 1981, which
exhibit is hereby incorporated by reference.
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, dated May 28, 1985, filed as
Exhibit 4.1 of the exhibits to the Registrant's Quarterly Report on
Form 10-Q ("Form 10-Q") for the quarter ended June 30, 1985, which
exhibit is hereby incorporated by reference.
3.4 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, dated September 17, 1985, filed as
Exhibit 4.1 of the exhibits to the Registrant's Form 10-Q for the
quarter ended September 30, 1985, which exhibit is hereby
incorporated by reference.
3.5 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, dated July 10, 1990, filed as
Exhibit 3.5 of the exhibits to the Registrant's Form 10-K for the
year ended December 31, 1990, which exhibit is hereby incorporated
by reference.
3.6 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, dated September 21, 1990, filed as
Exhibit 3.5 of the exhibits to the Registrant's Form 10-Q for the
quarter ended September 30, 1990, which exhibit is hereby
incorporated by reference.
3.7 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, dated August 8, 2001, filed as
Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on
August 22, 2001, which exhibit is hereby incorporated by reference.
3.8 By-laws of the Registrant, filed as exhibit 3.7 to Registrant's Form
10-K for the year ended December 31, 1998, which exhibit is hereby
incorporated by reference.
4.1 Certificate of Designation related to the Registrant's Adjustable
Rate Cumulative Class A Preferred Stock, filed as Exhibit 4 of the
exhibits to the Registrant's Form 10-Q for the quarter ended
September 30, 1983, which exhibit is hereby incorporated by
reference.
4.2 Certificate of Designation, Preferences and Rights related to the
Registrant's Series B Junior Participating Preferred Stock, filed as
Exhibit 4.2 to the Registrant's 10-K for the year ended December 31,
1998, which exhibit is incorporated herein by reference.
4.3 Certificate of Designation related to the Registrant's Adjustable
Rate Cumulative Class A Preferred Stock, Series C, dated April 23,
1991, filed as Exhibit 4.4 of the exhibits to Registrant's Form 10-K
for the year ended December 31, 1991, which exhibit is hereby
incorporated by reference.
4.4 Certificate of Designation related to the Registrant's Adjustable
Rate Cumulative Class A Preferred Stock, Series F, dated June 12,
1997, filed as Exhibit 4.4 of the Exhibits to Registrant's Form 10-K
for the year ended December 31, 1997, which exhibit is hereby
incorporated by reference.
4.5 Indenture between Moran Energy Inc. ("Moran") and First City
National Bank of Houston ("First City"), dated January 15, 1984,
under which Moran issued the 8 3/4% Convertible Subordinated
Debentures due 2008, filed as Exhibit 4.1 to Moran's Registration
Statement on Form S-3 (SEC File No. 2-81227), which exhibit is
hereby incorporated by reference.
4.6 First Supplemental Indenture between the Registrant and First City,
dated as of March 20, 1984, under which the Registrant assumed
obligations under the Indenture listed as Exhibit 4.5 above, filed
as Exhibit 4.7 of the Registrant's Form 10-K for the year ended
December 31, 1983, which exhibit is hereby incorporated by
reference.
10.1* Xanser Corporation (formerly Kaneb Services, Inc.) Savings
Investment Plan, as amended, filed as Exhibit 4.10 of the exhibits
to the Registrant's Registration Statement on Form S-8 ("Form S-8")
(S.E.C. File No. 33-41295) as Exhibit 4.1 to the exhibits of the
Registrant's Form S-8 (S.E.C. File No. 333-14067), and as Exhibit
4.9 to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
333-83968, which exhibits are hereby incorporated by reference.
10.2* Xanser Corporation (formerly Kaneb Services, Inc.) 1994 Stock
Incentive Plan, filed as Exhibit 4.12 to the exhibits of the
Registrant's Form S-8 (S.E.C. File No. 33-54027), and as Exhibit
10.1 to the Registrant's Current Report on Form 8-K filed on August
22, 2001, which exhibits are hereby incorporated by reference.
10.3* Xanser Corporation (formerly Kaneb Services, Inc.) Deferred Stock
Unit Plan, as amended, filed as Exhibit 4.1 to the exhibits of the
Registrant's Form S-8 (S.E.C. File No. 333-08725) as Exhibit 10.1 to
the exhibits of the Registrant's Current Report on Form 8-K ("Form
8-K"), and as Exhibits 4.9 and 4.10 to the exhibits of the
Registrant's Form S-8 (S.E.C. File No. 333-83970), which exhibits
are hereby incorporated by reference.
10.4* Kaneb Services, Inc. 1996 Supplemental Deferred Compensation Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08727), and as Exhibit 10.2 to the Exhibits of
the Registrant's Form 8-K, which exhibits are hereby incorporated by
reference.
10.5* Kaneb Services, Inc. $1.63 Director Stock Options, filed as Exhibit
4.1 to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-58981), which exhibit is hereby incorporated by reference.
10.6* Kaneb Services, Inc. Directors Stock Options I, filed as Exhibit 4.1
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
333-14069), which exhibit is hereby incorporated by reference.
10.7* Kaneb Services, Inc. 1996 Directors Stock Incentive Plan, as
amended, filed as Exhibit 4.1 to the exhibits of the Registrant's
Form S-8 (S.E.C. File No. 333-14071) and as Exhibit 4.1 to the
exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-22109),
and as supplemented, filed as Exhibit 4.2 to the Exhibits of the
Registrant's Form S-8 (S.E.C. File No. 333-60195), and as Exhibit
10.1 to the Exhibits of the Registrant's Form 8-K, which exhibits
are hereby incorporated by reference.
10.8* Kaneb Services, Inc. Non-Employee Directors Deferred Stock Unit
Plan, filed as Exhibit 4.1 to the exhibits of the Registrant's Form
S-8 (S.E.C. File No. 333-08723), and as Exhibit 10.3 to the Exhibits
of the Registrant's Form 8-K, which exhibits are hereby incorporated
by reference.
10.9* Kaneb Services, Inc. 1994 Stock Option Agreements, filed as Exhibits
10.1, 10.2, 10.3 and 10.4 to the exhibits of the Registrant's Form
S-8 (S.E.C. File No. 333-34489), which exhibits are hereby
incorporated by reference.
10.10*Form of Termination Agreement, filed as Exhibit 10.10 to the
exhibits of the Registrant's Form 10-K for the year ended December
31, 1996, which exhibit is hereby incorporated by reference.
10.11*Form of Indemnification Agreement, filed as Exhibit 10.11 to the
Registrant's Form 10-K for the year ended December 31, 1999, which
exhibit is hereby incorporated by reference.
10.12 Amended and Restated Loan Agreement between Furmanite PLC, Bank of
Scotland and certain other Lenders, dated May 1, 1991, as amended,
(the "Furmanite Loan Agreement"), filed as Exhibit 10.8 of the
exhibits to the Registrant's Form 10-K for the year ended December
31, 1994; Exhibit 10.12 of the exhibits to the Registrant's Form
10-K for the year ended December 31, 1996; Exhibit 10.12 of the
Registrant's Form 10-K for the year ended December 31, 1997; and,
Exhibit 10.13 of the Registrant's Form 10-K for the year ended
December 31, 1999, which exhibits are hereby incorporated by
reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of KPMG LLP, filed herewith.
Certain instruments respecting long-term debt of the Registrant have
been omitted pursuant to instructions as to Exhibits. The Registrant
agrees to furnish copies of any of such instruments to the
Commission upon request.
* Denotes management contracts.
(b) Reports on Form 8-K
None.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Xanser Corporation:
We have audited the consolidated financial statements of Xanser Corporation and
its subsidiaries as listed in the index appearing under Item 14(a)(1). In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedules as listed in the index appearing
under Item 14(a)(2). These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and its
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Dallas, Texas
March 4, 2002
F - 1
XANSER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
----------------------------------------------------
2001 2000 1999
-------------- -------------- ---------------
Revenues:
Services............................................... $ 127,421,000 $ 110,440,000 $ 113,476,000
Products............................................... 17,283,000 17,201,000 21,957,000
-------------- -------------- ---------------
Total revenues....................................... 144,704,000 127,641,000 135,433,000
-------------- -------------- ---------------
Costs and expenses:
Operating costs........................................ 114,735,000 96,341,000 105,078,000
Cost of products sold.................................. 15,529,000 15,749,000 19,218,000
Depreciation and amortization.......................... 5,208,000 5,097,000 5,896,000
General and administrative............................. 3,803,000 6,352,000 9,807,000
-------------- -------------- ---------------
Total costs and expenses............................. 139,275,000 123,539,000 139,999,000
-------------- -------------- ---------------
Operating income (loss).................................... 5,429,000 4,102,000 (4,566,000)
Interest income............................................ 665,000 909,000 534,000
Other income (expense)..................................... 6,741,000 (239,000) (208,000)
Interest expense........................................... (3,486,000) (3,883,000) (3,817,000)
-------------- -------------- ---------------
Income (loss) from continuing operations before
income taxes........................................... 9,349,000 889,000 (8,057,000)
Income tax benefit......................................... 13,039,000 5,894,000 38,507,000
-------------- -------------- ---------------
Income from continuing operations.......................... 22,388,000 6,783,000 30,450,000
Income from discontinued operations - businesses
distributed to common shareholders, net of
income taxes........................................... 3,337,000 10,386,000 28,459,000
-------------- -------------- ---------------
Net income........................................... 25,725,000 17,169,000 58,909,000
Dividends and redemption premium applicable to
preferred stock........................................ 493,000 479,000 487,000
-------------- -------------- ---------------
Net income applicable to common stock...................... $ 25,232,000 $ 16,690,000 $ 58,422,000
============== ============== ===============
Earnings per common share:
Basic:
Continuing operations................................ $ 0.68 $ 0.20 $ 0.95
Discontinued operations.............................. 0.10 0.33 0.91
-------------- -------------- ---------------
$ 0.78 $ 0.53 $ 1.86
============== ============== ===============
Diluted:
Continuing operations................................ $ 0.64 $ 0.19 $ 0.92
Discontinued operations.............................. 0.10 0.31 0.87
-------------- -------------- ---------------
$ 0.74 $ 0.50 $ 1.79
============== ============== ===============
See notes to consolidated financial statements.
