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UNITED STATES
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 September 30, 2004
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
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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 October 29, 2004
No par value 31,617,254 shares
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XANSER CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004
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Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income - Three and
Nine Months Ended September 30, 2004 and 2003 1
Condensed Consolidated Balance Sheets - September 30, 2004
and December 31, 2003 2
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 2004 and 2003 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 19
Item 4. Controls and Procedures 19
Part II. Other Information
Item 6. Exhibits 20
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands - Except Per Share Amounts)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- --------------
Revenues:
Services $ 35,385 $ 30,683 $ 101,541 $ 89,524
Products 379 7,059 2,043 13,675
------------- ------------- ------------- --------------
Total revenues 35,764 37,742 103,584 103,199
------------- ------------- ------------- --------------
Costs and expenses:
Operating costs 32,634 28,776 94,208 84,002
Cost of products sold 294 6,831 1,219 12,424
Depreciation and amortization 842 1,019 2,612 3,118
General and administrative 733 878 2,277 2,502
------------- ------------- ------------- --------------
Total costs and expenses 34,503 37,504 100,316 102,046
------------- ------------- ------------- --------------
Operating income 1,261 238 3,268 1,153
Interest and other income, net 32 58 97 188
Interest expense (266) (263) (743) (1,013)
------------- ------------- ------------- -------------
Income before income taxes 1,027 33 2,622 328
Income tax benefit (expense) (822) 334 (1,438) 602
------------- ------------- ------------- -------------
Net income $ 205 $ 367 $ 1,184 $ 930
============= ============= ============= ==============
Earnings per common share - Basic
and diluted $ .01 $ .01 $ .04 $ .03
============= ============= ============= ==============
See notes to condensed consolidated financial statements.
1
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
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September 30, December 31,
2004 2003
--------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 17,836 $ 21,240
Accounts receivable, trade 33,542 31,902
Receivable from businesses distributed to common
stockholders 7,688 7,564
Inventories 9,467 8,697
Prepaid expenses and other 4,445 4,182
-------------- -------------
Total current assets 72,978 73,585
-------------- -------------
Property and equipment 44,694 42,152
Less accumulated depreciation and amortization 32,060 29,879
-------------- -------------
Net property and equipment 12,634 12,273
-------------- -------------
Excess of cost over fair value of net assets of
acquired businesses 13,802 13,802
Deferred income taxes and other assets 5,809 5,130
-------------- -------------
$ 105,223 $ 104,790
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 658 $ 738
Accounts payable 6,029 3,098
Accrued expenses 16,937 18,255
Accrued income taxes 7,608 7,391
-------------- -------------
Total current liabilities 31,232 29,482
-------------- -------------
Long-term debt, less current portion:
Technical services 12,883 15,457
Information technology services 224 -
Parent company 5,000 5,000
-------------- -------------
Total long-term debt, less current portion 18,107 20,457
-------------- -------------
Other liabilities 2,641 2,399
Commitments and contingencies
Stockholders' equity:
Common stock, without par value 4,335 4,333
Additional paid-in capital 126,540 126,561
Treasury stock, at cost (26,180) (26,267)
Retained earnings (accumulated deficit) (47,511) (48,695)
Accumulated other comprehensive income (loss) (3,941) (3,480)
-------------- -------------
Total stockholders' equity 53,243 52,452
-------------- -------------
$ 105,223 $ 104,790
============== =============
See notes to condensed consolidated financial statements.
2
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
September 30,
----------------------------------------
2004 2003
-------------- ----------------
Operating activities:
Net income $ 1,184 $ 930
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,612 3,118
Deferred income taxes (880) (2,684)
Other 242 414
Changes in working capital components (843) 1,141
-------------- ----------------
Net cash provided by operating activities 2,315 2,919
-------------- ----------------
Investing activities:
Capital expenditures (3,166) (2,770)
Other 354 640
-------------- ----------------
Net cash used in investing activities (2,812) (2,130)
-------------- ----------------
Financing activities:
Issuance of debt 1,702 302
Payments on debt (4,442) (6,892)
Common stock issued and other 68 (13)
Increase in receivable from businesses distributed
to common stockholders (124) (287)
-------------- ----------------
Net cash used in financing activities (2,796) (6,890)
-------------- ----------------
Effect of exchange rate changes on cash (111) 355
-------------- ----------------
Decrease in cash and cash equivalents (3,404) (5,746)
Cash and cash equivalents at beginning of period 21,240 25,624
-------------- ----------------
Cash and cash equivalents at end of period $ 17,836 $ 19,878
============== ================
Supplemental cash flow information:
Cash paid for interest $ 822 $ 1,362
============== ================
Cash paid for income taxes $ 2,122 $ 924
============== ================
See notes to condensed consolidated financial statements.
