- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-05083
XANSER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1191271
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2435 North Central Expressway
Richardson, Texas 75080
(Address of principal executive offices, including zip code)
(972) 699-4000
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at July 31, 2002
- --------------------- ----------------------------
No par value 31,704,114 shares
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XANSER CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
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Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations - Three and
Six Month Periods Ended June 30, 2002 and 2001 1
Condensed Consolidated Balance Sheets - June 30, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 2002 and 2001 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
XANSER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
Revenues:
Services $ 28,454 $ 32,223 $ 55,327 $ 65,107
Products 3,959 6,501 5,254 9,509
------------- ------------- ------------- --------------
Total revenues 32,413 38,724 60,581 74,616
------------- ------------- ------------- --------------
Costs and expenses:
Operating costs 27,773 29,358 54,277 58,638
Cost of products sold 3,833 5,795 5,064 8,472
Depreciation and amortization 1,019 1,276 1,903 2,527
General and administrative 943 907 1,888 2,067
------------- ------------- ------------- --------------
Total costs and expenses 33,568 37,336 63,132 71,704
------------- ------------- ------------- --------------
Operating income (loss) (1,155) 1,388 (2,551) 2,912
Other income (expense), net 112 (161) 249 (168)
Interest expense (408) (811) (918) (1,696)
------------- ------------- ------------- --------------
Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principle (1,451) 416 (3,220) 1,048
Income tax benefit 878 269 1,733 10
------------- ------------- ------------- --------------
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle (573) 685 (1,487) 1,058
Cumulative effect of change in accounting
principle - adoption of new accounting
standard for goodwill (note 7) - - (45,269) -
------------- ------------- ------------- --------------
Income (loss) from continuing operations (573) 685 (46,756) 1,058
Income from discontinued operations -
businesses distributed to common
shareholders, net of income taxes - 2,766 - 3,423
------------- ------------- ------------- --------------
Net income (loss) (573) 3,451 (46,756) 4,481
Dividends and redemption premium
applicable to preferred stock - - - 493
------------- ------------- ------------- --------------
Net income (loss) applicable to
common stock $ (573) $ 3,451 $ (46,756) $ 3,988
============= ============= ============= ==============
See notes to consolidated financial statements.
1
XANSER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(In Thousands - Except Per Share Amounts)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
Earnings (loss) per common share:
Basic:
Continuing operations:
Before cumulative effect of change
in accounting principle $ (.02) $ .02 $ (.04) $ .02
Cumulative effect of change in
accounting principle - - (1.36) -
------------ ------------ ------------ --------------
(.02) .02 (1.40) .02
Discontinued operations - .09 - .11
------------ ------------- ------------ --------------
$ (.02) $ .11 $ (1.40) $ .13
============ ============= ============ ==============
Diluted:
Continuing operations:
Before cumulative effect of change
in accounting principle $ (.02) $ .02 $ (.04) $ .02
Cumulative effect of change in
accounting principle - - (1.36) -
------------ ------------- ------------ --------------
(.02) .02 (1.40) .02
Discontinued operations - .08 - .10
------------ ------------- ------------ --------------
$ (.02) $ .10 $ (1.40) $ .12
============ ============= ============ ==============
See notes to consolidated financial statements.
