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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, 2005
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 by check mark whether the registrant is a shell company (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 October 31, 2005
- --------------------- ---------------------------------
No par value 34,275,683 shares
- --------------------------------------------------------------------------------
XANSER CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2005
- --------------------------------------------------------------------------------
Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income - Three and
Nine Months Ended September 30, 2005 and 2004 1
Condensed Consolidated Balance Sheets - September 30, 2005
and December 31, 2004 2
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 2005 and 2004 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 21
Item 4. Controls and Procedures 21
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits 22
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,
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues:
Services $ 39,883 $ 35,385 $ 113,116 $ 101,541
Products 518 379 5,925 2,043
--------- --------- --------- ---------
Total revenues 40,401 35,764 119,041 103,584
--------- --------- --------- ---------
Costs and expenses:
Operating costs 37,474 32,634 109,490 94,208
Cost of products sold 526 294 6,369 1,219
Depreciation and amortization 900 842 2,729 2,612
General and administrative 891 733 2,327 2,277
Other (769) -- (769) --
--------- --------- --------- ---------
Total costs and expenses 39,022 34,503 120,146 100,316
--------- --------- --------- ---------
Operating income (loss) 1,379 1,261 (1,105) 3,268
Interest and other income, net 213 32 487 97
Interest expense (256) (266) (792) (743)
--------- --------- --------- ---------
Income (loss) before income taxes 1,336 1,027 (1,410) 2,622
Income tax (expense) (1,295) (822) (2,557) (1,438)
--------- --------- --------- ---------
Net income (loss) $ 41 $ 205 $ (3,967) $ 1,184
========= ========= ========= =========
Earnings (loss) per common share - basic
and diluted $ 0.00 $ 0.01 $ (0.12) $ 0.04
========= ========= ========= =========
See notes to condensed consolidated financial statements.
1
XANSER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
September 30, December 31,
2005 2004
--------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 20,896 $ 21,598
Accounts receivable, trade 41,717 35,470
Receivable from businesses distributed to common
stockholders 6,569 6,699
Inventories 10,625 9,131
Prepaid expenses and other 3,727 5,283
-------------- -------------
Total current assets 83,534 78,181
-------------- -------------
Property and equipment 40,158 46,571
Less accumulated depreciation and amortization 28,274 32,933
-------------- -------------
Net property and equipment 11,884 13,638
-------------- -------------
Excess of cost over fair value of net assets of
acquired businesses 13,802 13,802
Deferred income taxes and other assets 5,597 6,299
-------------- -------------
$ 114,817 $ 111,920
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 436 $ 524
Accounts payable 8,961 5,416
Accrued expenses 26,930 23,416
Accrued income taxes 8,414 7,609
-------------- -------------
Total current liabilities 44,741 36,965
-------------- -------------
Long-term debt, less current portion:
Technical services 11,074 12,250
Information technology services 248 248
Parent company 5,000 5,000
-------------- -------------
Total long-term debt, less current portion 16,322 17,498
-------------- -------------
Other liabilities 118 1,567
Commitments and contingencies
Stockholders' equity:
Common stock, without par value 4,481 4,335
Additional paid-in capital 124,299 126,550
Treasury stock, at cost (20,347) (26,180)
Retained earnings (accumulated deficit) (50,266) (46,299)
Accumulated other comprehensive income (loss) (4,531) (2,516)
-------------- -------------
Total stockholders' equity 53,636 55,890
-------------- -------------
$ 114,817 $ 111,920
============== =============
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,
---------------------------------
2005 2004
------------- --------------
Operating activities:
Net income (loss) $ (3,967) $ 1,184
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,729 2,612
Gain on sale of assets (2,102) -
Non recurring expenses 1,333 -
Deferred income taxes 385 (880)
Other (92) 242
Changes in working capital components (2,894) (843)
------------- --------------
Net cash provided by operating activities (4,608) 2,315
------------- --------------
Investing activities:
Capital expenditures (3,210) (3,166)
Proceeds from sale of assets 5,400 -
Employee Stock Option exercised 2,313 68
Other 869 354
------------- --------------
Net cash used in investing activities 5,372 (2,744)
------------- --------------
Financing activities:
Issuance of debt 448 1,702
Payments on debt (1,739) (4,442)
Increase (decrease) in receivable from businesses distributed
to common stockholders 130 (124)
------------- --------------
Net cash provided by (used in) financing activities (1,161) (2,864)
------------- --------------
Effect of exchange rate changes on cash (305) (111)
------------- --------------
Decrease in cash and cash equivalents (702) (3,404)
Cash and cash equivalents at beginning of period 21,598 21,240
------------- --------------
Cash and cash equivalents at end of period $ 20,896 $ 17,836
============= ==============
Supplemental cash flow information:
Cash paid for interest $ 863 $ 822
============= ==============
Cash paid for income taxes $ 1,476 $ 2,122
============= ==============
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, 2005 and 2004 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, 2004.