3
XANSER CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. GENERAL AND SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of
Xanser Corporation ("Parent Company") and its subsidiaries (collectively,
the "Company"). All significant intercompany transactions and balances are
eliminated in consolidation. The unaudited condensed consolidated financial
statements of the Company for the three and nine month periods ended
September 30, 2004 and 2003 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, 2003.
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 at September 30, 2004, and
the consolidated results of income and cash flows for the periods ended
September 30, 2004 and 2003. Operating results for the three and nine
months ended September 30, 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2004. Certain
prior year financial statement items have been reclassified to conform with
the September 30, 2004 presentation.
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"). 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. Pursuant to the
Distribution, the Company entered into an agreement (the "Distribution
Agreement") with KSL whereby, KSL is obligated to pay the Company amounts
equal to certain expenses and tax liabilities incurred by the Company in
connection with the Distribution. 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 prior to the Distribution
date. 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. At September
30, 2004, $6.5 million was recorded as receivable from businesses
distributed to common stockholders pursuant to the provisions of the
Distribution Agreement.
In December of 2002, the Financial Accounting Standards Board ("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, 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 and basic and diluted
earnings per share if the fair value based method had been applied:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- --------------
(in thousands - except per share amounts)
Reported net income $ 205 $ 367 $ 1,184 $ 930
Stock-based employee compensation
expense determined under the fair
value based method, net of income
taxes (108) (47) (144) (106)
------------- ------------- ------------- --------------
Pro forma net income $ 97 $ 320 $ 1,040 $ 824
============= ============= ============= ==============
Earnings per share:
As reported - basic and diluted $ .01 $ .01 $ .04 $ .03
============= ============= ============= ==============
Pro forma - basic and diluted $ - $ .01 $ .03 $ .03
============= ============= ============= ==============
2. COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended September 30, 2004
and 2003 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- --------------
(in thousands)
Net income $ 205 $ 367 $ 1,184 $ 930
Foreign currency translation
adjustment 34 230 (461) 1,193
------------- ------------- ------------- --------------
Comprehensive income $ 239 $ 597 $ 723 $ 2,123
============= ============= ============= ==============
At September 30, 2004 and December 31, 2003, accumulated other
comprehensive income consisted of cumulative gains from foreign currency
translation adjustments of $1.1 million and $1.5 million, respectively, and
cumulative losses from minimum pension liability adjustments for
subsidiaries of $5.0 million and $5.0 million, respectively.
3. EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per share
(in thousands, except for per share amounts):
Weighted
Average
Common Per-Share
Net Income Shares Amount
--------------- ---------------- ----------------
Three Months Ended September 30, 2004
-------------------------------------
Basic earnings per share -
Net income $ 205 32,039 $ .01
================
Effect of dilutive securities - 1,054
--------------- ---------------
Diluted earnings per share -
Net income $ 205 33,093 $ .01
=============== =============== ================
Three Months Ended September 30, 2003
-------------------------------------
Basic earnings per share -
Net income $ 367 31,992 $ .01
===============
Effect of dilutive securities - 1,027
--------------- ---------------
Diluted earnings per share -
Net income $ 367 33,019 $ .01
=============== =============== ===============
Weighted
Average
Common Per-Share
Net Income Shares Amount
--------------- ---------------- ----------------
Nine Months Ended September 30, 2004
------------------------------------
Basic earnings per share -
Net income $ 1,184 32,033 $ .04
================
Effect of dilutive securities - 1,089
--------------- ---------------
Diluted earnings per share -
Net income $ 1,184 33,122 $ .04
=============== =============== ================
Nine Months Ended September 30, 2003
------------------------------------
Basic earnings per share -
Net income $ 930 31,990 $ .03
================
Effect of dilutive securities - 843
--------------- ---------------
Diluted earnings per share -
Net income $ 930 32,833 $ .03
=============== =============== ===============
The Company's 8.75% convertible subordinated debentures were excluded from
the computation of diluted earnings per share for the three and nine month
periods ended September 30, 2004 and 2003, because the effects of assumed
conversion would be anti-dilutive. Options to purchase 955,542 and 172,736
shares of common stock at weighted average prices of $2.49 and $2.69,
respectively, were outstanding for the three and nine month periods ended
September 30, 2004, respectively, but were not included in the computation
of diluted earnings per share because the options' exercise prices were
greater than the average market prices of the common stock. Options to
purchase 619,000 and 1,406,751 shares of common stock at weighted average
prices of $2.66 and $2.45, respectively, were outstanding for the three and
nine month periods ended September 30, 2003, respectively, but were not
included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market prices of the
common stock.