F - 2
XANSER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------------
2001 2000
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 29,545,000 $ 20,517,000
Accounts receivable, trade (net of allowance for doubtful
accounts of $1,034,000 in 2001 and $605,000 in 2000)......... 37,186,000 29,198,000
Receivable from businesses distributed to common shareholders.. 17,904,000 -
Inventories.................................................... 8,942,000 7,641,000
Current deferred income tax assets............................. 2,300,000 36,489,000
Prepaid expenses and other..................................... 7,532,000 6,749,000
-------------- --------------
Total current assets......................................... 103,409,000 100,594,000
-------------- --------------
Property and equipment............................................ 33,381,000 30,585,000
Less accumulated depreciation and amortization.................... 21,995,000 20,043,000
-------------- --------------
Net property and equipment..................................... 11,386,000 10,542,000
-------------- --------------
Excess of cost over fair value of net assets of acquired businesses 61,054,000 62,470,000
Deferred income taxes and other assets............................ 10,370,000 11,215,000
Net assets of discontinued operations - businesses distributed
to common shareholders......................................... - 41,822,000
-------------- --------------
$ 186,219,000 $ 226,643,000
============== ==============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt.............................. $ 2,173,000 $ 595,000
Accounts payable............................................... 6,205,000 5,081,000
Accrued expenses............................................... 13,159,000 11,709,000
Accrued income taxes........................................... 10,083,000 2,024,000
-------------- --------------
Total current liabilities.................................... 31,620,000 19,409,000
-------------- --------------
Long-term debt, less current portion:
Technical services............................................. 17,871,000 18,197,000
Parent company................................................. 19,930,000 21,396,000
-------------- --------------
Total long-term debt, less current portion................... 37,801,000 39,593,000
-------------- --------------
Other liabilities................................................. 1,292,000 1,602,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value............................. - 5,792,000
Common stock, without par value. Authorized
60,000,000 shares; issued 36,809,267 shares in 2001 and
36,641,121 shares in 2000.................................... 4,270,000 4,250,000
Additional paid-in capital..................................... 128,744,000 203,989,000
Treasury stock, at cost........................................ (23,423,000) (31,440,000)
Retained earnings (accumulated deficit)........................ 11,921,000 (13,311,000)
Accumulated other comprehensive income (loss).................. (6,006,000) (3,241,000)
-------------- --------------
Total stockholders' equity................................... 115,506,000 166,039,000
-------------- --------------
$ 186,219,000 $ 226,643,000
============== ==============
See notes to consolidated financial statements.
F - 3
XANSER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------------------
2001 2000 1999
-------------- ------------- ---------------
Operating activities:
Income from continuing operations...................... $ 22,388,000 $ 6,783,000 $ 30,450,000
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization...................... 5,208,000 5,097,000 5,896,000
Increase in the estimated redemption value of
preferred stock.................................. - 1,387,000 4,863,000
Deferred income taxes.............................. (15,399,000) (6,150,000) (37,197,000)
Other, net......................................... 259,000 410,000 553,000
Changes in current assets and liabilities:
Accounts receivable.............................. (7,866,000) 5,857,000 (5,216,000)
Inventories...................................... (1,301,000) 1,359,000 1,078,000
Prepaid expenses and other....................... (3,102,000) (2,346,000) (2,236,000)
Accounts payable and accrued expenses............ 2,939,000 (3,589,000) (3,044,000)
-------------- ------------- --------------
Operating activities of continuing operations........ 3,126,000 8,808,000 (4,853,000)
Operating activities of discontinued operations...... 59,753,000 53,407,000 54,937,000
-------------- ------------- --------------
Net cash provided by operating activities............ 62,879,000 62,215,000 50,084,000
-------------- ------------- --------------
Investing activities:
Capital expenditures................................... (4,625,000) (2,690,000) (2,719,000)
Acquisitions........................................... (811,000) (4,804,000) (4,049,000)
Other, net............................................. 605,000 (418,000) 28,000
Investing activities of discontinued operations........ (128,258,000) (20,067,000) (66,922,000)
-------------- ------------- --------------
Net cash used in investing activities................ (133,089,000) (27,979,000) (73,662,000)
-------------- ------------- --------------
Financing activities:
Issuance of debt ...................................... 4,441,000 924,000 2,810,000
Payments on debt and capital leases ................... (4,655,000) (7,429,000) (2,515,000)
Preferred stock dividends and redemption premium paid.. (493,000) (479,000) (487,000)
Common stock issued.................................... 545,000 255,000 253,000
Purchase of treasury stock............................. - (1,530,000) (555,000)
Redemption of preferred stock.......................... (5,676,000) - -
Decrease in receivable from businesses distributed to
common shareholders.................................. 14,076,000 - -
Financing activities of discontinued operations........ 71,000,000 (19,976,000) 31,324,000
-------------- ------------- --------------
Net cash provided by (used in) financing activities.. 79,238,000 (28,235,000) 30,830,000
-------------- ------------- --------------
Increase in cash and cash equivalents..................... 9,028,000 6,001,000 7,252,000
Cash and cash equivalents at beginning of year............ 20,517,000 14,516,000 7,264,000
-------------- ------------- --------------
Cash and cash equivalents at end of year.................. $ 29,545,000 $ 20,517,000 $ 14,516,000
============== ============= ==============
See notes to consolidated financial statements.
F - 4
XANSER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PART 1 OF 2
Preferred Common Additional Treasury
Stock Stock Paid-In Capital Stock
------------- ------------- --------------- -------------
Balance at January 1, 1999 $ 5,792,000 $ 4,239,000 $ 197,122,000 $ (29,775,000)
Net income for the year....... - - - -
Common stock issued........... - 10,000 191,000 52,000
Purchase of treasury stock ... - - - (555,000)
Preferred stock dividends
declared..................... - - - -
Foreign currency translation
adjustment................... - - - -
------------- ------------ ------------- -------------
Comprehensive income
for the year.................
Balance at December 31, 1999 5,792,000 4,249,000 197,313,000 (30,278,000)
Net income for the year...... - - - -
Common stock issued.......... - 1,000 (114,000) 368,000
Deferred stock units, vested. - - 540,000 -
Series F Preferred stock to
be exchanged for common
stock....................... - - 6,250,000 -
Purchase of treasury stock... - - - (1,530,000)
Preferred stock dividends
declared.................... - - - -
Foreign currency translation
adjustment.................. - - - -
------------- ------------- ------------- -------------
Comprehensive income
for the year................
Balance at December 31, 2000 5,792,000 4,250,000 203,989,000 (31,440,000)
Net income for the year...... - - - -
Common stock issued.......... - 20,000 380,000 257,000
Deferred stock units, vested. - - 651,000 -
Redemption of Series A
Preferred stock............. (5,680,000) - - -
Repurchase of Series C and
F Preferred stock........... (112,000) - (7,725,000) 7,760,000
Dividends and redemption
premium applicable to
preferred stock............. - - - -
Distribution of KSL.......... - - (74,664,000) -
Gain on issuance of units
by KPP...................... - - 6,113,000 -
Minimum pension liability
adjustment for subsidiary... - - - -
Foreign currency translation
adjustment.................. - - - -
------------- ------------- ------------- -------------
Comprehensive income
for the year................
Balance at December 31, 2001 $ - $ 4,270,000 $ 128,744,000 $ (23,423,000)
============= ============= ============= =============
See notes to consolidated financial statements.