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, 2005, and
the consolidated results of income and cash flows for the periods ended
September 30, 2005 and 2004. Operating results for the three and nine
months ended September 30, 2005 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005.
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 judgment 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. On July 1,
2005, KSL was purchased by Valero L.P., and Valero L.P. affirmatively
assumed the obligations of KSL under the Distribution Agreement. At
September 30, 2005, $6.6 million was recorded as receivable from businesses
distributed to common stockholders pursuant to the provisions of the
Distribution Agreement.
In December of 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R"), which addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for equity instruments of the enterprise, or
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity
instruments. SFAS No. 123R eliminates the ability to account for
share-based compensation transactions using the intrinsic value method
under Accounting Principles Board Opinion 25, "Accounting for Stock Issued
to Employees" ("APB Opinion 25"), and generally requires that such
transactions be accounted for using a fair-value-based method. The Company
is currently evaluating the provisions of SFAS No. 123R to determine which
fair-value-based model and transitional provision to follow upon adoption.
The alternatives for transition include either the modified prospective or
the modified retrospective methods. The modified prospective method
requires that compensation expense be recorded for all unvested stock
options and restricted stock as the requisite service is rendered beginning
with the first quarter of adoption. The modified retrospective method
requires recording compensation expense for stock options and restricted
stock beginning with the first period restated. Under the modified
retrospective method, prior periods may be restated either as of the
beginning of the year of adoption or for all periods presented. SFAS No.
123R will be effective for the Company beginning in the first quarter of
2006. The impact of adoption on the Company's consolidated financial
statements is still being evaluated.
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option plans and, accordingly,
does not recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123. The Company also
applies the disclosure provisions of SFAS No. 123, as amended by SFAS No.
148, "Accounting for Stock-based Compensation - Transition and Disclosure"
as if the fair-value-based method had been applied in measuring
compensation expense. The Black-Scholes option pricing model has been used
to estimate the value of stock options issued.
Effective June 3, 2005, the Company vested all outstanding options to give
the option holders the opportunity to become owners of the Company's common
stock sooner than they could have under their original grants Shares issued
upon exercise of the previously unvested portion of those options must be
held and not sold until the date on which they would have otherwise vested
under the terms of the original option grant and the plan. The impact of
early vesting of the options on net income was not significant.
