- --------------------------------------------------------------------------------
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 March 31, 2003
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 by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
---------- ------------
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 April 30, 2003
- --------------------- -----------------------------
No par value 31,568,740 shares
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XANSER CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2003
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Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 2003 and 2002 1
Condensed Consolidated Balance Sheets - March 31, 2003
and December 31, 2002 2
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2003 and 2002 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
Item 4. Controls and Procedures 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands - Except Per Share Amounts)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2003 2002
------------ -------------
Revenues:
Services $ 28,861 $ 26,873
Products 3,363 1,295
------------ -------------
Total revenues 32,224 28,168
------------ -------------
Costs and expenses:
Operating costs 27,390 26,504
Cost of products sold 2,707 1,231
Depreciation and amortization 1,094 884
General and administrative 807 945
------------ -------------
Total costs and expenses 31,998 29,564
------------ -------------
Operating income (loss) 226 (1,396)
Interest income 90 137
Interest expense (359) (510)
------------ -------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (43) (1,769)
Income tax benefit 186 855
------------ -------------
Income (loss) before cumulative effect of change
in accounting principle 143 (914)
Cumulative effect of change in accounting principle
- adoption of new accounting standard for
goodwill, net of income taxes - (45,269)
------------ -------------
Net income (loss) $ 143 $ (46,183)
============ =============
Earnings (loss) per common share - Basic and diluted:
Before cumulative effect of change in accounting principle $ - $ (0.03)
Cumulative effect of change in accounting principle - (1.36)
------------ -------------
$ - $ (1.39)
============ =============
See notes to condensed consolidated financial statements.
1
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
March 31, December 31,
2003 2002
--------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 27,397 $ 25,624
Accounts receivable, trade 31,622 36,208
Receivable from businesses distributed to common
shareholders 7,648 7,412
Inventories 7,759 8,424
Prepaid expenses and other 3,868 5,264
-------------- -------------
Total current assets 78,294 82,932
-------------- -------------
Property and equipment 39,648 38,830
Less accumulated depreciation and amortization 25,633 24,875
-------------- -------------
Net property and equipment 14,015 13,955
-------------- -------------
Excess of cost over fair value of net assets of
acquired businesses 13,802 13,802
Deferred income taxes and other assets 17,932 16,958
-------------- -------------
$ 124,043 $ 127,647
============== =============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 793 $ 747
Accounts payable 3,420 3,919
Accrued expenses 17,853 21,419
Accrued income taxes 10,214 9,792
-------------- -------------
Total current liabilities 32,280 35,877
-------------- -------------
Long-term debt, less current portion:
Technical services 18,284 18,479
Parent company 9,930 9,930
-------------- -------------
Total long-term debt, less current portion 28,214 28,409
-------------- -------------
Other liabilities 1,890 1,812
Commitments and contingencies
Stockholders' equity:
Common stock, without par value 4,333 4,333
Additional paid-in capital 126,598 126,675
Treasury stock, at cost (26,322) (26,390)
Accumulated deficit (35,447) (35,590)
Accumulated other comprehensive income (loss) (7,503) (7,479)
-------------- -------------
Total stockholders' equity 61,659 61,549
-------------- -------------
$ 124,043 $ 127,647
============== =============
See notes to condensed consolidated financial statements.
2
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2003 2002
------------ -------------
Operating activities:
Net income (loss) $ 143 $ (46,183)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,094 884
Deferred income taxes (796) (708)
Cumulative effect of change in accounting principle - 45,269
Other 92 64
Changes in working capital components 2,751 2,142
------------ -------------
Net cash provided by operating activities 3,284 1,468
------------ -------------
Investing activities:
Capital expenditures (1,228) (1,324)
Other 80 (307)
------------ -------------
Net cash used in investing activities (1,148) (1,631)
------------ -------------
Financing activities:
Issuance of debt and capital leases 211 851
Payments on debt and capital leases (315) (11,669)
Common stock issued and other (23) 285
Decrease (increase) in receivable from businesses
distributed to common shareholders (236) 10,312
------------ -------------
Net cash used in financing activities (363) (221)
------------ -------------
Increase (decrease) in cash and cash equivalents 1,773 (384)
Cash and cash equivalents at beginning of period 25,624 29,545
------------ -------------
Cash and cash equivalents at end of period $ 27,397 $ 29,161
============ =============
Supplemental cash flow information:
Cash paid for interest $ 652 $ 1,326
============ =============
Cash paid for income taxes $ 147 $ 393
============ =============
See notes to condensed consolidated financial statements.