F - 5
XANSER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PART 2 OF 2
Accumulated Other
Retained Comprehensive Comprehensive
Earnings Income (Loss) Income
------------- ------------------ --------------
Balance at January 1, 1999 $ (88,423,000) $ (1,510,000) $ -
Net income for the year....... 58,909,000 - 58,909,000
Common stock issued........... - - -
Purchase of treasury stock ... - - -
Preferred stock dividends
declared..................... (487,000) - -
Foreign currency translation
adjustment................... - (762,000) (762,000)
------------- -------------- -------------
Comprehensive income
for the year................. $ 58,147,000
=============
Balance at December 31, 1999 (30,001,000) (2,272,000) -
Net income for the year...... 17,169,000 - 17,169,000
Common stock issued.......... - - -
Deferred stock units, vested. - - -
Series F Preferred stock to
be exchanged for common
stock....................... - - -
Purchase of treasury stock... - - -
Preferred stock dividends
declared.................... (479,000) - -
Foreign currency translation
adjustment.................. - (969,000) (969,000)
------------- ------------- -------------
Comprehensive income
for the year................ $ 16,200,000
=============
Balance at December 31, 2000 (13,311,000) (3,241,000) -
Net income for the year...... 25,725,000 - 25,725,000
Common stock issued.......... - - -
Deferred stock units, vested. - - -
Redemption of Series A
Preferred stock............. - - -
Repurchase of Series C and
F Preferred stock........... - - -
Dividends and redemption
premium applicable to
preferred stock............. (493,000) - -
Distribution of KSL.......... - 640,000 -
Gain on issuance of units
by KPP...................... - - -
Minimum pension liability
adjustment for subsidiary... - (2,773,000) (2,773,000)
Foreign currency translation
adjustment.................. - (632,000) (632,000)
------------- ------------- -------------
Comprehensive income
for the year................ $ 22,320,000
=============
Balance at December 31, 2001 $ 11,921,000 $ (6,006,000)
============= =============
See notes to consolidated financial statements.
F - 5
XANSER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
On August 7, 2001, the stockholders of Kaneb Services, Inc. approved an
amendment to its certificate of incorporation to change the name of the
Company from "Kaneb Services, Inc." to "Xanser Corporation" (the
"Company").
On November 27, 2000, the Board of Directors of the Company authorized
the distribution of its pipeline and terminaling and product marketing
business (the "Distribution") to its stockholders in the form of a new
limited liability company, Kaneb Services LLC ("KSL"). KSL now holds the
2% general partner interest and a 25% limited partner interest in Kaneb
Pipe Line Partners, L.P. ("KPP") and the Company's previously
wholly-owned petroleum marketing subsidiary. On June 29, 2001, the
Distribution was completed, with each shareholder of the Company
receiving one common share of KSL for each three shares of the Company's
common stock held on June 20, 2001, the record date for the Distribution,
resulting in the distribution of 10.85 million KSL common shares. As a
result, the accompanying financial statements reflect the operations of
KSL prior to the Distribution as "Discontinued operations - businesses
distributed to common shareholders" (See Note 10).
Pursuant to the Distribution, the Company entered into an agreement (the
"Distribution Agreement") with KSL, whereby, KSL will pay the Company an
amount equal to the expenses incurred by the Company in connection with
the Distribution. These expenses include approximately $6.1 million in
costs incurred in connection with the redemption of the Company's Series
A Preferred Stock and approximately $2.1 million in legal and
professional and other expenses incurred in connection with the
Distribution. The distribution of common shares is taxable to the
Company, which will recognize taxable income to the extent of the excess
of the value of KSL's common shares distributed over the tax basis of
KSL's assets in the hands of the Company. The Company will use all of its
available net operating loss carryforwards to reduce that taxable income,
but the total amount of taxable income is expected to exceed such net
operating loss carryforwards, and the Distribution Agreement obligates
KSL to pay the Company amounts calculated based on whatever tax is due on
the net amount of income. The Company cannot currently determine exactly
what this amount will be and what the tax will be, but the Company
estimates that the tax will approximate $14.6 million, after utilization
of all available net operating loss carryforwards and $4.4 million of
alternative minimum tax credits. Included in receivable from businesses
distributed to common shareholders at December 31, 2001 is $14.7 million
for such costs and expenses. The Distribution Agreement also requires KSL
to pay the Company an amount calculated based on any income tax liability
of the Company that, in the sole judgement of the Company, (i) is
attributable to increases in income tax from past years arising out of
adjustments required by Federal and state tax authorities, to the extent
that such increases are properly allocable to the businesses that became
part of KSL, or (ii) is attributable to the distribution of KSL's common
shares and the operations of KSL's businesses in the current year and the
preceding years. In the event of an examination of the Company by Federal
or state tax authorities, the Company will have unfettered control over
the examination, administrative appeal, settlement or litigation that may
be involved, notwithstanding that KSL has agreed to pay any additional
tax.
The following significant accounting policies are followed by the Company
and its subsidiaries in the preparation of its consolidated financial
statements. All significant intercompany transactions and balances are
eliminated in consolidation.
Cash and Cash Equivalents
The Company's policy is to invest cash in highly liquid investments with
original maturities of three months or less. Accordingly, uninvested cash
balances are kept at minimum levels. Such investments are valued at cost,
which approximates market, and are classified as cash equivalents. The
Company does not have any derivative financial instruments.
F - 6
Inventories
Inventories consist primarily of materials and supplies and are valued at
the lower of cost or market. Cost is determined using the weighted
average cost method.
Property and Equipment
Property and equipment are carried at historical cost. Certain leases
have been capitalized and the leased assets have been included in
property and equipment. Additions of new equipment and major renewals and
replacements of existing equipment are capitalized. Repairs and minor
replacements that do not materially increase values or extend useful
lives are expensed. Depreciation of property and equipment is provided on
the straight-line basis at rates based upon the expected useful lives of
the various classes of assets.
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of assets.
Revenue Recognition
Revenues are recognized when services to customers have been rendered or
when products have been delivered.
Earnings Per Share
The amount of earnings for the period applicable to each share of common
stock outstanding during the period ("Basic" earnings per share) and the
amount of earnings for the period applicable to each share of common
stock outstanding during the period and to each share that would have
been outstanding assuming the issuance of common shares for dilutive
potential common shares outstanding during the period ("Diluted" earnings
per share) have been presented in the consolidated statements of income.
Foreign Currency Translation
The Company translates the balance sheets of its foreign subsidiaries
using year-end exchange rates and translates income statement amounts
using the average exchange rates in effect during the year. The gains and
losses resulting from the change in exchange rates from year to year have
been reported separately as a component of accumulated other
comprehensive income (loss) in stockholders' equity. Gains and losses
resulting from foreign currency transactions are included in the
statements of income.
Excess of Cost Over Fair Value of Net Assets of Acquired Businesses
The excess of the cost over the fair value of net assets of acquired
businesses is being amortized on a straight-line basis over periods
ranging from 15 to 40 years. Accumulated amortization was $20.7 million
and $18.4 million at December 31, 2001 and 2000, respectively.
The Company periodically evaluates the propriety of the carrying amount
of the excess of cost over fair value of net assets of acquired
businesses, as well as the amortization period, to determine whether
current events or circumstances warrant adjustments to the carrying value
and/or the amortization period. The Company assesses the recoverability
of the amounts by determining whether the amortization of the asset
balance over its amortization period can be recovered through
undiscounted future operating cash flows of the acquired operation. The
amount of impairment, if any, is measured based on projected discounted
future operating cash flows. The assessment of recoverability will be
impacted if estimated future cash flows are not achieved. The Company
believes that no such impairment has occurred and that no reduction in
the amortization period is warranted.
Estimates
The preparation of the Company's financial statements in conformity with
accounting principles general accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
In July of 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141 "Business Combinations", which requires that all
business combinations initiated after June 30, 2001 be accounted for
under the purchase method of accounting. SFAS No. 141 also specifies the
criteria for recording intangible assets other than goodwill in a
business combination.
Additionally, in July of 2001, the FASB issued SFAS No. 142 "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be
amortized to earnings, but instead be reviewed for impairment. The
Company is currently assessing the impact of SFAS No. 142, which must be
adopted in the first quarter of 2002.
Also, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations", which establishes requirements for the removal-type costs
associated with asset retirements. The Company is currently assessing the
impact of SFAS No. 143, which must be adopted in the first quarter of
2003.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144, which supercedes SFAS No. 121, is effective for
fiscal years beginning after December 15, 2001 and interim periods within
those fiscal years with earlier application encouraged. The Company is
currently assessing the impact on its financial statements.