The following illustrates the effect on net income (loss) and basic and
diluted earnings (loss) per share for the periods indicated if the fair
value based method had been applied:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- ------------- --------------
(in thousands - except per share amounts)
Reported net income (loss) $ 41 $ 205 $ (3,967) $ 1,184
Stock-based employee compensation
expense determined under the fair
value based method, net of income
taxes (49) (108) (509) (144)
------------- ------------- ------------- --------------
Pro forma net income (loss) $ (8) $ 97 $ (4,476) $ 1,040
============= ============= ============= ==============
Earnings (loss) per share:
As reported - basic and diluted $ 0.00 $ 0.01 $ (0.12) $ 0.04
============= ============= ============= ==============
Pro forma - basic and diluted $ 0.00 $ 0.00 $ (0.14) $ 0.03
============= ============= ============= ==============
2. DEFERRED STOCK UNIT PLAN DISTRIBUTION
In July 2005, the Xanser Deferred Stock Unit Plan ("DSU Plan") that was
initiated during 1996 was terminated and all accounts were distributed to
DSU Plan participants. Approximately 681,000 shares of Xanser common stock
were issued to DSU Plan participants from shares held by the Company as
Treasury stock. Kaneb Services LLC ("KSL") provided KSL shares related to
deferred stock units that resulted from the distribution of KSL in 2001.
The KSL shares were redeemed in connection with the acquisition of KSL by
Valero L.P. in July 2005 and approximately $6.2 million was paid to Plan
participants from the redemption of the KSL shares and from previously paid
KSL cash distributions.
3. COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended September 30, 2005
and 2004 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- ------------- --------------
(in thousands - except per share amounts)
Net income (loss) $ 41 $ 205 $ (3,967) $ 1,184
Foreign currency translation
adjustment 134 34 (2,015) (461)
------------- ------------- ------------- --------------
Comprehensive income (loss) $ 175 $ 239 $ (5,982) $ 723
============= ============= ============= ==============
At September 30, 2005 and December 31, 2004, accumulated other
comprehensive income consisted of cumulative losses from foreign currency
translation adjustments of $(0.9) million and $(2.9) million, respectively,
and cumulative losses from minimum pension liability adjustments for
subsidiaries of $5.4 million and $5.4 million, respectively.
4. EARNINGS (LOSS) 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, 2005
-------------------------------------
Basic earnings per share -
Net income $ 41 33,844 $ 0.00
================
Effect of dilutive securities - 351
--------------- ---------------
Diluted earnings per share -
Net income $ 41 34,195 $ 0.00
=============== =============== ================
Three Months Ended September 30, 2004
-------------------------------------
Basic earnings per share -
Net income $ 205 32,039 $ 0.01
================
Effect of dilutive securities - 1,054
--------------- ---------------
Diluted earnings per share -
Net income $ 205 33,093 $ 0.01
=============== =============== ================
Nine Months Ended September 30, 2005
------------------------------------
Basic earnings (loss) per share -
Net income (loss) $ (3,967) 32,420 $ (0.12)
===============
Effect of dilutive securities - -
--------------- ---------------
Diluted earnings (loss) per share -
Net income (loss) $ (3,967) 32,420 $ (0.12)
=============== =============== ================
Nine Months Ended September 30, 2004
------------------------------------
Basic earnings per share -
Net income $ 1,184 32,033 $ 0.04
================
Effect of dilutive securities - 1,089
--------------- ---------------
Diluted earnings per share -
Net income $ 1,184 33,122 $ 0.04
=============== =============== ================
As a result of the net loss for the nine months ended September 30, 2005,
2,619,000 stock options at a weighted average price of $1.92 were excluded
from the computation of diluted earnings per share because the effect would
be anti-dilutive. Options to purchase 133,500 and 30,432 shares of common
stock at weighted average prices of $2.79 and $3.07, respectively, were
outstanding for the three and nine month periods ended September 30, 2005,
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 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. 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, 2005 and 2004, because the effects of assumed
conversion would be anti-dilutive.
5. RETIREMENT PLAN
One of the Company's foreign subsidiaries has a defined benefit pension
plan covering substantially all of its United Kingdom employees (the "U.K.
Plan"). Net pension cost for the U.K. Plan included the following
components:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- ------------- --------------
(in thousands)
Net periodic pension cost:
Service cost $ 119 $ 116 $ 367 $ 348
Interest cost 890 860 2,740 2,582
Expected return on plan assets (963) (892) (2,966) (2,676)
Amortization of prior service cost (27) (28) (84) (83)
Recognized net gain 132 184 406 550
------------- ------------- ------------- --------------
Net periodic pension cost $ 151 $ 240 $ 463 $ 721
============= ============= ============= ==============
6. 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.
