- --------------------------------------------------------------------------------
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 March 31, 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
---------- ------------
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, 2004
- --------------------- -----------------------------
No par value 31,617,254 shares
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XANSER CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2004
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Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income - Three Months
Ended March 31, 2004 and 2003 1
Condensed Consolidated Balance Sheets - March 31, 2004
and December 31, 2003 2
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 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 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
Item 4. Controls and Procedures 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands - Except Per Share Amounts)
(Unaudited)
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Three Months Ended
March 31,
----------------------------
2004 2003
------------ -------------
Revenues:
Services $ 31,841 $ 28,861
Products 323 3,363
------------ -------------
Total revenues 32,164 32,224
------------ -------------
Costs and expenses:
Operating costs 29,962 27,390
Cost of products sold 181 2,707
Depreciation and amortization 879 1,094
General and administrative 752 807
------------ -------------
Total costs and expenses 31,774 31,998
------------ -------------
Operating income 390 226
Interest income 34 90
Interest expense (239) (359)
------------ -------------
Income (loss) before income taxes 185 (43)
Income tax benefit (expense) (75) 186
------------ -------------
Net income $ 110 $ 143
============ =============
Earnings per common share - Basic and diluted $ - $ -
============ =============
See notes to condensed consolidated financial statements.
1
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
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March 31, December 31,
2004 2003
--------------- ---------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21,121 $ 21,240
Accounts receivable, trade 31,117 31,902
Receivable from businesses distributed to common
shareholders 7,595 7,564
Inventories 8,428 8,697
Prepaid expenses and other 3,319 4,182
-------------- -------------
Total current assets 71,580 73,585
-------------- -------------
Property and equipment 42,811 42,152
Less accumulated depreciation and amortization 30,503 29,879
-------------- -------------
Net property and equipment 12,308 12,273
-------------- -------------
Excess of cost over fair value of net assets of
acquired businesses 13,802 13,802
Deferred income taxes and other assets 6,047 5,130
-------------- -------------
$ 103,737 $ 104,790
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 819 $ 738
Accounts payable 4,134 3,098
Accrued expenses 17,389 18,255
Accrued income taxes 7,150 7,391
-------------- -------------
Total current liabilities 29,492 29,482
-------------- -------------
Long-term debt, less current portion:
Technical services 14,571 15,457
Parent company 5,000 5,000
-------------- -------------
Total long-term debt, less current portion 19,571 20,457
-------------- -------------
Other liabilities 2,406 2,399
Commitments and contingencies
Stockholders' equity:
Common stock, without par value 4,346 4,333
Additional paid-in capital 126,505 126,561
Treasury stock, at cost (26,180) (26,267)
Retained earnings (accumulated deficit) (48,585) (48,695)
Accumulated other comprehensive income (loss) (3,818) (3,480)
-------------- -------------
Total stockholders' equity 52,268 52,452
-------------- -------------
$ 103,737 $ 104,790
============== =============
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,
----------------------------
2004 2003
------------ -------------
Operating activities:
Net income $ 110 $ 143
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 879 1,094
Deferred income taxes (788) (796)
Other 7 92
Changes in working capital components 1,846 2,751
------------ -------------
Net cash provided by operating activities 2,054 3,284
------------ -------------
Investing activities:
Capital expenditures (977) (1,228)
Other (228) 66
------------ -------------
Net cash used in investing activities (1,205) (1,162)
------------ -------------
Financing activities:
Issuance of debt and capital leases 183 211
Payments on debt and capital leases (1,077) (315)
Common stock issued and other 44 (23)
Increase in receivable from businesses
distributed to common shareholders (31) (236)
------------ -------------
Net cash used in financing activities (881) (363)
------------ -------------
Effect of exchange rate changes on cash (87) 14
------------ -------------
Increase (decrease) in cash and cash equivalents (119) 1,773
Cash and cash equivalents at beginning of period 21,240 25,624
------------ -------------
Cash and cash equivalents at end of period $ 21,121 $ 27,397
============ =============
Supplemental cash flow information:
Cash paid for interest $ 339 $ 652
============ =============
Cash paid for income taxes $ 1,069 $ 147
============ =============
See notes to condensed consolidated financial statements.
3
XANSER CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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1. GENERAL AND 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, 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 and its
consolidated subsidiaries at March 31, 2004 and the consolidated results of
income and cash flows for the periods ended March 31, 2004 and 2003.
Operating results for the three months ended March 31, 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 March 31, 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 March 31,
2004, $6.5 million was recorded as receivable from businesses distributed
to common shareholders pursuant to the provisions of the Distribution
Agreement.