2. INCOME TAXES
Income (loss) from continuing operations before income tax expense is
comprised of the following components:
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999
-------------- ------------- -------------
Domestic operations......................... $ 3,246,000 $ (2,371,000) $ (7,004,000)
Foreign operations.......................... 6,103,000 3,260,000 (1,053,000)
-------------- ------------- ------------
Income (loss) before income taxes........... $ 9,349,000 $ 889,000 $ (8,057,000)
============== ============= ============
Income tax expense (benefit) is comprised of the following components:
Year Ended
December 31, Federal Foreign State Total
------------ ------------- ------------ ------------ -------------
2001:
Current............... $ 1,483,000 $ 649,000 $ 265,000 $ 2,397,000
Deferred.............. (15,418,000) 919,000 (937,000) (15,436,000)
------------- ------------ ------------ -------------
$ (13,935,000) $ 1,568,000 $ (672,000) $ (13,039,000)
============= ============ ============ =============
Year Ended
December 31, Federal Foreign State Total
------------ ------------- ------------ ------------ -------------
2000:
Current............... $ 47,000 $ 1,031,000 $ (822,000) $ 256,000
Deferred.............. (5,699,000) (278,000) (173,000) (6,150,000)
------------- ------------ ------------ -------------
$ (5,652,000) $ 753,000 $ (995,000) $ (5,894,000)
============= ============ ============ =============
1999:
Current................. $ 81,000 $ (735,000) $ (656,000) $ (1,310,000)
Deferred................ (37,451,000) 8,000 246,000 (37,197,000)
------------- ------------ ------------ -------------
$ (37,370,000) $ (727,000) $ (410,000) $ (38,507,000)
============= ============ ============ =============
The reasons for the differences between the amount of tax expense
provided and the amount of tax expense computed by applying the statutory
Federal income tax rate to income (loss) from continuing operations
before income taxes for the years 2001, 2000 and 1999 are as follows:
Year Ended December 31,
-----------------------------------------------------------------
2001 2000 1999
----------------- ------------------ -----------------
Expected tax at
statutory rates................ $ 3,272,000 $ 311,000 $ (2,820,000)
Increase (decrease) in taxes
resulting from:
Change in valuation allowance.. - (6,280,000) (37,124,000)
State income taxes, net........ (437,000) (647,000) (267,000)
Foreign losses not benefited and
foreign income taxes......... 141,000 (388,000) (13,000)
Non-deductible charges related
to Series F Preferred stock.. - 485,000 1,702,000
Goodwill amortization ......... 664,000 598,000 649,000
Benefit from recapitalization
of foreign subsidiary........ (18,137,000) - -
Resolution of state and
foreign tax issues and
other........................ 1,458,000 27,000 (634,000)
----------------- ------------------ ----------------
$ (13,039,000) $ (5,894,000) $ (38,507,000)
================= ================== ================
At December 31, 2001, the Company had available domestic tax net
operating loss carryforwards ("NOLs"), which will expire, if unused, as
follows: $1,166,000 in 2006 and $3,033,000 in 2007. The utilization of
these carryforwards could be subject to significant limitation in the
event of a "change in ownership", as defined in the tax laws, which might
be caused by purchases or sales of the Company's securities by persons or
groups now or in the future having 5% or greater ownership of the
Company's common stock.
For the year ended December 31, 2001, income taxes include $18.1 million
in tax benefits resulting from the recapitalization of a foreign
subsidiary. Additionally, income taxes for the years ended December 31,
2001, 2000 and 1999 include benefits of $0.6 million, $1.1 million and
$1.6 million, respectively, related to favorable developments pertaining
to certain state and foreign income tax issues.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2001 and 2000 are as follows:
December 31,
-------------------------------------
2001 2000
-------------- --------------
Deferred tax assets:
Net operating loss carryforwards......................... $ 1,469,000 $ 35,633,000
Alternative minimum tax credit carryforwards............. 6,357,000 4,393,000
Accrued liabilities...................................... 879,000 1,198,000
Foreign deferred tax assets.............................. 205,000 -
Other.................................................... 531,000 2,570,000
-------------- --------------
Total gross deferred tax assets.......................... 9,441,000 43,794,000
-------------- --------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation........................................ (85,000) (136,000)
Foreign deferred tax liabilities......................... - (21,000)
-------------- --------------
Total gross deferred tax liabilities..................... (85,000) (157,000)
-------------- --------------
Net deferred tax asset................................... $ 9,356,000 $ 43,637,000
============== ==============
For the years ended December 31, 2000 and 1999, the Company recognized
expected benefits from prior years' tax losses (change in valuation
allowance) that were available to offset future taxable income of $6.3
million and $37.1 million, respectively. The Company reduced the
valuation allowance as a result of its reevaluation of the realizability
of income tax benefits from future operations. The Company considered
positive evidence, including the effect of the Distribution, recent
historical levels of taxable income, the scheduled reversal of deferred
tax liabilities, tax planning strategies, revised estimates of future
taxable income growth, and expiration periods of NOLs among other things,
in making this evaluation and concluding that it is more likely than not
that the Company will realize the benefit of its net deferred tax assets.
Upon completion of the Distribution, all remaining deferred tax assets
relating to previously recorded net operating loss carryforwards ($38.8
million), which were utilized to offset federal income taxes resulting
from the Distribution, were charged directly to stockholders' equity.
3. RETIREMENT PLANS
The Company has a defined contribution plan which covers substantially
all domestic employees and provides for varying levels of employer
matching. Contributions from continuing operations to this plan were $0.8
million, $0.7 million and $0.6 million for 2001, 2000 and 1999,
respectively.
One of the Company's foreign subsidiaries has a defined benefit pension
plan covering substantially all of its United Kingdom employees (the
"U.K. Plan"). The benefit is based on the average of the employee's
salary for the last three years of employment. Generally, the employee
contributes 5% and the employer contributes up to 12% of pay. Plan assets
are primarily invested in unitized pension funds managed by United
Kingdom registered funds managers. The most recent valuation of the U.K.
Plan was performed as of October 31, 2001.
Net pension cost for the U.K. Plan included the following components:
Year Ended December 31,
---------------------------------------------------
2001 2000 1999
-------------- ------------- -------------
Net periodic pension cost:
Service cost................................ $ 515,000 $ 623,000 $ 1,164,000
Interest cost............................... 2,287,000 2,269,000 2,151,000
Expected return on plan assets.............. (3,516,000) (2,805,000) (4,443,000)
Amortization of prior service cost.......... 15,000 15,000 27,000
Recognized net (gain) loss.................. (321,000) (222,000) 1,859,000
-------------- ------------- -------------
Net periodic pension cost (benefit)........... $ (1,020,000) $ (120,000) $ 758,000
============== ============= =============
Actuarial assumptions used in the accounting for the U.K. Plan were a
weighted average discount rate of 6.0% for 2001 and 6.5% for 2000 and
1999, an expected long-term rate of return on assets of 7.5% for 2001,
2000 and 1999 and a rate of increase in compensation levels of 3.0% for
2001, 2000 and 1999. The funded status of the U.K. Plan is as follows:
December 31,
--------------------------------
2001 2000
-------------- --------------
Projected benefit obligation:
Beginning of year.......................................... $ 36,548,000 $ 37,098,000
Service cost............................................... 515,000 623,000
Interest cost.............................................. 2,287,000 2,269,000
Contributions.............................................. 565,000 596,000
Benefits paid.............................................. (1,907,000) (910,000)
Other...................................................... 2,790,000 (3,128,000)
------------- -------------
End of year................................................ 40,798,000 36,548,000
------------- -------------
Fair value of plan assets:
Beginning of year.......................................... 46,507,000 41,905,000
Actual return (loss) on plan assets........................ (5,289,000) 2,940,000
Contributions.............................................. 565,000 596,000
Benefits paid.............................................. (1,907,000) (910,000)
Other...................................................... (896,000) 1,976,000
------------- -------------
End of year................................................ 38,980,000 46,507,000
------------- -------------
Excess fair value over (under) projected obligation.......... (1,818,000) 9,959,000
Unrecognized net actuarial loss (gain)....................... 4,136,000 (9,234,000)
Unamortized prior service cost............................... 122,000 141,000
------------- -------------
Net pension prepaid asset.................................... 2,440,000 866,000
Additional minimum liability................................. (4,082,000) -
------------- -------------
Net pension prepaid asset (liability)........................ $ (1,642,000) $ 866,000
============= =============
The Company recognizes a minimum pension liability for underfunded plans.
The minimum liability is equal to the excess of the accumulated benefit
obligation over plan assets. A corresponding amount is recognized as
either an intangible asset, to the extent of previously unrecognized
prior service cost, or a reduction of accumulated other comprehensive
income included in stockholders' equity. In 2001, the Company recognized
an additional minimum liability of $4.1 million, which, net of deferred
income taxes of $1.3 million, is recorded as a reduction in accumulated
other comprehensive income.