7. 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 and other institutions.
The Company measures segment profit as operating income. Segment operating
results are reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to segments.
General corporate includes compensation and benefits paid to corporate
officers and employees, certain insurance, legal, tax, financial reporting
and other administrative costs, including costs of maintaining a public
company, which are not related to specific business segments.
Segment assets are those assets, including excess of cost over fair value
of net assets of acquired businesses, controlled by each reportable
segment. General corporate assets include corporate cash balances, deferred
taxes and other assets not related to specific segments. Business segment
data is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- ------------- --------------
(in thousands)
Business segment revenues:
Technical services $ 35,403 $ 29,781 $ 100,911 $ 86,521
Information technology 4,998 5,983 18,130 17,063
------------- ------------- ------------- --------------
$ 40,401 $ 35,764 $ 119,041 $ 103,584
============= ============= ============= ==============
Technical services segment revenues:
Underpressure services $ 12,774 $ 13,068 $ 38,049 $ 35,818
Turnaround services 16,307 13,707 45,605 42,055
Other services 6,322 3,006 17,257 8,648
------------- ------------- ------------- --------------
$ 35,403 $ 29,781 $ 100,911 $ 86,521
============= ============= ============= ==============
Business segment profit:
Technical services $ 3,542 $ 2,584 $ 7,986 $ 5,839
Information technology services (1,272) (590) (6,764) (294)
General corporate (891) (733) (2,327) (2,277)
------------- ------------- ------------- --------------
Operating income (loss) 1,379 1,261 (1,105) 3,268
Interest and other income, net 213 32 487 97
Interest expense (256) (266) (792) (743)
------------- ------------- ------------- --------------
Income (loss) before income taxes $ 1,336 $ 1,027 $ (1,410) $ 2,622
============= ============= ============= ==============
September 30, December 31,
2005 2004
--------------- ----------------
(in thousands)
Total assets:
Technical services $ 72,980 $ 69,962
Information technology services 22,137 16,720
General corporate 19,700 25,238
--------------- ----------------
$ 114,817 $ 111,920
=============== ================
8. OTHER
During the third quarter the Company embarked on an aggressive plan to
reduce infrastructure cost, eliminate redundancies and dispose of non core
assets. The objectives of the plan were to also exploit untapped synergies
between its operating divisions. Consistent with the plan, the Company
entered into a series of transactions including a sale of software and
technology assets which resulted in a gain of $2.1 million, consolidated
and closing of leased facilities and write down of related assets which
resulted in a total charge of $1.3 million. The aggregate net effect of
these transactions was a gain of $769,000 and is included in the
consolidated statement of income as other cost and expenses.