2
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
June 30, December 31,
2002 2001
----------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 28,546 $ 29,545
Accounts receivable, trade 34,826 37,186
Receivable from businesses distributed to common
shareholders 7,568 17,904
Inventories 8,432 8,942
Prepaid expenses and other 4,880 7,532
Current deferred income tax assets 102 2,300
------------- --------------
Total current assets 84,354 103,409
------------- --------------
Property and equipment 36,699 33,381
Less accumulated depreciation and amortization 24,397 21,995
------------- --------------
Net property and equipment 12,302 11,386
------------- --------------
Excess of cost over fair value of net assets
of acquired businesses (note 7) 13,802 61,054
Deferred income taxes and other assets 16,531 10,370
------------- --------------
$ 126,989 $ 186,219
============= ==============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 2,131 $ 2,173
Accounts payable 4,204 6,205
Accrued expenses 12,865 13,159
Accrued income taxes 9,593 10,083
------------- --------------
Total current liabilities 28,793 31,620
------------- --------------
Long-term debt, less current portion:
Technical services 17,720 17,871
Parent company 9,930 19,930
------------- --------------
Total long-term debt, less current portion 27,650 37,801
------------- --------------
Other liabilities 1,571 1,292
Commitments and contingencies
Stockholders' equity:
Common stock, without par value 4,326 4,270
Additional paid-in-capital 129,174 128,744
Treasury stock, at cost (24,575) (23,423)
Retained earnings (accumulated deficit) (note 7) (34,835) 11,921
Accumulated other comprehensive income (loss) (5,115) (6,006)
------------- --------------
Total stockholders' equity 68,975 115,506
------------- --------------
$ 126,989 $ 186,219
============= ==============
See notes to consolidated financial statements.
3
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
---------------------------------
2002 2001
------------- --------------
Operating activities:
Income (loss) from continuing operations $ (46,756) $ 1,058
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 1,903 2,527
Deferred income taxes (1,696) (60)
Cumulative effect of change in accounting principle 45,269 -
Other, net 384 28
Changes in working capital components 2,737 (4,298)
------------- --------------
Operating activities of continuing operations 1,841 (745)
Operating activities of discontinued operations - 59,798
------------- --------------
Net cash provided by operating activities 1,841 59,053
------------- --------------
Investing activities:
Capital expenditures (2,181) (2,035)
Change in other assets, net 346 (612)
Investing activities of discontinued operations - (128,339)
------------- --------------
Net cash used in investing activities (1,835) (130,986)
------------- --------------
Financing activities:
Issuance of debt 2,238 1,409
Payments on debt (12,606) (1,622)
Preferred stock dividends and redemption premium paid - (493)
Common stock issued 479 526
Purchase of treasury stock (1,452) -
Redemption of preferred stock - (5,680)
Decrease in receivable from businesses distributed
to common shareholders 10,336 -
Financing activities of discontinued operations - 71,000
------------- --------------
Net cash provided by (used in) financing activities (1,005) 65,140
------------- --------------
Decrease in cash and cash equivalents (999) (6,793)
Cash and cash equivalents at beginning of period 29,545 20,517
------------- --------------
Cash and cash equivalents at end of period $ 28,546 $ 13,724
============= ==============
Supplemental cash flow information:
Cash paid for interest $ 1,460 $ 1,633
============= ==============
Cash paid for income taxes $ 616 $ 735
============= ==============
See notes to consolidated financial statements.
4
XANSER CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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1. SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of
Xanser Corporation (the "Company") and its subsidiaries. On June 29, 2001,
the Company distributed its pipeline, terminaling and product marketing
businesses (the "Distribution") to its stockholders in the form of shares
of a new limited liability company, Kaneb Services LLC. As a result of the
Distribution, the accompanying condensed consolidated financial statements
reflect the operations of the pipeline, terminaling and product marketing
businesses of the Company prior to June 29, 2001 as "Discontinued
operations - businesses distributed to common shareholders". All
significant intercompany transactions and balances are eliminated in
consolidation.
The unaudited condensed consolidated financial statements of the Company
for the three and six month periods ended June 30, 2002 and 2001, have been
prepared in accordance with accounting principles generally accepted in the
United States of America. Significant accounting policies followed by the
Company are disclosed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001. In the opinion of the Company's management, the
accompanying condensed consolidated financial statements contain the
adjustments, consisting of normal recurring accruals, necessary to present
fairly the consolidated financial position of the Company and its
consolidated subsidiaries at June 30, 2002 and the consolidated results of
their operations and cash flows for the periods ended June 30, 2002 and
2001. Operating results for the three and six months ended June 30, 2002
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.