4. CONTINGENCIES
The Company has contingent liabilities resulting from litigation, claims
and commitments incident to the ordinary course of business. Management
believes, after consulting with counsel, that the ultimate resolution of
such contingencies will not have a materially adverse effect on the
financial position or results of operations or liquidity 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 healthcare, 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, and 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 Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- --------------
(in thousands)
Business segment revenues:
Technical services $ 29,781 $ 25,763 $ 86,521 $ 73,882
Information technology 5,983 11,979 17,063 29,317
------------- ------------- ------------- --------------
$ 35,764 $ 37,742 $ 103,584 $ 103,199
============= ============= ============= ==============
Technical services segment revenues:
Underpressure services $ 13,068 $ 10,204 $ 35,818 $ 31,482
Turnaround services 13,707 13,366 42,055 35,586
Other services 3,006 2,193 8,648 6,814
------------- ------------- ------------- --------------
$ 29,781 $ 25,763 $ 86,521 $ 73,882
============= ============= ============= ==============
Business segment profit:
Technical services $ 2,584 $ 1,835 $ 5,839 $ 5,133
Information technology services (590) (719) (294) (1,478)
General corporate (733) (878) (2,277) (2,502)
------------- ------------- ------------- --------------
Operating income 1,261 238 3,268 1,153
Interest and other income, net 32 58 97 188
Interest expense (266) (263) (743) (1,013)
------------- ------------- ------------- --------------
Income before income taxes $ 1,027 $ 33 $ 2,622 $ 328
============= ============= ============= ==============
September 30, December 31,
2004 2003
--------------- ----------------
(in thousands)
Total assets:
Technical services $ 66,584 $ 66,117
Information technology services 13,346 14,902
General corporate 25,293 23,771
--------------- ----------------
$ 105,223 $ 104,790
=============== ================
6. RECENT ACCOUNTING PRONOUNCEMENTS
In December of 2003, SFAS No. 132 (revised), "Employers' Disclosures about
Pensions and Other Postretirement Benefits", was issued. SFAS No. 132
(revised) prescribes employers' disclosures about pension plans and other
postretirement benefit plans, but does not change the measurement or
recognition of those plans. SFAS No. 132 (revised) retains and revises the
disclosure requirements contained in the original SFAS No. 132 and requires
additional disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. SFAS No. 132 (revised), which applies to a
defined benefits pension plan of a foreign subsidiary of the Company, must
be adopted by the Company in the fiscal year ending December 31, 2004.
In December 2003, the FASB issued Interpretation No. 46 (revised December
2003), "Consolidation of Variable Interest Entities" ("FIN 46R"), primarily
to clarify the required accounting for interests in variable interest
entities ("VIEs"). This standard replaces FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities," which was issued in January
2003 to address certain situations in which a company should include in its
financial statements the assets, liabilities and activities of another
entity. For the Company, application of FIN 46R is required for interests
in certain VIEs that are commonly referred to as special-purpose entities,
or SPEs, as of December 31, 2003, and for interests in all other types of
VIEs as of March 31, 2004. The application of FIN 46R did not have any
impact 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.
Overview
The Company, formed in 1953, conducts its principal businesses in two
industry segments, technical services and information technology services.
The Company's technical services business, which is conducted through its
Furmanite group of subsidiaries, offers specialized technical services to
an international base of clients located in the United States, Europe and
Asia-Pacific regions. The technical services business provides on-line
repairs of leaks in valves, pipes and other components of piping systems
and related equipment, typically in the flow-process industries. Other
services provided include on-site machining, bolting and valve testing and
repair on such systems and equipment. In addition, the division provides
hot tapping, fugitive emissions monitoring, passive fire protection,
concrete repair and heat exchanger repair.