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 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. This 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, which is conducted
through Xtria, provides services and related products to the healthcare
industry 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,
------------------------------- -------------------------------
2005 2004 2005 2004
------------- -------------- ------------- ---------------
(in thousands - except per share amounts)
Revenues:
Technical services $ 35,403 $ 29,781 $ 100,911 $ 86,521
Information technology services 4,998 5,983 18,130 17,063
------------- -------------- ------------- ---------------
$ 40,401 $ 35,764 $ 119,041 $ 103,584
============= ============== ============= ===============
Operating income (loss):
Technical services $ 3,542 $ 2,584 $ 7,986 $ 5,839
Information technology services (1,272) (590) (6,764) (294)
General and administrative
Expenses (891) (733) (2,327) (2,277)
------------- -------------- ------------- ---------------
$ 1,379 $ 1,261 $ (1,105) $ 3,268
============= ============== ============= ===============
Net income (loss) $ 41 $ 205 $ (3,967) $ 1,184
============= ============== ============= ===============
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2005 2004 2005 2004
------------- -------------- ------------- ---------------
(in thousands - except per share amounts)
Earnings (loss) per common share
- basic and diluted $ 0.00 $ 0.01 $ (0.12) $ 0.04
============= ============= ============= ==============
Capital expenditures $ 532 $ 1,067 $ 3,210 $ 3,166
============= ============== ============= ===============
For the three months ended September 30, 2005, consolidated revenues
increased by $4.6 million, or 13%, when compared to the same 2004 period,
due to a $5.6 million increase in revenues from the technical services
business (see "Technical Services" below), offset by a $1.0 million
decrease in revenues from the information technology services business (see
"Information Technology Services" below). Consolidated operating income for
the three months ended September 30, 2005 increased by $0.1 million, or 9%,
when compared to the same 2004 period, due primarily to a $1.0 million
increase in operating income from the technical services business, offset
by a $0.7 million decrease from the information technology business and a
$0.2 million increase in general and administrative expense. Net income for
the three months ended September 30, 2005 decreased by $0.2 million, when
compared to the same 2004 period, as the increase in operating income was
more than offset by a reduction in income tax benefits recognized (see
"Income Taxes" below).
For the nine months ended September 30, 2005, consolidated revenues
increased by $15.5 million, or 15%, when compared to the same 2004 period,
due to a $14.4 million increase in revenues from the technical services
business (see "Technical Services" below) and a $1.1 million increase in
revenues from the information technology services business (see
"Information Technology Services" below). Consolidated operating income for
the nine months ended September 30, 2005 decreased by $4.4 million when
compared to the same 2004 period, due to a $2.1 million increase in
operating income from the technical services business which was more than
offset by a $6.5 million increase in operating loss from the information
technology services business and a $0.1 million increase in general and
administrative expense. Overall, net income for the nine months ended
September 30, 2005 decreased by $5.2 million as the operating loss from the
information technology services and higher foreign income tax expense more
than offset the increase in operating income from the technical services
business. The Company's technical services business continued to show both
revenue and operating income improvements in the quarter ended September
30, 2005 and operating losses in the information technology services group
continue to be reduced as the Company further reduced costs and improved
profitability.
Technical Services
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------------
2005 2004 2005 2004
----------- ----------- ------------- --------------
(in thousands)
Revenues:
United States $ 7,176 $ 6,200 $ 21,499 $ 20,352
Europe 21,836 19,627 61,741 53,818
Asia-Pacific 6,391 3,954 17,671 12,351
----------- ----------- ------------- --------------
Total Revenues $ 35,403 $ 29,781 $ 100,911 $ 86,521
=========== =========== ============= ==============
Operating income:
United States $ (23) $ (249) $ (31) $ (263)
Europe 3,493 3,031 7,878 6,129
Asia-Pacific 1,032 376 2,852 1,589
Headquarters (960) (574) (2,713) (1,616)
----------- ----------- ------------- --------------
Total operating income $ 3,542 $ 2,584 $ 7,986 $ 5,839
=========== =========== ============= ==============
Capital expenditures $ 352 $ 518 $ 1,863 $ 2,055
=========== =========== ============= ==============
For the three months ended September 30, 2005, revenues for the technical
services business increased by $5.6 million, or 19%, when compared to the
same 2004 period. In the United States, third quarter 2005 revenues
increased by $1.0 million, or 16%, when compared to the third quarter of
2004, due to increases in underpressure, turnaround and other services. In
Europe, third quarter 2005 revenues increased by $2.2 million, or 11%, when
compared to the same 2004 period, due to a significant increase in other
process plant services and favorable foreign currency exchange rates. In
Asia-Pacific, third quarter 2005 revenues increased by $2.4 million, or
62%, when compared to the corresponding 2004 period, due to increases in
all services and favorable foreign currency exchange rates.