4. PROPERTY AND EQUIPMENT
The cost of property and equipment from continuing operations is as
follows:
December 31,
--------------------------------
2001 2000
-------------- --------------
Technical services..................................... $ 23,969,000 $ 22,614,000
Information technology services........................ 5,564,000 4,123,000
General corporate...................................... 3,848,000 3,848,000
-------------- --------------
Total property and equipment........................... 33,381,000 30,585,000
Less accumulated depreciation and amortization......... 21,995,000 20,043,000
-------------- --------------
Net property and equipment............................. $ 11,386,000 $ 10,542,000
============== ==============
Equipment under capital leases is included in the cost of property and
equipment from continuing operations is as follows:
December 31,
--------------------------------
2001 2000
-------------- --------------
Technical services equipment........................... $ 2,566,000 $ 2,255,000
Less accumulated depreciation.......................... 1,189,000 1,122,000
-------------- --------------
Net equipment acquired under capital leases............ $ 1,377,000 $ 1,133,000
============== ==============
5. LONG-TERM DEBT
Long-term debt from continuing operations is summarized as follows:
December 31,
--------------------------------
2001 2000
-------------- --------------
Technical services credit facility due in April 2003... $ 16,283,000 $ 14,120,000
Various notes of technical services foreign
subsidiaries, with interest ranging from 6.75% to
8.0%, due through 2012............................... 855,000 3,473,000
Capital leases of equipment............................ 1,440,000 1,199,000
Parent company 8.75% convertible subordinated
debentures due through 2008.......................... 21,396,000 21,396,000
-------------- --------------
Total long-term debt................................... 39,974,000 40,188,000
Less current portion................................... 2,173,000 595,000
-------------- --------------
Total long-term debt, less current portion............. $ 37,801,000 $ 39,593,000
============== ==============
At December 31, 2001, $16.3 million was outstanding under a credit
facility, as amended, that provides working capital for the technical
services group. The credit facility, which is without recourse to the
Company, is due in April 2003, bears interest at the option of the
borrower at variable rates (4.52% at December 31, 2001) based on either
the LIBOR rate or the prime rate plus a differential of up to 150 basis
points, has a commitment fee equal to one-half of one percent per annum
on unutilized amounts, contains certain financial and operational
covenants with respect to the technical services group of companies, and
restricts the subsidiary from paying dividends to the Company under
certain circumstances. This credit facility is secured by substantially
all of the tangible assets of the technical services group.
The Company's 8.75% subordinated debentures ($21.4 million outstanding at
December 31, 2001) are convertible into shares of the Company's common
stock at the conversion price, adjusted in 2001 for the Distribution of
KSL, of $5.26 per share. On March 1, 2002, the Company purchased $10.0
million of subordinated debentures at par value, which satisfies its
sinking fund requirements on these subordinated debentures through 2007.
At December 31, 2001, annual sinking fund requirements and debt
maturities on consolidated debt, including capital leases, were as
follows: $2.2 million; $18.9 million; $2.3 million; $2.1 million; and
$2.1 million, respectively, for each of the five years ending December
31, 2006.
6. CAPITAL STOCK
Series A Preferred Stock
On March 30, 2001, the Company redeemed its 567,950 shares of Cumulative
Class A Adjustable Rate Preferred Stock, Series A ("Series A Preferred")
for cash at the stated redemption price of $10.67 per share, plus accrued
and unpaid dividends, for a total cost of approximately $6.1 million. The
redemption cost included a $0.4 million redemption premium, which was
recognized as dividends and redemption premium applicable to preferred
stock in 2001.
Series B Preferred Stock
On April 9, 1998, the Board of Directors of the Company declared a
dividend distribution of one stock purchase right ("Right") for each
outstanding share of common stock to stockholders of record on April 19,
1998. These Rights are substantially similar to, and were issued in
replacement of, rights that expired on April 19, 1998, pursuant to the
Company's Stockholders Rights Plan. Pursuant to the replacement plan,
each Right entitles the holder, upon the occurrence of certain events, to
purchase from the Company one one-hundredth of a share of Series B Junior
Participating Preferred Stock, no par value, at a price of $15, subject
to adjustment. The Rights will not separate from the common stock or
become exercisable until a person or group either acquires beneficial
ownership of 15% or more of the Company's common stock or commences a
tender or exchange offer that would result in ownership of 20% or more,
whichever occurs earlier. The Rights, which expire on April 19, 2008, are
redeemable in whole, but not in part, at the Company's option at any time
for a price of $0.01 per Right. At December 31, 2001 and 2000 there were
no Series B Preferred shares outstanding.
Stock Compensation Plans
Series C and F Preferred Stock - On June 12, 2001, the Company exchanged
in non-cash transactions, 1,356,777 shares of the Company's common stock
for all Adjustable Rate Cumulative Class A Preferred Stock, Series C and
Series F shares issued to certain officers of the Company. General and
administrative expense in the accompanying consolidated statements of
income includes a non-cash charge of $1.4 million and $4.9 million for
the years ended December 31, 2000 and 1999, respectively, for the
estimated value of the preferred shares.
Stock Option Plans - The Company has stock option plans and agreements
for officers, directors and key employees. The options granted under
these plans and agreements generally expire ten years from date of grant.
All options were granted at prices greater than or equal to the market
price at the date of grant or repricing. At December 31, 2001, options on
3,049,083 shares at prices ranging from $.54 to $3.05 were outstanding,
of which 2,168,083 were exercisable at prices ranging from $.54 to $3.05.
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), the Company applies APB Opinion
25 and related interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS 123. The
Black-Scholes option pricing model has been used to estimate the value of
stock options issued and the assumptions in the calculations under such
model include stock price variance or volatility ranging from 9.32% to
10.40% based on weekly average variances of the stock for the five year
period preceding issuance, a risk-free rate of return ranging from 4.38%
to 4.98% based on the 30-year U.S. treasury bill rate for the five-year
expected life of the options, and no dividend yield. Using estimates
calculated by such option pricing model, pro forma net income, basic
earnings per share and diluted earnings per share would have been
$25,132,000, $0.75 and $0.71, respectively for the year ended December
31, 2001, as compared to the reported amounts of $25,725,000, $0.78 and
$0.74, respectively. For the year ended December 31, 2000, pro forma net
income, basic earnings per share and diluted earnings per share would
have been $16,544,000, $0.50 and $0.48, respectively, as compared to the
reported amounts of $17,169,000, $0.53 and $0.50, respectively. For the
year ended December 31, 1999 pro forma net income, basic earning per
share and diluted earnings per share would have been $58,292,000, $1.84
and $1.77, respectively, as compared to the reported amounts of
$58,909,000, $1.86 and $1.79, respectively.
The changes in stock options outstanding for the Company's plans for
2001, 2000 and 1999 were as follows:
Average Price
Shares per Share
--------------- --------------
Outstanding at January 1, 1999......................... 2,091,352 $ 3.36
Granted................................................ 210,191 $ 4.29
Exercised.............................................. (80,121) $ 2.64
Forfeited.............................................. (154,622) $ 4.14
-------------
Outstanding at December 31, 1999....................... 2,066,800 $ 3.42
Granted................................................ 207,840 $ 5.18
Exercised.............................................. (17,494) $ 4.99
Forfeited.............................................. (58,863) $ 4.65
-------------
Outstanding at December 31, 2000....................... 2,198,283 $ 3.54
Granted................................................ 1,016,000 $ 2.67
Exercised.............................................. (165,200) $ 2.89
-------------
Outstanding at December 31, 2001....................... 3,049,083 $ 1.66
=============
In connection with the Distribution, the exercise price for each option
to purchase shares of the Company's common stock was reduced to an amount
equal to the result of (1) the fair market value of a share of the
Company's common stock on the ex-dividend date multiplied by (2) a
fraction, the numerator of which is the original exercise price for the
option and the denominator of which was the fair market value of a share
of the Company's common stock on the last trading date prior to the
ex-dividend date. The number of shares subject to the Company's stock
options were not changed as a result of the Distribution. Additionally,
KSL agreed to issue to the Company's option holders an option to purchase
KSL shares. The exercise price applicable to a given KSL option was that
price that created the same ratio of exercise price to market price as in
the adjusted exercise price applicable to the holder's Company option.
The number of common shares subject to KSL options was such number as was
necessary to produce an intrinsic value (determined as of the ex-dividend
date) that, when added to the intrinsic value of the adjusted Company
option (determined as of the ex-dividend date), equaled the
pre-distribution intrinsic value of the Company's option, if any,
(determined as of the last trading date prior to the ex-dividend date).
However, options to purchase fractional KSL common shares were not
granted. The fair market values of shares of the Company's common stock
and KSL common shares were based upon the closing sales price of the
stock on the last trading date prior to the ex-distribution date and the
opening sales price of the shares on the ex-distribution date. Further,
excluding the Company's corporate staff, the Company removed restrictions
on exercise or "vested" all Company options which were not yet
exercisable prior to the Distribution.