The Company's information technology services business, Xtria, provides
services and related products to the healthcare industry, the financial and
insurance industries, and various governmental agencies. The segment's
primary business is information technology services, including application
software, hardware, web hosted data processing, networking, consulting and
support services.
Consolidated Results of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2004 2003 2004 2003
------------- -------------- ------------- ---------------
(in thousands - except per share amounts)
Revenues $ 35,764 $ 37,742 $ 103,584 $ 103,199
============= ============== ============= ===============
Operating income $ 1,261 $ 238 $ 3,268 $ 1,153
============= ============== ============= ===============
Net income $ 205 $ 367 $ 1,184 $ 930
============= ============== ============= ===============
Earnings per common share
- basic and diluted $ 0.01 $ 0.01 $ 0.04 $ 0.03
============= ============== ============= ===============
Capital expenditures $ 1,067 $ 538 $ 3,166 $ 2,770
============= ============== ============= ===============
For the three months ended September 30, 2004, consolidated revenues
decreased by $2.0 million, or 5%, when compared to the same 2003 period,
due to a $6.0 million decrease in revenues from the information technology
services business, primarily related to equipment sales in non-performing
operations closed in late 2003 (see "Information Technology Services"
below), partially offset by a $4.0 million increase in revenues from the
technical services business (see "Technical Services" below). Consolidated
operating income for the three months ended September 30, 2004 increased by
$1.0 million, or 430%, when compared to the same 2003 period, due primarily
to a $0.7 million increase in operating income from the technical services
business and a $0.1 million increase from the information technology
business. Net income for the three months ended September 30, 2004
decreased by $0.2 million, or 44%, when compared to the same 2003 period,
as increases in operating income were more than offset by a reduction in
income tax benefits recognized (see "Income Taxes" below).
For the nine months ended September 30, 2004, consolidated revenues
increased by $0.4 million, when compared to the same 2003 period, due to a
$12.6 million increase in revenues from the technical services business
(see "Technical Services" below), offset by a $12.3 million decrease in
revenues from the information technology services business, primarily
related to equipment sales in non-performing operations closed in late 2003
(see "Information Technology Services" below). Consolidated operating
income for the nine months ended September 30, 2004 increased by $2.1
million, or 183%, when compared to the same 2003 period, due to a $0.7
million increase in operating income from the technical services business
and a $1.2 million decrease in operating loss from the information
technology services business. Overall, net income for the nine months ended
September 30, 2004 increased by $0.3 million, or 27%, as higher operating
income and lower interest expense (see "Interest Expense" below) more than
offset a reduction in income tax benefits recognized (see "Income Taxes"
below).
Technical Services
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------------
2004 2003 2004 2003
----------- ----------- ------------- --------------
(in thousands)
Revenues:
United States $ 6,200 $ 5,275 $ 20,352 $ 17,229
Europe 19,627 16,375 53,818 45,870
Asia-Pacific 3,954 4,113 12,351 10,783
----------- ----------- ------------- --------------
Total Revenues $ 29,781 $ 25,763 $ 86,521 $ 73,882
=========== =========== ============= ==============
Operating income:
United States $ (249) $ (569) $ (263) $ (952)
Europe 3,031 2,297 6,129 6,024
Asia-Pacific 376 780 1,589 1,617
Headquarters (574) (673) (1,616) (1,556)
----------- ----------- ------------- --------------
Total operating income $ 2,584 $ 1,835 $ 5,839 $ 5,133
=========== =========== ============= ==============
Capital expenditures $ 518 $ 440 $ 2,055 $ 1,599
=========== =========== ============= ==============
For the three months ended September 30, 2004, revenues for the technical
services business increased by $4.0 million, or 16%, when compared to the
same 2003 period. In the United States, third quarter 2004 revenues
increased by $0.9 million, or 18%, when compared to the third quarter of
2003, due to increases in underpressure, turnaround and other process plant
services. In Europe, third quarter 2004 revenues increased by $3.3 million,
or 20%, when compared to the same 2003 period, due to increases in
underpressure services and favorable foreign currency exchange rates. In
Asia-Pacific, third quarter 2004 revenues decreased by $0.2 million, or 4%,
when compared to the corresponding 2003 period, due to decreases in
turnaround services, partially offset by increases in underpressure
services and favorable foreign currency exchange rates.