For the three months ended September 30, 2005, technical services operating
income increased by $1.0 million, or 37%, when compared to the same 2004
period. In the United States, third quarter 2005 operating loss decreased
by $0.2 million when compared to the same period in 2004, due to the higher
revenue levels. In Europe, operating income for the three months ended
September 30, 2005 increased by $0.5 million when compared to the same 2004
period, due to the higher revenue levels, partially offset by an increase
in general and administrative costs. In Asia-Pacific, third quarter 2005
operating income increased by $0.7 million, or 174%, when compared to the
third quarter of 2004, due to the higher revenues and stronger operating
margins.
For the nine months ended September 30, 2005, revenues for the technical
services business increased by $14.4 million, or 17%, when compared to the
same 2004 period. In the United States, revenues for the nine months ended
September 30, 2005 increased by $1.1 million, or 6%, when compared to the
corresponding 2004 period, due to increases in underpressure offset by
decreases in turnaround and other process plant services. In Europe,
revenues for the nine months ended September 30, 2005, increased by $7.9
million, or 15%, when compared to the nine month period ended September 30,
2004, due to significant increases in underpressure and other process plant
services and favorable foreign currency exchange rates. In Asia-Pacific,
revenues for the nine months ended September 30, 2005 increased by $5.3
million, or 43%, when compared to the corresponding period in 2004, due to
a significant increase in turnaround, as well as increases in underpressure
and other process plant services and favorable foreign currency exchange
rates.
For the nine months ended September 30, 2005, technical services operating
income increased by $2.1 million, or 37%, when compared to the same 2004
period. In the United States, the operating loss for the nine months ended
September 30, 2005 decreased by $0.2 million, or 88%, when compared to the
same 2004 period, due primarily to the higher revenue levels. In Europe,
operating income for the nine months ended September 30, 2005, increased by
$1.7 million, or 29%, when compared to the nine months ended September 30,
2004, due to the higher operating income in the United Kingdom, the
Netherlands and Norway, offset by lower operating income in other European
markets. In Asia-Pacific, operating income for the nine months ended
September 30, 2005 increased by $1.3 million, or 79%, due to overall higher
revenues.
Information Technology Services
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------------
2005 2004 2005 2004
----------- ----------- ------------- --------------
(in thousands)
Revenues $ 4,998 $ 5,983 $ 18,130 $ 17,063
=========== =========== ============= ==============
Operating income (loss) $ (1,272) $ (590) $ (6,764) $ (294)
=========== =========== ============= ==============
Capital expenditures $ 180 $ 549 $ 1,347 $ 1,111
=========== =========== ============= ==============
For the three month period ended September 30, 2005, information technology
revenues decreased by $1.0 million, or 16%, when compared to the same 2004
period, while revenues for the nine month period ended September 30, 2005
increased by $1.1 million, or 6%.
For the three and nine month periods ended September 30, 2005, information
technology services operating loss increased by $0.7 million and $6.5
million, respectively, when compared to the same 2004 periods, primarily
due to higher operating and general and administrative costs levels that
resulted from a focus on lower margin equipment sales with little services
work. In the third quarter of 2005, the Company continued to make progress
in refocusing its revenue efforts on higher margin services offerings.
Software, technology and other assets not consistent with future services
offerings were sold or written off and leased facilities not supporting
those future services offerings were consolidated or closed. The net
aggregate effect of these transactions was a gain of $0.8 million.
Income Taxes
The Company maintains a valuation allowance to adjust the basis of net
deferred tax assets in accordance with the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". As a
result, all domestic federal and state income taxes recorded for the three
and nine month periods ended September 30, 2005 and 2004 are fully offset
by a corresponding change in valuation allowance.
Income tax expense differs from the expected tax at statutory rates due
primarily to the change in valuation allowance for deferred tax assets and
different tax rates in the various foreign jurisdictions.