3
XANSER CORPORATION AND SUBSIDIARIES
Notes to Condensed 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. All significant
intercompany transactions and balances are eliminated in consolidation. The
unaudited condensed consolidated financial statements of the Company for
the three month periods ended March 31, 2003 and 2002, 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, 2002. In the opinion of the Company's management, the
accompanying condensed consolidated financial statements contain all of the
adjustments, consisting of normal recurring accruals, necessary to present
fairly the consolidated financial position of the Company and its
consolidated subsidiaries at March 31, 2003 and the consolidated results of
their operations and cash flows for the periods ended March 31, 2003 and
2002. Operating results for the three months ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
In December of 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148, which amends SFAS
No. 123, provides for alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation and requires additional disclosures in annual and
interim financial statements regarding the method of accounting for
stock-based employee compensation and the effect of the method used on
financial results.
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", 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 the grant date as prescribed by SFAS 123. The Black-Scholes
option pricing model has been used to estimate the value of stock options
issued.
The following illustrates the effect on net income (loss) and basic and
diluted earnings (loss) per share if the fair value based method had been
applied:
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Reported net income (loss) $ 143 $ (46,183)
Stock-based employee compensation expense determined
under the fair value based method, net of income taxes (21) (99)
------------- --------------
Pro forma net income (loss) $ 122 $ (46,282)
============= =============
Earnings (loss) per share:
Basic and diluted - as reported $ - $ (1.39)
============= =============
Basic and diluted - pro forma $ - $ (1.39)
============= =============
2. COMPREHENSIVE INCOME
Comprehensive income (loss) for the three months ended March 31, 2003 and
2002 is as follows:
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Net income (loss) $ 143 $ (46,183)
Other comprehensive income (loss)
- foreign currency translation adjustment (24) (381)
------------- --------------
Comprehensive income (loss) $ 119 $ (46,564)
============= ==============
At March 31, 2003 and December 31, 2002, accumulated other comprehensive
loss consists of cumulative foreign currency translation adjustments of
$1.3 million and minimum pension liability adjustments for subsidiaries of
$6.2 million.
3. EARNINGS PER SHARE
The following is a reconciliation of Basic and Diluted earnings (loss) per
share before cumulative effect of change in accounting principle (in
thousands, except for per share amounts):
Weighted
Net Average
Income Common Per Share
(loss) Shares Amount
--------------- --------------- ----------------
Three Months Ended March 31, 2003
---------------------------------
Basic earnings per share -
Income (loss) before cumulative effect
of change in accounting principle $ 143 31,993 $ -
================
Effect of dilutive securities - 591
--------------- ---------------
Diluted earnings per share -
Income (loss) before cumulative effect
of change in accounting principle $ 143 32,584 $ -
=============== =============== ================
Three Months Ended March 31, 2002
---------------------------------
Basic earnings per share -
Income (loss) before cumulative effect
of change in accounting principle $ (914) 33,332 $ (.03)
===============
Effect of dilutive securities - -
--------------- ---------------
Diluted earnings per share -
Income (loss) before cumulative effect
of change in accounting principle $ (914) 33,332 $ (.03)
=============== =============== ===============
The Company's 8.75% convertible subordinated debentures were excluded from
the computation of diluted earnings per share for the periods ended March
31, 2003 and 2002, because the effect of assumed conversion would be
anti-dilutive. Options to purchase 1,600,728 shares of common stock at a
weighted average price of $2.40 were outstanding at March 31, 2003, but
were not included in the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of
the common stock. Additionally, as a result of the loss applicable to
common stock for the period ended March 31, 2002, all stock options were
excluded from the computation of diluted earnings per share because the
effects would be anti-dilutive.
4. CONTINGENCIES
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.
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 to governmental, healthcare, 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 the excess of cost over fair value of acquired
businesses, controlled by each reportable segment. Business segment data is
as follows:
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Business segment revenues:
Technical services $ 23,008 $ 20,469
Information technology services 9,216 7,699
------------- --------------
$ 32,224 $ 28,168
============= ==============
Technical services segment revenues:
Underpressure services $ 10,815 $ 9,964
Turnaround services 9,940 8,596
Other services 2,253 1,909
------------- --------------
$ 23,008 $ 20,469
============= ==============
Business segment profit (loss):
Technical services $ 1,341 $ 213
Information technology services (308) (664)
General corporate (807) (945)
------------- --------------
Operating income (loss) 226 (1,396)
Interest income 90 137
Interest expense (359) (510)
------------- --------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle $ (43) $ (1,769)
============= ==============
March 31, December 31,
2003 2002
------------- --------------
(in thousands)
Total assets:
Technical services $ 61,754 $ 63,319
Information technology services 22,288 26,956
General corporate 40,001 37,372
------------- --------------
$ 124,043 $ 127,647
============= ==============
6. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF ACQUIRED BUSINESSES
Effective January 1, 2002, the Company adopted 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 March
31, 2003, 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. Based on valuations and analysis performed by the
Company at December 31, 2002 (the annual evaluation date), no additional
impairment charge was required.