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, 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
March 31,
---------------------------------
2004 2003
------------- --------------
(in thousands)
Reported net income $ 110 $ 143
Stock-based employee compensation expense determined
under the fair value based method, net of income taxes (15) (21)
------------- -------------
Pro forma net income $ 95 $ 122
============= =============
Earnings per share:
Basic and diluted - as reported $ - $ -
============= =============
Basic and diluted - pro forma $ - $ -
============= =============
2. COMPREHENSIVE INCOME
Comprehensive income (loss) for the three months ended March 31, 2004 and
2003 is as follows:
Three Months Ended
March 31,
---------------------------------
2004 2003
------------- --------------
(in thousands)
Net income $ 110 $ 143
Other comprehensive income (loss) - foreign
currency translation adjustment (338) (24)
------------- --------------
Comprehensive income (loss) $ (228) $ 119
============= ==============
At March 31, 2004 and December 31, 2003, accumulated other comprehensive
income (loss) consisted of cumulative foreign currency translation
adjustments of $(1.2) million and $(1.5) million, respectively, and 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
Net Common Per Share
Income Shares Amount
--------------- --------------- ----------------
Three Months Ended March 31, 2004
---------------------------------
Basic earnings per share -
Net income $ 110 32,008 $ -
================
Effect of dilutive securities - 1,056
--------------- ---------------
Diluted earnings per share -
Net income $ 110 33,064 $ -
=============== =============== ================
Three Months Ended March 31, 2003
---------------------------------
Basic earnings per share -
Net income $ 143 31,993 $ -
================
Effect of dilutive securities - 591
--------------- ---------------
Diluted earnings per share -
Net income $ 143 32,584 $ -
=============== =============== ================
The Company's 8.75% convertible subordinated debentures were excluded from
the computation of diluted earnings per share for both three month periods
ended March 31, 2004 and 2003, because the effects of assumed conversion
would be anti-dilutive. Options to purchase 216,200 and 1,600,728 shares of
common stock at weighted average prices of $2.70 and $2.40, were
outstanding for the three month periods ended March 31, 2004 and 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, 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 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, 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
March 31,
---------------------------------
2004 2003
------------- --------------
(in thousands)
Business segment revenues:
Technical services $ 26,982 $ 23,008
Information technology services 5,182 9,216
------------- --------------
$ 32,164 $ 32,224
============= ==============
Technical services segment revenues:
Underpressure services $ 11,485 $ 10,815
Turnaround services 12,874 9,940
Other services 2,623 2,253
------------- --------------
$ 26,982 $ 23,008
============= ==============
Business segment profit (loss):
Technical services $ 1,140 $ 1,341
Information technology services 2 (308)
General corporate (752) (807)
------------- --------------
Operating income 390 226
Interest income 34 90
Interest expense (239) (359)
------------- --------------
Income (loss) before income taxes $ 185 $ (43)
============= ==============
March 31, December 31,
2004 2003
------------- -------------
(in thousands)
Total assets:
Technical services $ 65,428 $ 66,117
Information technology services 10,842 14,902
General corporate 27,467 23,771
------------- -------------
$ 103,737 $ 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, that 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.
General
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
March 31,
---------------------------------
2004 2003
------------- --------------
(in thousands - except
per share amounts)
Revenues $ 32,164 $ 32,224
============= ==============
Operating income $ 390 $ 226
============= ==============
Net income $ 110 $ 143
============= ==============
Earnings per common share - basic and diluted $ - $ -
============= ==============
Capital expenditures $ 977 $ 1,228
============= ==============
For the three months ended March 31, 2004, consolidated revenues were flat,
when compared to the same 2003 period, due to a $4.0 million increase in
revenues from the technical services business (see "Technical Services"
below), offset by a $4.0 million decrease in revenues from the information
technology services business, primarily related to non-performing
operations closed in late 2003 (see "Information Technology Services"
below). Consolidated operating income increased by $0.2 million, or 73%,
when compared to 2003, due to a $0.3 million increase in operating income
from the information technology services business, partially offset by a
$0.2 million decrease in operating income from the technical services
business. First quarter 2004 net income decreased slightly when compared to
the same 2003 period, as higher operating income and lower interest expense
(see "Interest Expense" below) were more than offset by a reduction in
income tax benefits recognized (see "Income Taxes" below).