Deferred Stock Unit Plan - In 1996, the Company initiated a Deferred
Stock Unit Plan (the "DSU Plan"), pursuant to which key employees of the
Company have, from time to time, been given the opportunity to defer a
portion of their compensation for a specified period toward the purchase
of deferred stock units ("DSUs"), an instrument designed to track the
Company's common stock. Under the plan, as amended in 1998, DSUs are
purchased at a value equal to the closing price of the Company's common
stock on the day by which the employee must elect (if they so desire) to
participate in the DSU Plan; which date is established by the
Compensation Committee, from time to time (the "Election Date"). During a
vesting period of one to three years following the Election Date, a
participant's DSUs vest only in an amount equal to the lesser of the
compensation actually deferred to date or the value (based upon the
then-current closing price of the Company's common stock) of the pro-rata
portion (as of such date) of the number of DSUs acquired. After the
expiration of the vesting period, which is typically the same length as
the deferral period, the DSUs become fully vested, but may only be
distributed through the issuance of a like number of shares of the
Company's common stock on a pre-selected date, which is irrevocably
selected by the participant on the Election Date and which is typically
at or after the expiration of the vesting period and no later than ten
years after the Election Date, or at the time of a "change of control" of
the Company, if earlier. DSU accounts are unfunded by the Company and do
not bear interest. Each person that elects to participate in the DSU Plan
is awarded, under the Company's Stock Incentive Plan, an option to
purchase a number of shares of the Company's common stock ranging from
one-half to one and one-half times (depending on the length of deferral)
the number of DSUs purchased by such person at 100% of the closing price
of the Company's common stock on the Election Date, which options become
exercisable over a specified period after the grant, according to a
schedule determined by the Compensation Committee. At December 31, 2001,
vested DSUs aggregating 448,035 were included in stockholders' equity as
additional paid-in capital. In connection with the Distribution, KSL
agreed to issue to all DSU holders the number of DSUs equivalent in price
to KSL shares issuable in the Distribution. All other terms remained
unchanged. Similarly, the Company agreed to issue to employees of KSL who
hold DSUs, the number of shares of the Company's common stock subject to
the DSUs held by those employees. Approximately 600,000 shares will be
issuable to employees of the Company and KSL under this arrangement and
the terms of the DSU Plan.
7. EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share
from continuing operations:
Weighted
Average
Net Common Per-Share
Income Shares Amount
--------------- -------------- --------------
Year Ended December 31, 2001
----------------------------
Income from continuing operations......... $ 22,388,000
Dividend and redemption premium
applicable to preferred stock.......... (493,000)
---------------
Basic EPS -
Income applicable to common stock...... 21,895,000 32,503,000 $ 0.68
==============
Effect of dilutive securities -
Common stock options, Series F
Preferred Stock and DSUs............. - 1,631,000
--------------- --------------
Diluted EPS -
Income applicable to common stock,
Series F Preferred stock, DSUs
and assumed options exercised........ $ 21,895,000 34,134,000 $ 0.64
=============== ============== ==============
Year Ended December 31, 2000
----------------------------
Income from continuing operations......... $ 6,783,000
Dividend applicable to preferred stock.... (479,000)
---------------
Basic EPS -
Income applicable to common stock...... 6,304,000 31,767,000 $ 0.20
==============
Effect of dilutive securities -
Common stock options, Series F
Preferred Stock and DSUs............. - 1,319,000
--------------- --------------
Diluted EPS -
Income applicable to common stock,
Series F Preferred stock, DSUs
and assumed options exercised........ $ 6,304,000 33,086,000 $ 0.19
=============== ============== ==============
Weighted
Average
Net Common Per-Share
Income Shares Amount
--------------- -------------- --------------
Year Ended December 31, 1999
----------------------------
Income from continuing operations......... $ 30,450,000
Dividend applicable to preferred stock.... (487,000)
---------------
Basic EPS -
Income applicable to common stock...... 29,963,000 31,453,000 $ 0.95
==============
Effect of dilutive securities -
Common stock options, Series F
Preferred Stock and DSUs............. - 1,237,000
--------------- --------------
Diluted EPS -
Income applicable to common stock,
Series F Preferred stock, DSUs
and assumed options exercised........ $ 29,963,000 32,690,000 $ 0.92
=============== ============== ==============
Options to purchase 959,000, 284,597 and 605,600 shares of common stock
at weighted average prices of $2.71, $5.40 and $4.90, were outstanding at
December 31, 2001, 2000 and 1999, respectively, but were not included in
the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common stock. Additionally,
the Company's 8.75% convertible subordinated debentures were excluded
from the computation of diluted EPS because the effect of assumed
conversion is anti-dilutive.
8. COMMITMENTS AND CONTINGENCIES
The Company leases vehicles, office space, office equipment and other
items of personal property under leases expiring at various dates.
Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases. Total rent expense
incurred under operating leases attributable to continuing operations was
$3.6 million for 2001, $3.2 million for 2000 and $3.6 million for 1999.
At December 31, 2001, future minimum rental commitments attributable to
continuing operations under all capital leases and operating leases are
as follows:
Capital Operating
Leases Leases
-------------- --------------
2002..................................................... $ 719,000 $ 2,989,000
2003..................................................... 526,000 2,383,000
2004..................................................... 274,000 2,008,000
2005 .................................................... 71,000 1,079,000
2006..................................................... - 705,000
Thereafter............................................... - 1,670,000
-------------- --------------
Total minimum lease payments............................. 1,590,000 $ 10,834,000
==============
Less amounts representing interest....................... (150,000)
--------------
Present value of net minimum lease payments.............. $ 1,440,000
==============
The Company was the Plaintiff in a legal proceeding involving malpractice
issues with a professional service provider previously used by the
Company. This matter was settled in December 2001 with a payment to the
Company which, net of expenses, totaled $6.0 million and is included in
other income (expense) for the year ended December 31, 2001.
The Company has contingent liabilities resulting from litigation, claims
and commitments incident to the ordinary course of business. Management
believes, based on the advice of counsel, that the ultimate resolution of
such contingencies will not have a materially adverse effect on the
financial position or results of operations of the Company.
9. BUSINESS SEGMENT DATA
The Company provides technical services to an international client base
that includes refineries, chemical plants, pipelines, offshore drilling
and production platforms, steel mills, food and drink processing
facilities, power generation, and other process industries. Additionally,
the Company's information technology services segment provides consulting
services, hardware sales and other related information management and
processing services to governmental, insurance and financial
institutions. General corporate includes compensation and benefits paid
to officers and employees of the Company, insurance premiums, general and
administrative costs, tax and financial reporting costs, legal and audit
fees not reasonably allocable to specific business segments. General
corporate assets include cash, deferred taxes and other assets not
related to its segments.
The Company measures segment profit as operating income. Total assets are
those assets, including excess of cost over fair value of net assets of
acquired businesses, controlled by each reportable segment.