2. COMPREHENSIVE INCOME
Comprehensive income for the three and six months ended June 30, 2002 and
2001 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
(in thousands)
Net income (loss) $ (573) $ 3,451 $ (46,756) $ 4,481
Foreign currency translation
adjustment 1,272 (393) 891 (1,264)
------------- ------------- ------------- --------------
Comprehensive income (loss) $ 699 $ 3,058 $ (45,865) $ 3,217
============= ============= ============= ==============
3. EARNINGS PER SHARE
The following is a reconciliation of Basic and Diluted earnings (loss) per
share from continuing operations before cumulative effect of change in
accounting principle (in thousands, except for per share amounts):
Weighted
Average
Net Common Per-Share
Income (loss) Shares Amount
--------------- --------------- ----------------
Three Months Ended June 30, 2002
--------------------------------
Basic earnings per share -
Income (loss) from continuing
operations applicable to common
stock before cumulative effect
of change in accounting principle $ (573) 33,379 $ (.02)
============
Effect of dilutive securities - -
--------------- ---------------
Diluted earnings per share -
Income (loss) from continuing operations
applicable to common stock before cumulative
effect of change in accounting principle $ (573) 33,379 $ (.02)
=============== =============== ============
Three Months Ended June 30, 2001
--------------------------------
Basic earnings per share -
Income from continuing
operations applicable to
common stock $ 685 31,175 $ .02
============
Effect of dilutive securities - 2,887
--------------- ---------------
Diluted earnings per share -
Income applicable to common stock $ 685 34,062 $ .02
=============== =============== ============
Six Months Ended June 30, 2002
------------------------------
Basic earnings per share -
Income (loss) from continuing
operations applicable to common
stock before cumulative effect
of change in accounting principle $ (1,487) 33,343 $ (.04)
============
Effect of dilutive securities - -
--------------- ---------------
Diluted earnings per share -
Income (loss) from continuing
operations applicable to common
stock before cumulative effect
of change in accounting principle $ (1,487) 33,343 $ (.04)
=============== =============== ============
Six Months Ended June 30, 2001
------------------------------
Income from continuing operations $ 1,058
Dividends and redemption premium
applicable to preferred stock (493)
---------------
Basic earnings per share -
Income from continuing
operations applicable to
common stock 565 31,159 $ .02
============
Effect of dilutive securities - 2,871
--------------- ---------------
Diluted earnings per share -
Income applicable to common stock $ 565 34,030 $ .02
=============== =============== ============
As a result of the losses from continuing operations applicable to common
stock for the three and six month periods ended June 30, 2002, all stock
options and the Company's 8.75% convertible subordinated debentures were
excluded from the computation of diluted earnings per share because the
effects would be anti-dilutive. Since the average market prices of the
Company's common stock for the three and six month periods ended June 30,
2001 were in excess of outstanding option exercise prices, all outstanding
options were considered dilutive at June 30, 2001. Additionally, the
Company's 8.75% convertible subordinated debentures were excluded from the
computation of diluted earning per share for the three and six month
periods ended June 30, 2001 because the effect of assumed conversion is
anti-dilutive.
4. CONTINGENCIES
The Company has contingent liabilities resulting from litigation, claims
and commitments incident to the ordinary course of business. Management
believes 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.
5. 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 primarily to insurance and financial institutions, the government
and healthcare sectors. 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 the Company's segments.