Technical Services
Three Months Ended
March 31,
---------------------------------
2004 2003
------------- --------------
(in thousands)
Revenues:
United States $ 7,207 $ 6,113
Europe 15,890 13,868
Asia-Pacific 3,885 3,027
------------- --------------
Total Revenues $ 26,982 $ 23,008
============= ==============
Operating income (loss):
United States $ 107 $ 130
Europe 1,027 1,575
Asia-Pacific 524 346
Headquarters (518) (710)
------------- --------------
Total operating income $ 1,140 $ 1,341
============= ==============
Capital expenditures, excluding acquisitions $ 847 $ 609
============= ==============
For the three months ended March 31, 2004, revenues for the technical
services business increased by $4.0 million, or 17%, when compared to the
same 2003 period. In the United States, revenues increased by $1.1 million,
or 18%, when compared to the first quarter of 2003, due to increases in
turnaround and underpressure services, partially offset by decreases in
other process plant services. In Europe, revenues increased by $2.0
million, or 15%, when compared to the first quarter of 2003, due to
increases in turnaround and other process plant services and favorable
foreign currency exchange rates, partially offset by decreases in
underpressure services and product sales. In Asia-Pacific, revenues
increased by $0.9 million, or 28%, when compared to the first quarter of
2003, due to increases in underpressure, turnaround and other process plant
services and favorable foreign currency exchange rates, partially offset by
decreases in product sales.
For the three months ended March 31, 2004, technical services operating
income decreased by $0.2 million, or 15%, when compared to the same 2003
period. In the United States, operating income was flat, when compared to
the same period in 2003, due to higher insurance and sales and management
costs which offset the higher revenue levels. In Europe operating income
decreased by $0.5 million, or 35%, when compared to the same 2003 period,
due to lower operating margins, which more than offset the higher revenues.
In Asia-Pacific operating income increased by $0.2 million, or 51%, when
compared to the same 2003 period, due to higher revenues and operating
margins.
Information Technology Services
Three Months Ended
March 31,
---------------------------------
2004 2003
------------- --------------
(in thousands)
Revenues $ 5,182 $ 9,216
============= ==============
Operating income (loss) $ 2 $ (308)
============= ==============
Capital expenditures, excluding acquisitions $ 130 $ 619
============= ==============
For the three month period ended March 31, 2004, information technology
revenues decreased by $4.0 million, or 44%, 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 services and equipment sales
operations.
For the three month period ended March 31, 2004, information technology
services operating income increased by $0.3 million, when compared to the
same 2003 period, 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 $0.1 million during the three months ended
March 31, 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 rate 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
month period ended March 31, 2003 aggregated $0.5 million. 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 of this evaluation, a valuation
allowance has been provided against the domestic federal and state income
tax benefits recorded in the first quarter of 2004.
Liquidity and Capital Resources
Cash provided by operating activities was $2.1 million and $3.3 million for
the three months ended March 31, 2004 and 2003, respectively. The first
quarter 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. During the three months
ended March 31, 2004, the Company's working capital requirements for
operations and capital expenditures were funded through the use of
internally generated funds.
Capital expenditures were $1.0 million and $1.2 million for the three month
periods ended March 31, 2004 and 2003, respectively. Consolidated capital
expenditures for the year 2004 have been budgeted at $3 million to $4
million, depending on the economic environment and the needs of the
business. Such expenditures, however, will depend on many factors beyond
the Company's control, including demand for services in the technical
services and information 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 March 31, 2004, $13.6 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 Company. Borrowings under the loan
agreement bear interest at the option of the borrower at variable rates
(2.98% at March 31, 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 March 31, 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 March 31, 2004) are convertible into shares of the Company's
common stock at the conversion price of $5.26 per share. On September 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.
There were no material changes to the Company's schedule of debt repayment
obligations and material contractual commitments from December 31, 2003 to
March 31, 2004.
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
========== ========== =========== ============ ==============
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 March
31, 2004, or for the three month periods ended March 31, 2004 and 2003.
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 multiple element arrangements with its customers, which
requires 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 March 31, 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 March 31, 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 has been 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 $13.8 million at March 31, 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 March 31, 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 first quarter of 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 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.
31.1 Certification of Chief Executive Officer, Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, dated May 6, 2004.
31.2 Certification of Chief Financial Officer, Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, dated May 6, 2004.
32.1 Certification of Chief Executive Officer, Pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002, dated May 6, 2004.
32.2 Certification of Chief Financial Officer, Pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002, dated May 6, 2004.
(b) Reports on Form 8-K
Current Report on Form 8-K, filed February 26, 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: May 6, 2004 //s// MICHAEL R. BAKKE
---------------------------------------------
Michael R. Bakke
Controller
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: May 6, 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: May 6, 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 three months ended March 31, 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: May 6, 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 three months ended March 31, 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: May 6, 2004
//s// HOWARD C. WADSWORTH
----------------------------------------
Howard C. Wadsworth
Vice President, Treasurer and Secretary
(Chief Financial Officer)