Year Ended December 31,
---------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
Business segment revenues:
Technical services.......................... $ 96,321,000 $ 92,142,000 $ 98,075,000
Information technology services............. 48,383,000 35,499,000 37,358,000
--------------- -------------- --------------
$ 144,704,000 $ 127,641,000 $ 135,433,000
=============== ============== ==============
Technical services segment revenues:
Under pressure services..................... $ 39,903,000 $ 38,652,000 $ 38,873,000
Turnaround services......................... 48,301,000 44,283,000 43,859,000
Other services.............................. 8,117,000 9,207,000 15,343,000
--------------- -------------- --------------
$ 96,321,000 $ 92,142,000 $ 98,075,000
=============== ============== ==============
Year Ended December 31,
---------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
Business segment profit:
Technical services ......................... $ 5,581,000 $ 6,320,000 $ (255,000)
Information technology services............. 3,651,000 4,134,000 5,496,000
General corporate........................... (3,803,000) (6,352,000) (9,807,000)
--------------- -------------- --------------
Operating income (loss)................... 5,429,000 4,102,000 (4,566,000)
Interest income............................. 665,000 909,000 534,000
Other income (expense)...................... 6,741,000 (239,000) (208,000)
Interest expense............................ (3,486,000) (3,883,000) (3,817,000)
--------------- -------------- --------------
Income (loss) from continuing operations
before income taxes....................... $ 9,349,000 $ 889,000 $ (8,057,000)
=============== ============== ==============
Business segment assets:
Depreciation and amortization:
Technical services........................ $ 4,514,000 $ 4,585,000 $ 5,485,000
Information technology services........... 694,000 512,000 411,000
--------------- -------------- --------------
$ 5,208,000 $ 5,097,000 $ 5,896,000
=============== ============== ==============
Capital expenditures (excluding acquisitions):
Technical services........................ $ 3,331,000 $ 2,160,000 $ 2,328,000
Information technology services........... 1,294,000 530,000 391,000
--------------- -------------- --------------
$ 4,625,000 $ 2,690,000 $ 2,719,000
=============== ============== ==============
December 31,
---------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
Total assets:
Technical services........................ $ 102,147,000 $ 103,817,000 $ 108,094,000
Information technology services........... 30,877,000 20,086,000 17,911,000
General corporate......................... 53,195,000 60,918,000 50,171,000
Discontinued operations, net.............. - 41,822,000 43,364,000
--------------- -------------- --------------
$ 186,219,000 $ 226,643,000 $ 219,540,000
=============== ============== ==============
The following geographical area data includes revenues based on location
of the operating segment and net property and equipment based on physical
location:
Year Ended December 31,
---------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
Geographical area revenues:
United States............................ $ 84,171,000 $ 67,242,000 $ 67,145,000
Europe................................... 48,554,000 50,446,000 57,258,000
Asia-Pacific............................. 11,979,000 9,953,000 11,030,000
--------------- -------------- --------------
$ 144,704,000 $ 127,641,000 $ 135,433,000
=============== ============== ==============
Geographical area operating income (loss):
United States............................ $ (2,461,000) $ (3,757,000) $ (7,164,000)
Europe................................... 7,011,000 6,997,000 2,041,000
Asia-Pacific............................. 879,000 862,000 557,000
--------------- -------------- --------------
$ 5,429,000 $ 4,102,000 $ (4,566,000)
=============== ============== ==============
December 31,
---------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
Geographical area net property and equipment:
United States............................ $ 5,346,000 $ 3,099,000 $ 3,536,000
Europe................................... 5,110,000 6,506,000 6,288,000
Asia-Pacific............................. 930,000 937,000 1,364,000
--------------- -------------- --------------
$ 11,386,000 $ 10,542,000 $ 11,188,000
=============== ============== ==============
10. DISCONTINUED OPERATIONS - BUSINESSES DISTRIBUTED TO COMMON SHAREHOLDERS
The results of operations for the pipeline, terminaling and product
marketing businesses are reflected in the accompanying consolidated
statements of income as "Discontinued operations - businesses distributed
to common shareholders" (See Note 1). A summary of operating results of
discontinued operations for the years ended December 31, 2001 (through
date of Distribution on June 29, 2001), 2000 and 1999 is presented below:
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999
-------------- ------------- -------------
Revenues:
Pipeline and terminaling.................. $ 101,021,000 $ 156,232,000 $ 158,028,000
Product marketing business................ 187,231,000 381,186,000 212,298,000
-------------- ------------- -------------
$ 288,252,000 $ 537,418,000 $ 370,326,000
============== ============= =============
Operating profit:
Pipeline and terminaling.................. $ 39,896,000 $ 58,104,000 $ 64,311,000
Product marketing business................ (264,000) 2,472,000 1,495,000
Distribution expenses..................... (1,923,000) - -
-------------- ------------- -------------
$ 37,709,000 $ 60,576,000 $ 65,806,000
============== ============= =============
Income before income taxes and interest
of outside non-controlling partners in
KPP's net income and extraordinary item... $ 32,653,000 $ 48,688,000 $ 69,101,000
Income taxes................................ (3,090,000) (5,609,000) (7,163,000)
Extraordinary loss on KPP debt
extinguishment, net of income taxes
and interest of outside non-controlling
partners in KPP's net income.............. (859,000) - -
Interest of outside non-controlling partners
in KPP's net income....................... (25,367,000) (32,693,000) (33,479,000)
-------------- ------------- -------------
Income from discontinued operations,
net of income taxes....................... $ 3,337,000 $ 10,386,000 $ 28,459,000
============== ============= =============
On January 3, 2001, KPP, through a wholly-owned subsidiary, acquired
Shore Terminals LLC ("Shore") for $107 million in cash and 1,975,090 KPP
limited partnership units (valued at $56.5 million on the date of
agreement and its announcement). Financing for the cash portion of the
purchase price was supplied under KPP's $275 million unsecured revolving
credit agreement with a group of banks. The acquisition has been
accounted for using the purchase method of accounting. As a result of KPP
issuing additional units to unrelated parties, the Company's pro-rata
share of net assets of KPP increased by $9.9 million. Accordingly, the
Company recorded a $9.9 million increase in additional paid-in capital,
before deferred income taxes of $3.8 million, in 2001.
In March of 2001, a wholly-owned subsidiary of KPP entered into two
contracts for the purpose of locking in interest rates on $100 million of
anticipated ten-year public debt offerings. As the interest rate locks
were not designated as hedging instruments pursuant to the requirements
of SFAS No. 133, increases or decreases in the fair value of the
contracts are recognized by KPP in results of operations on a current
basis. On May 22, 2001, the contracts were settled resulting in an
aggregate gain to KPP of $3.8 million.
11. ACCRUED EXPENSES
Accrued expenses from continuing operations are comprised of the
following components:
December 31,
---------------------------------
2001 2000
---------------- --------------
Accrued taxes other than income............................... $ 409,000 $ 403,000
Accrued interest.............................................. 1,014,000 882,000
Accrued compensation and benefits............................. 4,393,000 2,366,000
Other accrued expenses........................................ 7,343,000 8,058,000
-------------- --------------
$ 13,159,000 $ 11,709,000
============== ==============
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information on cash paid from continuing operations for:
Year Ended December 31,
-------------------------------------------------
2001 2000 1999
-------------- --------------- ------------
Interest...................................... $ 3,383,000 $ 3,755,000 $ 3,719,000
============== =============== ============
Income taxes.................................. $ 1,270,000 $ 1,716,000 $ 1,030,000
============== =============== ============
13. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of cash equivalents, accounts receivable and
accounts payable approximate their carrying amounts due to the relatively
short period to maturity of these instruments. The estimated fair value
of all debt from continuing operations (excluding capital leases) as of
December 31, 2001 and 2000 was approximately $37 million and $36 million
as compared to the carrying value of $39 million and $39 million,
respectively. These fair values were estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements, when quoted market prices were
not available. The Company has not determined the fair value of its
capital leases as it is not practicable. The estimates presented above
are not necessarily indicative of the amounts that would be realized in a
current market exchange. The Company has no derivative financial
instruments.
The technical services segment provides services to an international
client base that includes petroleum refineries, chemical plants, offshore
energy production platforms, steel mills, nuclear power stations,
conventional power stations, pulp and paper mills, food and beverage
processing plants and other flow-process facilities. The information
technology services segment provides services and related products to the
U. S. Government and commercial sectors. A substantial portion of the
revenues of the information technology segment is attributable to
contracts with agencies of the U. S. Government. The Company does not
believe that it has a significant concentration of credit risk at
December 31, 2001, as the Company's accounts receivable are generated
from these distinct business segments with customers located throughout
the United States, Europe and Asia-Pacific.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 2001 and 2000 are summarized as follows:
Quarter Ended
-----------------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------------- -------------- -------------- ---------------
2001:
Revenues......................... $ 35,892,000 $ 38,724,000 $ 34,935,000 $ 35,153,000
=============== ============== ============== ===============
Operating income................. $ 1,524,000 $ 1,388,000 $ 1,585,000 $ 932,000
=============== ============== ============== ===============
Net income (loss):
Continuing operations.......... $ 373,000 $ 685,000 $ 1,229,000 $ 20,101,000 (a)
Discontinued operations........ 657,000 2,766,000 - (86,000)
--------------- -------------- -------------- ---------------
Total........................ $ 1,030,000 $ 3,451,000 $ 1,229,000 $ 20,015,000
=============== ============== ============== ===============
Earnings per common share:
Basic:
Continuing operations........ $ - $ .02 $ .04 $ .60
Discontinued operations...... .02 .09 - -
--------------- -------------- -------------- ---------------
Total..................... $ .02 $ .11 $ .04 $ .60
=============== ============== ============== ===============
Diluted:
Continuing operations........ $ - $ .02 $ .04 $ .59
Discontinued operations...... .02 .08 - -
--------------- -------------- -------------- ---------------
Total..................... $ .02 $ .10 $ .04 $ .59
=============== ============== ============== ===============
2000:
Revenues......................... $ 31,294,000 $ 33,380,000 $ 33,763,000 $ 29,204,000
=============== ============== ============== ===============
Operating income (loss).......... $ 555,000 $ 1,575,000 $ 2,006,000 $ (34,000)
=============== ============== ============== ===============
Net income (loss):
Continuing operations.......... $ (235,000) $ 587,000 $ 1,190,000 $ 5,241,000 (b)
Discontinued operations........ 2,160,000 2,947,000 3,269,000 2,010,000
--------------- -------------- -------------- ---------------
Total........................ $ 1,925,000 $ 3,534,000 $ 4,459,000 $ 7,251,000
=============== ============== ============== ===============
Earnings (loss) per common share:
Basic:
Continuing operations........ $ (.01) $ .01 $ .03 $ .17
Discontinued operations...... .07 .10 .11 .06
--------------- -------------- -------------- ---------------
Total..................... $ .06 $ .11 $ .14 $ .23
=============== ============== ============== ===============
Diluted:
Continuing operations........ $ (.01) $ .01 $ .03 $ .16
Discontinued operations...... .07 .09 .10 .06
--------------- -------------- -------------- ---------------
Total..................... $ .06 $ .10 $ .13 $ .22
=============== ============== ============== ===============
(a) See Note 2 regarding income tax benefits resulting from the
recapitalization of a foreign subsidiary ($18.1 million).