Liquidity and Capital Resources
Cash provided by operating activities was $0.8 million and $2.3 million for
the nine month periods ended September 30, 2005 and 2004, respectively. The
2005 decrease, when compared to the same 2004 period, was due primarily to
decreases in the information technology operating income. During the nine
months ended September 30, 2005, 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 for the nine month periods ended
September 30, 2005 and 2004. Consolidated capital expenditures for the year
2005 have been estimated at $3 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 2005 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, 2005, $10.5 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 (5.32% at September 30, 2005), 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, 2005, 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, 2005) are convertible into shares of the
Company's common stock at the conversion price of $5.26 per share.
The following schedule sets forth, by period, the Company's debt repayment
obligations and material contractual commitments at December 31, 2004. On
September 30, 2005, a non-scheduled prepayment of $1.0 million was paid on
the technical services credit facility.
Less than After
Total 1 year 1-3 years 4-5 years 5 years
---------- --------- ---------- ----------- ------------
(in thousands)
Debt:
Technical services credit
facility $ 11,532 $ - $ - $ 11,532 $ -
Parent company convertible
subordinated debentures 5,000 - - 5,000 -
---------- --------- ---------- ---------- ----------
16,532 - - 16,532 -
Capital leases 1,490 524 822 142 2
---------- --------- ---------- ---------- ----------
Debt subtotal 18,022 524 822 16,674 2
---------- --------- ---------- ---------- ----------
Interest on debt 3,521 982 1,857 682 -
---------- --------- ---------- ---------- ----------
Debt and interest total 21,543 1,506 2,679 17,356 2
---------- --------- ---------- ---------- ----------
Other contractual commitments:
Pension plan contributions 9,400 940 1,880 1,880 4,700
Operating leases 14,490 4,289 6,255 2,231 1,715
---------- --------- ---------- ---------- ----------
Total $ 45,433 $ 6,735 $ 10,814 $ 21,467 $ 6,417
========== ========= ========== ========== ==========
Interest on debt is calculated based on outstanding balances, using
interest rates in effect at December 31, 2004. Estimated annual pension
plan contributions are assumed to be consistent with current expected
contribution levels.
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, 2005, or for the three and nine month periods ended September
30, 2005 and 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 in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004.
Critical accounting policies are those that are most important to the
portrayal of our 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. Our most critical accounting policies
pertain to revenue recognition, allowance for doubtful accounts, the
impairment of excess of cost over fair value of net assets of acquired
businesses and income taxes. Critical accounting policies are discussed
regularly (at least quarterly) with the Company's Audit Committee.
The technical services segment's revenues are based primarily on time and
materials and are generally short term in nature. Revenues are recognized
when services to customers have been rendered or when products are shipped
and risk of ownership is passed to the customer. The technical services
business provides limited warranties to customers, depending upon the
service performed. Warranty claim costs were not material during the three
and nine month periods ended September 30, 2005 and 2004.
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 Emerging Issues Task Force ("EITF") Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables" and with AICPA
Statement of Position ("SOP") No. 97-2 "Software Revenue Recognition". ETIF
No. 00-21 provides guidance on how to account for arrangements that involve
the delivery or performance of multiple products, services and/or rights to
use assets. 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. 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's technical services and information technology services
businesses evaluate and adjust allowances for doubtful accounts receivable
through a continuous process of assessing accounts receivable balances on
individual customers and on an overall basis. This process consists of,
among other tasks, a review of historical collection experience, current
aging status and financial condition of customers. As this process involves
a significant amount of judgment and estimation, and sometimes involves
significant dollar amounts, actual write-offs could differ from estimated
amounts, which could have a material effect on the results of operations of
the Company.
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, which eliminated 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, 2005, the Company had no intangible assets subject to
amortization under SFAS No. 142. Goodwill and other intangible assets not
subject to amortization are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the assets
might be impaired. SFAS No. 142 requires a two-step process for testing
impairment. First, the fair value of each reporting unit is compared to its
carrying value to determine whether an indication of impairment exists. If
an impairment is indicated, then second, the implied fair value of the
reporting unit's goodwill is determined by allocating the unit's fair value
to its assets and liabilities (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business
combination. The amount of impairment for goodwill and other intangible
assets is measured as the excess of its carrying value over its implied
fair value. Based on valuations and analysis performed by the Company at
December 31, 2004, 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 (up
to the current goodwill carrying value of $13.8 million), which could have
a material effect on the results of operations of the Company.