The Company measures segment profit as operating income. Total assets are
those assets, including excess of cost over fair value of acquired
businesses, controlled by each reportable segment. Business segment data is
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
(in thousands)
Business segment revenues:
Technical services $ 22,171 $ 24,105 $ 42,640 $ 48,666
Information technology services 10,242 14,619 17,941 25,950
------------- ------------- ------------- --------------
$ 32,413 $ 38,724 $ 60,581 $ 74,616
============= ============= ============= ==============
Technical services segment revenues:
Underpressure services $ 10,018 $ 10,052 $ 19,982 $ 19,596
Turnaround services 10,398 12,405 18,994 24,907
Other services 1,755 1,648 3,664 4,163
------------- ------------- ------------- --------------
$ 22,171 $ 24,105 $ 42,640 $ 48,666
============= ============= ============= ==============
Business segment profit:
Technical services $ 974 $ 1,200 $ 1,187 $ 2,513
Information technology services (1,186) 1,095 (1,850) 2,466
General corporate (943) (907) (1,888) (2,067)
------------- ------------- ------------- --------------
Operating income (loss) (1,155) 1,388 (2,551) 2,912
Other income (expense), net 112 (161) 249 (168)
Interest expense (408) (811) (918) (1,696)
------------- ------------- ------------- --------------
Income (loss) from continuing
operations before income taxes
and cumulative effect of change
in accounting principle $ (1,451) $ 416 $ (3,220) $ 1,048
============= ============= ============= ==============
June 30, December 31,
2002 2001
------------- -----------------
(in thousands)
Total assets:
Technical services $ 64,716 $ 102,147
Information technology services 21,379 30,877
General corporate 40,894 53,195
------------- --------------
$ 126,989 $ 186,219
============= ==============
6. DISCONTINUED OPERATIONS - BUSINESSES DISTRIBUTED TO COMMON SHAREHOLDERS
The results of operations for the pipeline, terminaling and product
marketing businesses prior to the Distribution (see Note 1) are reflected
in the accompanying condensed consolidated statements of income as "Income
from discontinued operations - businesses distributed to common
shareholders". The pipeline and terminaling operations are conducted
through Kaneb Pipe Line Partners, L.P. ("KPP"), in which the Company owned
an effective 2% general partner interest and 25% limited partner interest
prior to the Distribution (see Note 1). A summary of operating results of
the discontinued operations included in the Company's condensed
consolidated financial statements for the three and six month periods ended
June 30, 2001 is presented below:
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
------------------ ----------------
(in thousands)
Revenues:
Pipeline and terminaling services $ 52,952 $ 101,021
Product marketing services 98,879 187,231
--------------- ----------------
$ 151,831 $ 288,252
=============== ================
Operating profit:
Pipeline and terminaling services $ 21,602 $ 39,896
Product marketing services 511 (264)
Distribution expenses (1,529) (1,779)
--------------- ----------------
$ 20,584 $ 37,853
=============== ================
Income before income taxes, interest
of outside non-controlling partners
in KPP's net income and
extraordinary item $ 20,365 $ 32,797
Income taxes (1,890) (3,148)
Interest of outside non-controlling
partners in KPP's net income (15,709) (25,367)
Extraordinary loss on KPP debt
extinguishment, net of income
taxes and interest of outside non-
controlling partners in KPP's
net income - (859)
--------------- ----------------
Income from discontinued operations,
net of income taxes $ 2,766 $ 3,423
=============== ================
7. ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets", which eliminates the amortization for goodwill (excess of cost
over fair value of net assets of acquired businesses) and other intangible
assets with indefinite lives. Under SFAS No. 142, intangible assets with
lives restricted by contractual, legal, or other means will continue to be
amortized over their useful lives. As of June 30, 2002, the Company had no
intangible assets subject to amortization under SFAS No. 142. Goodwill and
other intangible assets not subject to amortization are tested for
impairment annually or more frequently if events or changes in
circumstances indicate that the assets might be impaired. SFAS No. 142
requires a two-step process for testing impairment. First, the fair value
of each reporting unit is compared to its carrying value to determine
whether an indication of impairment exists. If an impairment is indicated,
then second, the implied fair value of the reporting unit's goodwill is
determined by allocating the unit's fair value to its assets and
liabilities (including any unrecognized intangible assets) as if the
reporting unit had been acquired in a business combination. The amount of
impairment for goodwill and other intangible assets is measured as the
excess of its carrying value over its implied fair value. Based on
valuations and analysis performed by independent valuation consultants and
the Company in the first quarter of 2002, the Company determined that the
carrying value of its goodwill exceeded implied fair value, and therefore,
the Company recorded a non-cash charge, after income taxes, of $45.3
million as the cumulative effect of a change in accounting principle. No
impairment charge was appropriate under the previous goodwill impairment
standard (SFAS No. 121), which was based on undiscounted cash flows.
