1
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, 2001
or
--- Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-13111
ANALYTICAL SURVEYS, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0846389
(State of incorporation) (IRS Employer Identification No.)
941 NORTH MERIDIAN STREET
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices) (Zip Code)
(317) 634-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past (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
ninety (90) days.
Yes X No
--- ---
The number of shares of common stock outstanding as of May 15, 2001 was
6,977,794.
2
PART I
ITEM 1. FINANCIAL STATEMENTS
ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, September 30,
2001 2000
---- ----
(Unaudited)
ASSETS
Current assets:
Cash $ 1,108 2,825
Accounts receivable, net of allowance for doubtful
accounts of $1,077 and $434 10,139 12,840
Revenue in excess of billings 15,525 18,018
Deferred income taxes 1,968 1,968
Income tax receivable 35 3,145
Prepaid expenses and other 435 517
-------- --------
Total current assets 29,210 39,313
-------- --------
Equipment and leasehold improvements, at cost:
Equipment 15,676 15,363
Furniture and fixtures 1,648 1,720
Leasehold improvements 1,104 1,104
-------- --------
18,428 18,187
Less accumulated depreciation and amortization (13,309) (11,872)
-------- --------
5,119 6,315
-------- --------
Deferred income taxes 726 432
Goodwill net of accumulated amortization
of $5,065 and $4,911 3,708 3,862
Investment securities 74 340
-------- --------
Total assets $ 38,837 50,262
======== ========
2
3
ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, September 30,
2001 2000
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines-of-credit $ 7,100 5,890
Current portion of long-term debt 9,337 13,555
Billings in excess of revenue 882 1,850
Accounts payable and other accrued liabilities 6,104 7,833
Accrued payroll and related benefits 3,108 3,112
-------- --------
Total current liabilities 26,531 32,240
Long-term debt, less current portion 5,489 5,952
-------- --------
Total liabilities 32,020 38,192
-------- --------
Stockholders' equity:
Common stock; no par value. Authorized 100,000 shares;
6,978 and 6,974 shares issued and outstanding
at March 31, and September 30, respectively 32,191 32,185
Accumulated other comprehensive loss (385) (119)
Accumulated deficit (24,989) (19,996)
-------- --------
Total stockholders' equity 6,817 12,070
-------- --------
Total liabilities and stockholders' equity $ 38,837 50,262
======== ========
See accompanying notes to consolidated financial statements.
3
4
ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 11,849 17,955 26,589 34,798
Costs and expenses
Salaries, wages and related benefits 7,470 13,004 15,158 25,544
Subcontractor costs 2,680 2,755 5,833 5,717
Other general and administrative 3,499 4,019 6,645 7,733
Depreciation and amortization 792 1,229 1,643 2,481
Severance and related costs 210 1,755 210 1,755
-------- -------- -------- --------
14,651 22,762 29,489 43,230
-------- -------- -------- --------
Loss from operations (2,802) (4,807) (2,900) (8,432)
-------- -------- -------- --------
Other income (expense)
Interest expense, net (672) (610) (1,351) (1,111)
Litigation settlement costs (748) -- (748) --
Other (35) (66) 6 (91)
-------- -------- -------- --------
(1,455) (676) (2,093) (1,202)
-------- -------- -------- --------
Loss before income taxes and
extraordinary item (4,257) (5,483) (4,993) (9,634)
Income tax benefit -- 2,142 -- 3,617
-------- -------- -------- --------
Loss before extraordinary item (4,257) (3,341) (4,993) (6,017)
Extraordinary loss on extinguishment of debt, net of tax -- 209 -- 209
-------- -------- -------- --------
Net loss (4,257) (3,550) (4,993) (6,226)
Other comprehensive income (loss), net of income taxes (127) (616) (266) 331
-------- -------- -------- --------
Comprehensive loss $ (4,384) (4,166) (5,259) (5,895)
======== ======== ======== ========
Basic and diluted loss per common share:
Loss before extraordinary item $ (0.61) (0.48) (0.72) (0.87)
Extraordinary loss -- (0.03) -- (0.03)
Net loss $ (0.61) (0.51) (0.72) (0.90)
Weighted average common shares:
Basic 6,978 6,956 6,978 6,953
======== ======== ======== ========
Diluted 6,983 7,048 6,983 7,067
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
5
ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
March 31,
2001 2000
---- ----
Cash flow from operating activities:
Net loss $(4,993) (6,226)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,643 2,481
Extraordinary loss on extinguishment of debt -- 209
Deferred income tax benefit (294) (2,084)
Tax benefit relating to exercise of stock options -- 37
Changes in operating assets and liabilities:
Accounts receivable, net 2,701 111
Revenue in excess of billings 2,493 238
Income taxes 3,110 (3,017)
Prepaid expenses and other 82 419
Billings in excess of revenue (968) 1,019