The changes in the carrying amount of excess of cost over fair value of net
assets of acquired businesses 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 March 31, 2003 and December 31, 2002 $ 13,802
=============
7. ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, the Company adopted SFAS No. 143 "Accounting for
Asset Retirement Obligations", which establishes requirements for the
removal-type costs associated with asset retirements. The initial adoption
of SFAS No. 143 had no effect on the consolidated financial statements of
the Company.
Effective January 1, 2003 the Company adopted 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 initial adoption of SFAS
No. 146 had no effect on the consolidated financial statements of the
Company.
The Company has adopted the provisions of FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements of Guarantees,
Including Indirect Guarantees of Indebtedness to Others, an interpretation
of FASB Statements No. 5, 57, and 107, and a rescission of FASB
Interpretation No. 34." This interpretation elaborates on the disclosures
to be made by a guarantor in its interim and annual financial statements
about its obligations under guarantees issued. The interpretation also
clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the interpretation are
applicable to guarantees issued or modified after December 31, 2002. The
initial application of this interpretation had no effect on the
consolidated financial statements of the Company.
The Company has adopted the provisions of FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities, an interpretation of ARB No.
51." This interpretation addressed the consolidation by business
enterprises of variable interest entities as defined in the interpretation.
The interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests
in variable interest entities obtained after January 31, 2003. The
interpretation requires certain disclosures in financial statements issued
after January 31, 2003. The initial application of this interpretation had
no effect on the consolidated financial statements of the Company.
XANSER CORPORATION AND SUBSIDIARIES
Item 2. 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 services, including leak sealing
underpressure, 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
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Revenues:
United States $ 6,113 $ 7,252
Europe 13,868 10,637
Asia-Pacific 3,027 2,580
------------- --------------
Total Revenues $ 23,008 $ 20,469
============= ==============
Operating income (loss):
United States $ 130 $ (135)
Europe 1,430 666
Asia-Pacific 321 123
Headquarters (540) (441)
------------- --------------
Total operating income $ 1,341 $ 213
============= ==============
Capital expenditures,
excluding acquisitions $ 609 $ 631
============= ==============
For the three months ended March 31, 2003, revenues from the technical
services business increased by $2.5 million, or 12%, when compared to the
same 2002 period. In the United States, first quarter revenues decreased by
$1.1 million, or 16%, compared to the same period in 2002, due to decreases
in underpressure and turnaround services, resulting from decisions to exit
non-performing contracts which did not meet current requirements for
generating favorable returns. In Europe, first quarter revenues increased
by $3.2 million, or 30%, when compared to the same 2002 period, due to
increases in underpressure and turnaround services and differences in
foreign currency exchange rates. In Asia-Pacific, first quarter revenues
increased by $0.4 million, or 17%, compared to the same 2002 period, due to
increases in turnaround services, product sales and differences in foreign
currency exchange rates, partially offset by decreases in underpressure
services.
Overall, technical services operating income increased by $1.1 million for
the three months ended March 31, 2003, compared to the three months ended
March 31, 2002. In the United States, operating income increased by $0.3
million, compared to the same period in 2002, primarily due to higher
operating margins and lower general and administrative costs. In Europe and
Asia, operating income increased $0.8 million and $0.2 million,
respectively, due to the overall higher revenue levels.
Information Technology Services
The information technology services group offers products and services that
include application software, computer hardware, web hosted data
processing, networking, consulting, and support services to the healthcare,
financial, and insurance industries, and to agencies of the U.S.
Government. The group also provides integration and consulting services to
healthcare organizations implementing digital radiology imaging systems and
software solutions to assist healthcare organizations with compliance with
the Health Insurance Portability and Accountability Act and other
accreditation and training requirements.
Three Months Ended
March 31,
---------------------------------
2003 2002
------------- --------------
(in thousands)
Revenues $ 9,216 $ 7,699
============= ==============
Operating income (loss) $ (308) $ (664)
============= ==============
Capital expenditures,
excluding acquisitions $ 619 $ 693
============= ==============
For the three months ended March 31, 2003, revenues increased by $1.5
million, or 20%, when compared to the same 2002 period, due to higher
equipment sales, partially offset by lower service revenues. Revenues from
equipment sales, furnished at the request of selected customers, increased
due to normal fluctuations in customer needs. Service revenues decreased
due to lower communication-related installation service revenues and
healthcare service revenues, partially offset by an increase in other
service revenues. For the three months ended March 31, 2003, operating loss
decreased by $0.4 million, when compared to the same 2002 period, due to
the higher overall revenue levels.