At September 30, 2005, 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, 2004 expire, if unused, as follows: $1.2 million in 2006;
$3.0 million in 2007; $13.4 million in 2022; $10.9 million in 2023; and
$1.2 million in 2024. 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 non-cash valuation
allowance of $12.1 million was provided with respect to the Company's
federal and state net deferred tax assets. The utilization of net operating
loss carryforwards and alternative minimum tax credit carryforwards could
be subject to limitation in the event of a change in ownership, as defined
in the tax laws. To the extent that factors or conditions change, it is
possible that reductions in the non-cash valuation allowance could occur,
which could have a material effect on the results of operations of the
Company.
Recent Accounting Pronouncement
In December of 2004, the Financial Accounting Standards Board issued SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which
addresses the accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for equity instruments of
the enterprise, or liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of
such equity instruments. SFAS No. 123R eliminates the ability to account
for share-based compensation transactions using the intrinsic value method
under Accounting Principles Board Opinion 25, "Accounting for Stock Issued
to Employees", and generally requires that such transactions be accounted
for using a fair-value-based method. The Company is currently evaluating
the provisions of SFAS No. 123R to determine which fair-value-based model
and transitional provision to follow upon adoption. The alternatives for
transition include either the modified prospective or the modified
retrospective methods. The modified prospective method requires that
compensation expense be recorded for all unvested stock options and
restricted stock as the requisite service is rendered beginning with the
first quarter of adoption. The modified retrospective method requires
recording compensation expense for stock options and restricted stock
beginning with the first period restated. Under the modified retrospective
method, prior periods may be restated either as of the beginning of the
year of adoption or for all periods presented. SFAS No. 123R will be
effective for the Company beginning in the first quarter of 2006. The
impact of adoption on the Company's consolidated financial statements is
still being evaluated.
XANSER CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures 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 $10.5 million at September 30, 2005, 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." Based on annual 2004 foreign currency-based revenues and operating
income of $90.6 million and $10.6 million, respectively, a one percent
fluctuation of all applicable foreign currencies would result in an annual
change in revenues and operating income of $0.9 million and $0.1 million,
respectively.
Item 4. Controls and Procedures
The Company's principal executive officer and principal financial officer, after
evaluating, as of September 30, 2005, 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, 2005, 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 4. Submission of Matters to a Vote of Security Holders
None.
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, as amended and restated March 10, 2005,
filed as exhibit 3.8 to Registrant's Form 10-K for the year ended
December 31, 2004, 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 14, 2005.
31.2 Certification of Chief Financial Officer, Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, dated November 14, 2005.
32.1 Certification of Chief Executive Officer, Pursuant to Section 906(a)
of the Sarbanes-Oxley Act of 2002, dated November 14, 2005.
32.2 Certification of Chief Financial Officer, Pursuant to Section 906(a)
of the Sarbanes-Oxley Act of 2002, dated November 14, 2005.
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 14, 2005 //s// HOWARD C. WADSWORTH
-------------------------------------------
Howard C. Wadsworth
Sr. Vice President, Treasurer and Secretary
(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 14, 2005
//s// JOHN R. BARNES
--------------------------------------------
John R. Barnes
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 14, 2005
//s// HOWARD C. WADSWORTH
--------------------------------------------
Howard C. Wadsworth
Sr. 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, 2005, 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 14, 2005
//s// JOHN R. BARNES
--------------------------------------------
John R. Barnes
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, 2005, 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 14, 2005
//s// HOWARD C. WADSWORTH
--------------------------------------------
Howard C. Wadsworth
Sr. Vice President, Treasurer and Secretary
(Chief Financial Officer)