Accounts payable and other accrued liabilities (1,729) 2,558
Accrued payroll and related benefits (4) (808)
------- -------
Net cash provided/(used) by operating
activities 2,041 (5,063)
------- -------
Cash flow from investing activities:
Purchase of equipment and leasehold improvements (293) (1,443)
Proceeds from sale of equipment -- 178
------- -------
Net cash used by investing activities (293) (1,265)
------- -------
Cash flow from financing activities:
Net borrowings under lines-of-credit 1,210 4,350
Principal payments on long-term debt (4,681) (3,457)
Proceeds from exercise of stock options 6 87
------- -------
Net cash provided/(used) by financing activities (3,465) 980
------- -------
Net decrease in cash (1,717) (5,348)
Cash at beginning of period 2,825 6,659
------- -------
Cash at end of period $ 1,108 1,311
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,097 925
======= =======
Cash paid for income taxes, net of refunds $(2,816) 1,192
======= =======
See accompanying notes to financial statements.
5
6
Notes to Consolidated Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements have been
prepared by management in accordance with the accounting policies described in
the Company's annual report for the year ended September 30, 2000. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain information and note disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K/A for the year ended September 30, 2000.
The consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary to present fairly the financial position of
Analytical Surveys, Inc. and subsidiaries at March 31, 2001 and the results of
their operations and cash flows for the six months ended March 31, 2001 and
2000.
2. LITIGATION
The Company has been named as a defendant in a consolidated putative securities
class action alleging a misstatement or omission of material facts concerning
the Company's operations and financial results. On April 4, 2001, the Company
entered into an agreement in principle to settle this lawsuit against the
Company and certain of its directors and former officers. The proposed
settlement provides for the dismissal of the lawsuit in its entirety against all
defendants and the establishment of a settlement fund of $4 million, of which
the Company is contributing $100,000 of cash, and approximately 1,256,000 shares
of the Company's common stock for the class of open market purchasers of the
Company's shares between January 25, 1999 and March 7, 2000, inclusive. The
remaining $3.9 million of cash is being contributed by the Company's insurance
company. The agreement in principle with the plaintiffs is subject to various
conditions, including execution of a Memorandum of Understanding and Stipulation
of Settlement, preliminary approval by the Court, notice to the class and final
approval by the Court after a hearing. The Company's cost of this settlement is
estimated at $748,000 based on the cash contribution, and the value of the
common shares on the date of the agreement in principle. This cost has been
included in the financial results of the Company in the fiscal quarter ended
March 31, 2001.
The Company and certain directors have been named as defendants in an action
that was filed by Sidney V. Corder, the former President, Chief Executive
Officer and Director of the Company. The suit claims that the Company violated
the Colorado Wage Claim Act and breached contractual obligations. It also claims
that the Company has breached an obligation to indemnify Mr. Corder in
connection with pending securities lawsuit against the Company and certain of
its directors and former officers. A trial date of November 13, 2001 has been
set. It is impossible to evaluate what
6
7
the impact of this action, or any future, related actions, may have on the
Company. However, it is reasonably possible that an unfavorable outcome in the
present litigation, or in any related future actions, could have a material
adverse impact on the Company's financial condition or results of operations in
one or more future reporting periods. The Company intends to defend itself
vigorously in this action.
3. SEGMENT INFORMATION
Management evaluates operations and makes key strategic and resource decisions
based on two different operating segments: the Utilities Division which uses its
industry expertise and proprietary GIS systems for data conversion for electric,
gas and municipal utility customers; and the Land Division which creates land
base maps using techniques in both general cartography and specialized
photogrammetric mapping. On April 27, 2001, the Company sold substantially all
the assets of the Land Division. See Note 4, Subsequent Events, for further
information. Segment data includes revenue, operating income, including
allocated costs charged to each of the operating segments, equipment investment
and project investment, which includes net accounts receivable and revenue
earned in excess of billings.