The changes in the carrying amount of excess of cost over fair value of net
assets of acquired businesses as of June 30, 2002 is as follows (in
thousands):
Excess of cost over fair value of net assets of acquired
businesses at December 31, 2001 $ 61,054
Cumulative effect of change in accounting principle
recorded in the first quarter of 2002 (47,252)
-------------
Excess of cost over fair value of net assets of acquired
businesses at June 30, 2002 $ 13,802
=============
The pro forma effects of the adoption of SFAS No. 142 on income (loss) from
continuing operations is as follows (in thousands - except per share
amounts):
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
Reported income (loss) from
continuing operations $ (573) $ 685 $ (46,756) $ 1,058
Amortization of excess of cost
over fair value of net assets
of acquired businesses, net
of income taxes - 541 - 1,083
Cumulative effect of change in
accounting principle - adoption
of new accounting standard
for goodwill - - 45,269 -
------------- ------------- ------------- --------------
Adjusted income (loss) from
continuing operations $ (573) $ 1,226 $ (1,487) $ 2,141
============= ============= ============= ==============
Reported diluted earnings (loss)
per common share from
continuing operations $ (0.02) $ 0.02 $ (1.40) $ 0.02
Amortization of excess of cost over
fair value of net assets of
acquired businesses, net of
income taxes - 0.02 - 0.03
Cumulative effect of change in
accounting principle - - 1.36 -
------------- ------------- ------------- --------------
Adjusted diluted earnings (loss)
per common share from
continuing operations $ (0.02) $ 0.04 $ (0.04) $ 0.05
============= ============ ============= =============
Additionally, effective January 1, 2002, the Company adopted 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. The adoption of SFAS No. 144, which superceded SFAS
No. 121, did not have a material impact on the condensed consolidated
financial statements of the Company.
XANSER CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
This discussion should be read in conjunction with the condensed
consolidated financial statements of Xanser Corporation (the "Company") and
notes thereto included elsewhere in this report.
Operating Results:
Technical Services
This business segment provides specialized industrial services, including
underpressure leak sealing, on-site machining, safety and relief valve
testing and repair, passive fire protection and fugitive emissions
inspections to the process and power industry worldwide.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ------------------------------
2002 2001 2002 2001
----------- ----------- ------------- --------------
(in thousands)
Revenues:
United States $ 6,190 $ 9,298 $ 13,442 $ 19,032
Europe 13,480 12,337 24,117 24,069
Asia-Pacific 2,501 2,470 5,081 5,565
----------- ----------- ------------- --------------
Total Revenues $ 22,171 $ 24,105 $ 42,640 $ 48,666
=========== =========== ============= ==============
Operating income:
United States $ (456) $ 365 $ (591) $ 976
Europe 1,740 1,874 2,406 3,385
Asia-Pacific 100 (70) 223 87
Headquarters (410) (969) (851) (1,935)
----------- ----------- ------------- --------------
Total operating income $ 974 $ 1,200 $ 1,187 $ 2,513
=========== =========== ============= ==============
Capital expenditures,
excluding acquisitions $ 221 $ 935 $ 852 $ 1,740
=========== =========== ============= ==============
For the three months ended June 30, 2002, revenues for the technical
services business decreased by $1.9 million, or 8%, when compared to the
same 2001 period as improvements in Europe and Asia-Pacific were more than
offset by declines in America. In the United States, second quarter
revenues decreased by $3.1 million, or 33%, compared to the same period in
2001, due to decreases in leaksealing and turnaround services, partially
offset by increases in other process plant services. In Europe, revenues
increased by $1.1 million, or 9%, when compared to the second quarter of
2001 period, due to increases in leaksealing services and foreign currency
exchange differences, partially offset by decreases in product sales. In
Asia-Pacific, revenues increased slightly due to increases in product sales
and foreign currency exchange differences, substantially offset by
decreases in underpressure and turnaround services.