(b) See Note 2 regarding reduction in valuation allowance for deferred
tax assets ($6.3 million).
Schedule I
XANSER CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------------------------------------
2001 2000 1999
------------- ------------- --------------
General and administrative expenses..................... $ (3,803,000) $ (6,352,000) $ (9,807,000)
Interest expense........................................ (2,270,000) (2,242,000) (2,218,000)
Intercompany fees and expenses.......................... 2,446,000 2,915,000 3,189,000
Interest and other income, net.......................... 7,254,000 804,000 1,677,000
Equity in income (loss) of subsidiaries................. 4,112,000 9,648,000 (1,553,000)
------------- ------------- --------------
Income (loss) from continuing operations
before income taxes.................................. 7,739,000 4,773,000 (8,712,000)
Income tax benefit...................................... 14,649,000 2,010,000 39,162,000
------------- ------------- --------------
Income from continuing operations....................... 22,388,000 6,783,000 30,450,000
Income from discontinued operations - businesses
distributed to common shareholders, net of
income taxes......................................... 3,337,000 10,386,000 28,459,000
------------- ------------- --------------
Net income.............................................. 25,725,000 17,169,000 58,909,000
Dividends and redemption premium applicable
to preferred stock................................... 493,000 479,000 487,000
------------- ------------- --------------
Net income applicable to common stock.................. $ 25,232,000 $ 16,690,000 $ 58,422,000
============= ============= ==============
Earnings per common share:
Basic:
Continuing operations............................. $ 0.68 $ 0.20 $ 0.95
Discontinued operations........................... 0.10 0.33 0.91
------------- ------------- --------------
$ 0.78 $ 0.53 $ 1.86
============= ============= ==============
Diluted:
Continuing operations............................. $ 0.64 $ 0.19 $ 0.92
Discontinued operations........................... 0.10 0.31 0.87
------------- ------------- --------------
$ 0.74 $ 0.50 $ 1.79
============= ============= ==============
See "Notes to Consolidated Financial Statements" of
Xanser Corporation and Subsidiaries included in this report.
F - 22
Schedule I
(Continued)
XANSER CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
December 31,
--------------------------------------
2001 2000
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 23,353,000 $ 13,953,000
Receivable from businesses distributed to common shareholders........ 17,904,000 -
Current deferred income tax assets................................... 2,300,000 36,489,000
Prepaid expenses and other........................................... 2,807,000 2,928,000
--------------- ---------------
Total current assets............................................... 46,364,000 53,370,000
--------------- ---------------
Property and equipment.................................................. 3,848,000 3,848,000
Less accumulated depreciation........................................... 3,848,000 3,848,000
--------------- ---------------
Net property and equipment......................................... - -
--------------- ---------------
Investments in, advances to and notes receivable
from subsidiaries..................................................... 97,444,000 96,450,000
Deferred income tax and other assets.................................... 6,831,000 6,910,000
Net assets of discontinued operations - businesses distributed
to common shareholders............................................... - 41,822,000
--------------- ---------------
$ 150,639,000 $ 198,552,000
=============== ===============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 1,466,000 $ -
Accounts payable and accrued expenses................................ 13,472,000 5,741,000
--------------- ---------------
Total current liabilities.......................................... 14,938,000 5,741,000
--------------- ---------------
Long-term debt, less current portion.................................... 19,930,000 21,396,000
Deferred income taxes and other liabilities............................. 265,000 5,376,000
Stockholders' equity:
Preferred stock, without par value................................... - 5,792,000
Common stock, without par value...................................... 4,270,000 4,250,000
Additional paid-in capital........................................... 128,744,000 203,989,000
Treasury stock, at cost.............................................. (23,423,000) (31,440,000)
Retained earnings (accumulated deficit).............................. 11,921,000 (13,311,000)
Accumulated comprehensive income (loss).............................. (6,006,000) (3,241,000)
--------------- ---------------
Total stockholders' equity....................................... 115,506,000 166,039,000
--------------- ---------------
$ 150,639,000 $ 198,552,000
=============== ===============
See "Notes to Consolidated Financial Statements" of
Xanser Corporation and Subsidiaries included in this report.
F - 23
Schedule I
(Continued)
XANSER CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------------------------
2001 2000 1999
----------------- ---------------- ------------------
Operating activities:
Income from continuing operations................. $ 22,388,000 $ 6,783,000 $ 30,450,000
Adjustments to reconcile income from
continuing operations to net cash provided
by (used in) operating activities:
Equity in loss (income) of subsidiaries....... (4,112,000) (9,648,000) 1,553,000
Deferred income taxes......................... (21,032,000) (1,223,000) (36,918,000)
Increase in the estimated redemption value of
preferred stock............................. - 1,387,000 4,863,000
Changes in current assets and liabilities:
Prepaid expenses and other current assets... 121,000 (1,694,000) (1,057,000)
Accounts payable and accrued expenses ...... 1,250,000 141,000 (1,767,000)
----------------- ---------------- ------------------
Net cash provided by (used in)
operating activities...................... (1,385,000) (4,254,000) (2,876,000)
----------------- ---------------- ------------------
Investing activities:
Change in other assets, net....................... (507,000) (2,092,000) (3,450,000)
----------------- ---------------- ------------------
Net cash used in investing activities....... (507,000) (2,092,000) (3,450,000)
----------------- ---------------- ------------------
Financing activities:
Preferred stock dividends paid.................... (493,000) (479,000) (487,000)
Payments on debt.................................. - (2,270,000) -
Change in investments in, advances to and notes
receivable from subsidiaries.................... 345,000 2,655,000 8,092,000
Common stock issued............................... 545,000 255,000 253,000
Purchase of treasury stock........................ - (1,530,000) (555,000)
Redemption of preferred stock..................... (5,676,000) - -
Decrease in receivable from businesses
distributed to common shareholders.............. 14,076,000 - -
Change in net assets of discontinued operations... 2,495,000 11,928,000 7,888,000
----------------- ---------------- ------------------
Net cash provided by financing activities.... 11,292,000 10,559,000 15,191,000
----------------- ---------------- ------------------
Increase in cash and cash equivalents................ 9,400,000 4,213,000 8,865,000
Cash and cash equivalents at beginning of year....... 13,953,000 9,740,000 875,000
----------------- ---------------- ------------------
Cash and cash equivalents at end of year............. $ 23,353,000 $ 13,953,000 $ 9,740,000
================= ================ ==================
See "Notes to Consolidated Financial Statements" of
Xanser Corporation and Subsidiaries included in this report.
F - 24
Schedule II
XANSER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
-----------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts Deductions Period
- ------------------------------------ -------------- ------------- ------------- -------------- -----------
ALLOWANCE DEDUCTED FROM
ASSETS TO WHICH THEY APPLY
Year Ended December 31, 2001:
For doubtful receivables
classified as current assets... $ 605 $ 485 $ (9)(a) $ (47)(b)$ 1,034
============= ============ ============= ============ ==========
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ - $ - $ - $ - $ -
============= =========== ============= ============ ==========
Year Ended December 31, 2000:
For doubtful receivables
classified as current assets... $ 999 $ 92 $ (10)(a) $ (476)(b)$ 605
============= =========== ============= ============= ==========
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 7,204 $ - $ - $ (7,204) $ -
============= =========== ============= ============ ==========
Year Ended December 31, 1999:
For doubtful receivables
classified as current assets... $ 727 $ 664 $ (119)(a) $ (273)(b)$ 999
============= =========== ============= ============ ==========
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 52,797 $ - $ - $ (45,593) $ 7,204
============= =========== ============= ============ ==========
Notes:
(a) Foreign currency translation adjustments.
(b) Receivable write-offs and reclassifications, net of recoveries.
F - 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Xanser Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
XANSER CORPORATION
By: JOHN R. BARNES
----------------------------------------
President and Chief Executive Officer
Date: March 28, 2002
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Xanser
Corporation and in the capacities and on the date indicated.
Signature Title Date
Principal Executive Officer
JOHN R. BARNES President, Chief Executive March 28, 2002
- ---------------------------------------- Officer and Director
Principal Accounting Officer
MICHAEL R. BAKKE Controller March 28, 2002
- ----------------------------------------
Directors
SANGWOO AHN Director March 28, 2002
- ----------------------------------------
JOHN R. BARNES Director March 28, 2002
- ---------------------------------------
FRANK M. BURKE, JR. Director March 28, 2002
- ----------------------------------------
CHARLES R. COX Director March 28, 2002
- ----------------------------------------
HANS KESSLER Director March 28, 2002
- ----------------------------------------
JAMES R. WHATLEY Director March 28, 2002
- ----------------------------------------