Interest Expense
Interest expense decreased by $0.2 million in the first quarter of 2003,
compared to the same period in 2002, due to first quarter 2002 reductions
of debt (see "Liquidity and Capital Resources") and lower interest rates on
variable rate borrowings.
Income Taxes
Income tax benefit for the periods presented differs from the expected tax
at statutory rates due primarily to different tax rates in the various
state and foreign jurisdictions.
At March 31, 2003, the Company had a significant amount of net deferred tax
assets, which consisted principally of net operating loss and alternative
minimum tax credit carryforwards and temporary differences resulting from
differences in the tax and book basis of certain assets and liabilities.
The net operating loss carryforwards expire, if unused, in varying amounts
and dates from 2006 to 2023 and the alternative minimum tax credit
carryforwards have no expiration date. Under Statement of Financial
Accounting Standards No. 109, the Company periodically evaluates the
realizability of its deferred tax assets from future operations. Such
evaluations must consider various factors, including estimates of future
taxable income growth and the expiration periods of net operating loss
carryforwards, and conclude that it is more likely than not that the
Company will realize the benefit of its net deferred tax assets.
Additionally, the utilization of net operating loss carryforwards could be
subject to limitation in the event of a change in ownership, as defined in
the tax laws. To the extent that factors or conditions change, it is
possible that a valuation allowance against the net deferred tax asset
might be required, which could have a material effect on the results of
operations of the Company.
Liquidity and Capital Resources
Cash provided by operating activities was $3.3 million and $1.5 million for
the three months ended March 31, 2003 and 2002, respectively. The increase
was due to overall higher revenues and operating income and normal changes
in working capital components resulting from the timing of cash receipts
and disbursements. During the three months ended March 31, 2003, the
Company's working capital requirements for operations and capital
expenditures were funded through the use of internally generated funds.
Capital expenditures were $1.2 million for the three month period ended
March 31, 2003 and $1.3 million for the three month period ended March 31,
2002. The Company expects to fund maintenance capital expenditures with
existing cash and anticipated cash flows from operations.
At March 31, 2003, $16.3 million was outstanding under 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 (2.29% at March 31, 2003), based
on either the LIBOR rate or prime rate, have a commitment fee on the unused
portion of the facility and contain certain financial and operational
covenants with respect to the technical services group. At March 31, 2003,
the Company was in compliance with all covenants. The Loan Agreement
matures in January 2009 and is secured by substantially all of the tangible
assets of the technical services group.
The Company's 8.75% subordinated debentures ($9.9 million outstanding at
March 31, 2003) are convertible into shares of the Company's common stock
at the conversion price, 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.
Additional information related to the sources and uses of cash is presented
in the condensed consolidated 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, 2002.
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 and fluctuations in
foreign currency.
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 $17.1 million at March 31, 2003, a one
percent increase in interest rates would increase interest expense by
approximately $0.2 million.
A significant portion of the technical services business is exposed to
fluctuations in foreign currency exchange rates. Foreign currency gains and
losses included in the consolidated statement of income for the three months
ended March 31, 2003 were not significant.
Item 4. Controls and Procedures.
In its Release No. 34-46427, effective August 29, 2002, the Securities and
Exchange Commission adopted rules requiring reporting companies to maintain
disclosure controls and procedures to provide reasonable assurance that a
registrant is able to record, process, summarize and report the information
required in the registrant's quarterly and annual reports under the Securities
Exchange Act of 1934 (the "Exchange Act"). While management believes that the
Company's existing disclosure controls and procedures have been effective to
accomplish these objectives, it intends to continue to examine, refine and
formalize the Company's disclosure controls and procedures and to monitor
ongoing developments in this area.
The Company's principal executive officer and principal financial officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and Rule 15d-14(c)) as of a date
within 90 days before the filing date of this Report, have concluded that, as of
such date, the Company's disclosure controls and procedures are adequate and
effective to ensure that material information relating to the Company and its
consolidated subsidiaries would be made known to them by others within those
entities.
There have been no changes in the Company's internal controls or in other
factors known to management that could significantly affect those internal
controls subsequent to the date of the evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. As a result, no corrective actions were required or undertaken.
XANSER CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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.
99.1 Certification of Chief Executive Officer, Pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002, dated as of May 14,
2003, filed herewith.
99.2 Certification of Chief Financial Officer, Pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002, dated as of May 14,
2003, 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: May 15, 2003 //s//
----------------------------------------
Michael R. Bakke
Controller
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, John R. Barnes, Chief Executive Officer of Xanser Corporation certify that:
1. I have reviewed this quarterly report on Form 10-Q of Xanser
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
//s//
-------------------------------------
John R. Barnes
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Howard C. Wadsworth, Chief Financial Officer of Xanser Corporation certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Xanser
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
//s//
-----------------------------------------
Howard C. Wadsworth
Chief Financial Officer