For the six months ended June 30, 2002, revenues decreased by $6.0 million,
or 12%, when compared to 2001, due to the impact of the economic downturn
on its customers' business. Revenues in the United States decreased $5.6
million, or 29%, compared to 2001, due to decreases in underpressure and
turnaround services, partially offset by increases in other process plant
services. In Europe, revenues were flat as increases in leaksealing
services and differences in foreign exchange rates more than offset
decreases in turnaround services, other process services and product sales.
Asia-Pacific revenues decreased $0.5 million, or 9%, compared to 2001, due
to decreases in product sales, partially offset by increases in
underpressure services and foreign currency exchange rates.
Overall, technical services operating income decreased by $0.2 million, or
19%, for the three months ended June 30, 2002, when compared to the same
2001 period. In the United States, operating income decreased by $0.8
million, compared to the same period in 2001, due to the lower revenues. In
Europe, operating income declined $0.1 million, or 7%, as a favorable
pension cost adjustment recorded in the second quarter of 2001 was not
totally offset by the margins resulting from increased revenues in 2002. In
Asia-Pacific, operating income increased $0.2 million due to increased
revenues and lower costs.
Operating income decreased by $1.3 million, or 53%, for the six months
ended June 30, 2002, when compared to the same 2001 period. In the United
States, operating income decreased by $1.6 million, compared to the same
period in 2001, due to the lower revenues. In Europe, operating income
decreased by $1.0 million, or 29%, compared to the same 2001 period, due
primarily to a favorable pension cost adjustment recorded in 2001. In
Asia-Pacific, operating income increased $0.1 million, compared to the same
2001 period, due to higher operating margins, which more than offset lower
revenues.
Headquarters costs for the three and six month periods ended June 30, 2001
includes $0.5 million and $1.0 million, respectively, of amortization
related to excess of cost over fair value of net assets of acquired
businesses. In the first quarter of 2002, the Company adopted Statement of
Financial Accounting Standards "(SFAS") No. 142 "Goodwill and Other
Intangible Assets" which eliminates the amortization of goodwill and other
intangible assets with indefinite lives (see Note 7 to condensed
consolidated financial statements).
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.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ------------------------------
2002 2001 2002 2001
----------- ----------- ------------- --------------
(in thousands)
Revenues $ 10,242 $ 14,619 $ 17,941 $ 25,950
=========== =========== ============= ==============
Operating income (loss) $ (1,186) $ 1,095 $ (1,850) $ 2,466
=========== =========== ============= ==============
Capital expenditures,
excluding acquisitions $ 636 $ 236 $ 1,329 $ 295
=========== =========== ============= ==============
For the three and six month periods ended June 30, 2002, total revenues
decreased $4.4 million, or 30%, and $8.0 million, or 31%, respectively,
when compared to the same 2001 periods. Service revenues decreased in the
second quarter and first half of 2002, compared to the same 2001 periods,
primarily due to lower voice and data service revenues from a large
customer, partially offset by increases in other service revenues. Revenues
from equipment sales, furnished at the request of selected customers,
decreased in the second quarter and first half of 2002, compared to the
same 2001 periods, due to normal fluctuations in customer needs.
Information technology services operating income decreased $2.3 million and
$4.3 million for the three and six month periods ended June 30, 2002,
respectively, compared to the same 2001 periods, due to lower revenues and
planned investments in management, marketing and product development costs.
Information technology services operating income for the three and six
month periods ended June 30, 2002 includes $0.1 million and $0.2 million,
respectively, of amortization related to excess of cost over fair value of
net assets of acquired businesses. In the first quarter of 2002, the
Company adopted SFAS No. 142 which eliminates the amortization of goodwill
and other intangible assets with indefinite lives (see Note 7 to condensed
consolidated financial statements).