For the three months ended September 30, 2004, technical services operating
income increased by $0.7 million, or 41%, when compared to the same 2003
period. In the United States, third quarter 2004 operating loss decreased
by $0.3 million, or 56%, when compared to the same period in 2003, due to
the higher revenue levels. In Europe, operating income for the three months
ended September 30, 2004 increased by $0.7 million, or 32%, when compared
to the same 2003 period, due to the higher revenue levels, partially offset
by an increase in general and administrative costs. In Asia-Pacific, third
quarter 2004 operating income decreased by $0.4 million, or 52%, when
compared to the third quarter of 2003, due to the lower revenues combined
with an increase in general and administrative costs.
For the nine months ended September 30, 2004, revenues for the technical
services business increased by $12.6 million, or 17%, when compared to the
same 2003 period. In the United States, revenues for the nine months ended
September 30, 2004 increased by $3.1 million, or 18%, when compared to the
corresponding 2003 period, due to increases in underpressure, turnaround
and other process plant services. In Europe, revenues for the nine months
ended September 30, 2004, increased by $7.9 million, or 17%, when compared
to the nine month period ended September 30, 2003, due to increases in
turnaround, other process plant and underpressure services and favorable
foreign currency exchange rates, partially offset by decreases in product
sales. In Asia-Pacific, revenues for the nine months ended September 30,
2004 increased by $1.6 million, or 15%, when compared to 2003, due to
increases in underpressure and other process plant services, product sales
and favorable foreign currency exchange rates, partially offset by
decreases in turnaround services.
For the nine months ended September 30, 2004, technical services operating
income increased by $0.7 million, or 14%, when compared to the same 2003
period. In the United States, the operating loss for the nine months ended
September 30, 2004 decreased by $0.7 million, or 72%, when compared to the
same 2003 period, due primarily to the higher revenue levels. In Europe,
operating income for the nine months ended September 30, 2004, increased by
$0.1 million, or 2%, when compared to the nine months ended September 30,
2003, due to the higher revenue levels, partially offset by a lower
operating margin service mix and higher general and administrative costs.
In Asia-Pacific, operating income for the nine months ended September 30,
2004 was flat compared to the same 2003 period, as higher revenue levels
were offset by higher general and administrative costs.
Information Technology Services
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------------
2004 2003 2004 2003
----------- ----------- ------------- --------------
(in thousands)
Revenues $ 5,983 $ 11,979 $ 17,063 $ 29,317
=========== =========== ============= ==============
Operating income (loss) $ (590) $ (719) $ (294) $ (1,478)
=========== =========== ============= ==============
Capital expenditures $ 549 $ 98 $ 1,111 $ 1,171
=========== =========== ============= ==============
For the three and nine month periods ended September 30, 2004, information
technology revenues decreased by $6.0 million, or 50%, and $12.3 million,
or 42%, respectively, when compared to the same 2003 periods, due primarily
to the Company's strategic decision to close non-performing operations in
the fourth quarter of 2003. The businesses closed included
communications-related installation services operations and low margin
government equipment sales and operations.
For the three and nine month periods ended September 30, 2004, information
technology services operating loss decreased by $0.1 million, or 18%, and
$1.2 million, or 80%, respectively, when compared to the same 2003 periods,
primarily due to lower general and administrative costs, combined with the
effects of closing the non-performing operations in late 2003.
Interest Expense
Interest expense decreased by $0.3 million during the nine months ended
September 30, 2004, when compared to the same 2003 period, due to
reductions in both Parent Company and technical services debt (see
"Liquidity and Capital Resources") and lower interest rates on variable
borrowings.
Income Taxes
Prior to December 31, 2003, the Company recognized a full federal and state
income tax expense or benefit for income or losses generated by its
domestic operations. Federal and state benefits recorded for the three and
nine month periods ended September 30, 2003 aggregated $0.9 million and
$2.1 million, respectively. During the fourth quarter of 2003, the Company,
pursuant to an evaluation performed in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting
for Income Taxes", recorded a full valuation allowance for deferred tax
assets arising from prior years' tax losses (net operating loss
carryforwards) that are available to offset future taxable income. As a
result, all domestic federal and state income taxes recorded in the first
nine months of 2004 are fully offset by a corresponding reduction in
valuation allowance.
Liquidity and Capital Resources
Cash provided by operating activities was $2.3 million and $2.9 million for
the nine month periods ended September 30, 2004 and 2003, respectively. The
2004 decrease, when compared to the same 2003 period, was due primarily to
normal changes in working capital components resulting from the timing of
cash receipts and disbursements, partially offset by the overall increase
in net income. During the nine months ended September 30, 2004, the
Company's working capital requirements for operations and capital
expenditures were funded through the use of internally generated funds.
Capital expenditures were $3.2 million and $2.8 million for the nine month
periods ended September 30, 2004 and 2003, respectively. Consolidated
capital expenditures for the year 2004 have been estimated at $4 million to
$5 million, depending on the economic environment and the needs of the
business. Future capital expenditures, however, will depend on many factors
beyond the Company's control, including demand for services in the
technical services and information technology services businesses, and
local, state and federal government regulations. No assurance can be given
that required capital expenditures will not exceed anticipated amounts
during 2004 or thereafter. Capital expenditures (excluding acquisitions)
during the year are expected to be funded from existing cash and
anticipated cash flows from operations.
At September 30, 2004, $12.0 million was outstanding under a $25 million
bank loan agreement that provides working capital for the technical
services segment and is without recourse to the Parent Company. Borrowings
under the loan agreement bear interest at the option of the borrower at
variable rates (2.98% at September 30, 2004), 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, including percentage of tangible
assets and revenues related to certain geographical areas, ratios of debt
to cash flow, as defined in the loan agreement, and cash flow to fixed
charges and capital expenditures. At September 30, 2004, 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 Parent Company's 8.75% subordinated debentures ($5.0 million
outstanding at September 30, 2004) are convertible into shares of the
Company's common stock at the conversion price of $5.26 per share. On June
30, 2003, the Company purchased $4.9 million of subordinated debentures at
par value, plus accrued interest.
The following schedule sets forth, by period, the Company's debt repayment
obligations and material contractual commitments at December 31, 2003.
Less than After
Total 1 year 1 -3 years 4 -5 years 5 years
---------- ---------- ---------- ----------- --------------
(in thousands)
Debt:
Technical services credit
facility $ 14,296 $ 12 $ - $ - $ 14,284
Parent company convertible
subordinated debentures 5,000 - - 5,000 -
Other 301 100 201 - -
---------- ---------- ----------- ------------ --------------
19,597 112 201 5,000 14,284
Capital leases 1,598 626 722 250 -
---------- ---------- ----------- ------------ --------------
Debt subtotal 21,195 738 923 5,250 14,284
---------- ---------- ----------- ------------ --------------
Other contractual commitments:
Operating leases 10,477 3,326 4,311 1,367 1,473
---------- ---------- ----------- ------------ --------------
Total $ 31,672 $ 4,064 $ 5,234 $ 6,617 $ 15,757
========== ========== =========== ============ ==============
The technical services business, at its option, lowered its borrowings by
$2.3 million during the nine months ended September 30, 2004. Otherwise
there were no material changes to the Company's schedule of the other debt
repayment obligations and material contractual commitments from December
31, 2003 to September 30, 2004.
A foreign subsidiary of the Company has certain future funding requirements
regarding a defined benefits pension plan, as set forth in Note 3 to the
Company's Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
Additional information related to the sources and uses of cash is presented
in the condensed consolidated financial statements included in this report.
Off-Balance Sheet Transactions
The Company was not a party to any off-balance sheet transactions at
September 30, 2004.
Critical Accounting Policies and Estimates
The preparation of the Company's financial statements in conformity with
accounting principles generally 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. Significant policies are
presented in the Notes to the Consolidated Financial Statements of the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Critical accounting policies are those that are most important to the
portrayal of the Company's financial position and results of operations.
These policies require management's most difficult, subjective or complex
judgments, often employing the use of estimates about the effect of matters
that are inherently uncertain. The Company's most critical accounting
policies pertain to revenue recognition, the impairment of excess of cost
over fair value of net assets of acquired businesses and income taxes.
The Company's information technology services segment includes revenue
recognized under arrangements with its customers that require the use of
significant judgments and estimates by management. The accounting policies
for revenue recognition in the information technology services segment
comply with AICPA Statement of Position No. 97-2 "Software Revenue
Recognition". SOP No. 97-2 requires revenue to be recognized only after
software is delivered, all significant obligations of the Company are
fulfilled, and all significant uncertainties regarding customer acceptance
have expired. SOP No. 97-2 also requires the unbundling of multiple
elements and the allocation of pricing to each element based upon vendor
specific objective evidence of fair value. In addition, the information
technology services segment's revenues under long-term service contracts
are accounted for using a proportional performance method or on a
straight-line basis in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition
in Financial Statements", as amended by SAB No. 104.