Interest Expense
Interest expense decreased $0.4 million and $0.8 million for the three
month and six month periods ended June 30, 2002, respectively, compared to
the same periods in 2001, due to a decrease in debt levels (see "Liquidity
and Capital Resources") combined with lower interest rates on borrowings.
Liquidity and Capital Resources
During the first six months of 2002, the Company's working capital
requirements for operations and capital expenditures were funded through
the use of internally generated funds.
Cash provided by operating activities from continuing operations was $1.8
million and ($0.7) million for the six months ended June 30, 2002 and 2001,
respectively. The increase was due to normal changes in working capital
components resulting from the timing of cash receipts and disbursements,
partially offset by decreases in revenues and operating income.
Capital expenditures for continuing operations were $2.2 million for the
six months ended June 30, 2002, compared to $2.0 million in 2001. The
Company expects to fund maintenance capital expenditures in 2002 with
existing cash and anticipated cash funds from operations.
On August 13, 2002, a wholly-owned subsidiary of the Company entered into a
$25 million Amended and Restated Bank Loan Agreement ("Loan Agreement")
that provides working capital for the technical services group and is
without recourse to the Company. Borrowings under the Loan Agreement bear
interest at the option of the borrower at variable rates, based on either
the LIBOR rate or prime rate, has a commitment fee on the unused portion of
the facility and contains certain financial and operational covenants with
respect to the technical services group. The Loan Agreement matures in 2009
and is secured by substantially all of the tangible assets of the technical
services group.
On March 1, 2002, the Company purchased $10.0 million of its 8.75%
subordinated debentures at par value, which satisfies its sinking fund
requirements on these subordinated debentures until 2008.
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 includes a $0.4 million redemption premium, which was
recognized as dividends and redemption premium applicable to preferred
stock in the first quarter of 2001.
Additional information related to the sources and uses of cash is presented
in the financial statements included in this report.
Information regarding the Company's Critical Accounting Policies is
included in Item 7 of the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
Recent Accounting Pronouncements
The FASB has 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.
In April of 2002, the FASB issued SFAS No. 145, which, among other items,
affects the income statement classification of gains and losses from early
extinguishment of debt. Under SFAS No. 145, which must be adopted by the
first quarter of 2003, early extinguishment of debt is now considered a
risk management strategy, with resulting gains and losses no longer
classified as an extraordinary item, unless the debt extinguishment meets
certain unusual in nature and infrequency of occurrence criteria, which is
expected to be rare. Upon adoption, companies must reclassify prior items
that do not meet the new extraordinary item classification criteria as a
component of operating income. Adoption of SFAS No. 145 will have no effect
on the net income of the Company.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities", which requires all restructurings
initiated after December 31, 2002 be recorded when they are incurred and
can be measured at fair value. The Company is currently assessing the
impact of SFAS No. 146, which must be adopted in the first quarter of 2003.
XANSER CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 3. 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's investment
portfolio consists of cash equivalents; accordingly, the carrying amounts
approximate fair value. The Company's investments are not material to its
financial position or performance. Assuming variable rate debt of $17.7 million
at June 30, 2002, a one percent increase in interest rates would increase annual
net interest expense by approximately $0.2 million.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) 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 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.
10.2 Amendment and Restatement of the Furmanite Loan Agreement, filed
herewith.
(b) Reports on Form 8-K
None.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
XANSER CORPORATION
(Registrant)
Date: August 14, 2002 //s//
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Michael R. Bakke
Controller
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002
The undersigned, being the Chief Executive Officer of Xanser Corporation (the
"Company") hereby certifies that the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2002, filed with the United States
Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in such Quarterly Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
Date: August 14, 2002.
//s//
---------------------------------------
John R. Barnes
President and Chief Executive Officer
CERTIFICATE OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002
The undersigned, being the Chief Financial Officer of Xanser Corporation (the
"Company") hereby certifies that the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2002, filed with the United States
Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in such Quarterly Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
Date: August 14, 2002.
//s//
---------------------------------------
Howard C. Wadsworth
Vice President, Treasurer and Secretary
(Chief Financial Officer)