The Company follows the provisions of 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 September 30, 2004,
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 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 the Company at December 31, 2003 (the last annual
evaluation date), no impairment charge was required. Future evaluations of
the fair value of goodwill and other intangible assets are dependent on
many factors, several of which are out of the Company's control, including
the demand for services provided. To the extent that such factors or
conditions change, it is possible that future impairments could occur,
which could have a material effect on the results of operations of the
Company.
At September 30, 2004, the Company had a significant amount of net deferred
tax assets, which consisted principally of net operating loss
carryforwards, 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 available as
of December 31, 2003 expire, if unused, as follows: $1.2 million in 2006;
$3.0 million in 2007; $13.4 million in 2022; and $9.6 million in 2023. The
alternative minimum tax credit carryforwards have no expiration date. Based
on evaluations performed by the Company pursuant to SFAS No. 109 in the
fourth quarter of 2003, a full, non-cash, valuation allowance was provided
with respect to the Company's domestic federal and state net deferred tax
assets. 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.
XANSER CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The principal market risks pursuant to this Item (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 $12.2 million at September 30, 2004, a
one percent increase in interest rates would increase annual interest expense by
approximately $0.1 million.
A significant portion of the technical services business is exposed to
fluctuations in foreign currency exchange rates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Technical
Services."
Item 4. Controls and Procedures
The Company's principal executive officer and principal financial officer, after
evaluating, as of September 30, 2004, the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934), 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.
During the quarter ended September 30, 2004, there have been no changes in the
Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, those internal controls
subsequent to the date of the evaluation. As a result, no corrective actions
were required or undertaken.
XANSER CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Part II - Other Information
Item 6. 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.
31.1 Certification of Chief Executive Officer, Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, dated November 8, 2004.
31.2 Certification of Chief Financial Officer, Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, dated November 8, 2004.
32.1 Certification of Chief Executive Officer, Pursuant to Section 906(a)
of the Sarbanes-Oxley Act of 2002, dated November 8, 2004.
32.2 Certification of Chief Financial Officer, Pursuant to Section 906(a)
of the Sarbanes-Oxley Act of 2002, dated November 8, 2004.
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, thereunto duly authorized.
XANSER CORPORATION
(Registrant)
Date: November 8, 2004 //s// MICHAEL R. BAKKE
----------------------------------------
Michael R. Bakke
Controller and Chief Accounting Officer
(Duly Authorized Officer)
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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) [intentionally omitted pursuant to SEC Release No. 34-47986];
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period cover by this quarterly report, based on such
evaluation; and
d) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 8, 2004
//s// JOHN R. BARNES
--------------------------------------------
John R. Barnes
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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) [intentionally omitted pursuant to SEC Release No. 34-47986];
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period cover by this quarterly report, based on such
evaluation; and
d) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 8, 2004
//s// HOWARD C. WADSWORTH
---------------------------------------
Howard C. Wadsworth
Vice President, Treasurer and Secretary
(Chief Financial Officer)
Exhibit 32.1
CERTIFICATION 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, to his knowledge, the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2004, 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.
This written statement is being furnished to the Securities and Exchange
Commission as an exhibit to such Form 10-Q. A signed original of this written
statement required by Section 906 has been provided to Xanser Corporation and
will be retained by Xanser Corporation and furnished to the Securities and
Exchange Commission or its staff upon request.
Date: November 8, 2004
//s// JOHN R. BARNES
--------------------------------------------
John R. Barnes
President and Chief Executive Officer
Exhibit 32.2
CERTIFICATION 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, to his knowledge, the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2004, 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.
This written statement is being furnished to the Securities and Exchange
Commission as an exhibit to such Form 10-Q. A signed original of this written
statement required by Section 906 has been provided to Xanser Corporation and
will be retained by Xanser Corporation and furnished to the Securities and
Exchange Commission or its staff upon request.
Date: November 8, 2004
//s// HOWARD C. WADSWORTH
---------------------------------------
Howard C. Wadsworth
Vice President, Treasurer and Secretary
(Chief Financial Officer)