Interest expense and other non-segment specific expenses are not allocated to
individual segments in determining the Company's performance measure.
Non-segment assets to reconcile to total assets consist of corporate assets
including cash, prepaid expenses and deferred taxes.
NON-
UTILITIES LAND SEGMENT TOTAL
--------- ---- ------- -----
THREE MONTHS ENDED MARCH 31, 2001
Operations
Revenues $ 7,666 4,182 -- 11,848
Loss from operations (1,688) (1,114) -- (2,802)
Interest expense, net -- -- (672) (672)
Litigation settlement costs -- -- (748) (748)
Other -- -- (35) (35)
--------
Net loss -- -- -- (4,257)
========
SIX MONTHS ENDED MARCH 31, 2001
Operations
Revenues $ 17,919 8,670 26,589
Loss from operations (1,774) (1,126) -- (2,900)
Interest expense, net -- -- (1,351) (1,351)
Litigation settlement costs -- -- (748) (748)
Other -- -- 6 6
--------
Net loss -- -- -- (4,993)
========
Assets at March 31, 2001
Segment assets $ 24,996 9,495 -- 34,491
Non-segment assets -- -- 4,346 4,346
--------
Consolidated Assets -- -- -- 38,837
========
7
8
NON-
UTILITIES LAND SEGMENT TOTAL
--------- ---- ------- -----
THREE MONTHS ENDED MARCH 31, 2000
Operations
Revenues $ 12,661 5,294 -- 17,955
Loss from operations (2,033) (2,774) -- (4,807)
Interest expense, net -- -- (610) (610)
Other -- -- (66) (66)
Income tax benefit -- -- 2,142 2,142
Extraordinary loss on extinguishment
of debt -- -- (209) (209)
--------
Net loss -- -- -- (3,550)
========
SIX MONTHS ENDED MARCH 31, 2000
Operations
Revenues $ 24,690 10,108 -- 34,798
Loss from operations (3,547) (4,885) -- (8,432)
Interest expense, net -- -- (1,111) (1,111)
Other -- -- (91) (91)
Income tax benefit -- 3,617 3,617
Extraordinary loss on extinguishment
of debt -- -- (209) (209)
--------
Net loss -- -- -- (6,226)
========
Assets at September 30, 2000
Segment assets $ 29,038 11,997 -- 41,035
Non-segment assets -- -- 9,227 9,227
--------
Consolidated Assets -- -- -- 50,262
========
4. SUBSEQUENT EVENTS
On April 27, 2001, the Company completed the sale of substantially all of the
assets of its Colorado Springs, Colorado-based land mapping office for an
aggregate of approximately $9.0 million in cash and the assumption of certain
liabilities. The Company transferred approximately $2.4 million of net working
capital and $2.2 million of net book value of equipment and leasehold
improvements to the buyer, and is expected to record a gain on sale of
approximately $3.1 million after transaction and other expenses. The Company
used the proceeds of the transaction to reduce its line of credit, lease and
term debt by a total of $6.0 million, pay Colorado-related liabilities of
approximately $1.2 million, pay transaction expenses of approximately $700,000,
and fund other operating expenses.
On May 1, 2001, the Company announced it had completed a Waiver Agreement and
Amendment No. 10 to Credit Agreement and Other Loan and Lease Documents with its
Senior Lenders. The Agreement is dated April 26, 2001 but is effective March 31,
2001. The Agreement waives any financial covenant and payment defaults, lowers
interest rates, changes loan maturity dates, and reduces the total amount
available on the line of credit to the amount outstanding on April 26, 2001 of
$4.4 million. The most significant default which was waived related to
delinquent principal
8
9
payments resulting from the delay in consummating the sale of the Colorado
Springs office. Upon the completion of that transaction, the Company fulfilled
its obligation to pay a total of $6.0 million of the proceeds of the transaction
as principal payments on the line of credit, term and lease debt. The interest
rate on $5.0 million of term debt has been reduced to zero. The remaining term
debt will bear interest at prime rate plus 1.0%. The non-interest bearing
portion of term debt has been extended to October 1, 2002 and the
interest-bearing portion is due December 31, 2001. The Agreement requires the
Company to obtain a commitment letter from a replacement lender for its line of
credit by May 31, 2001 and to repay the Senior Lenders' line of credit balance
by June 30, 2001. The Company is working with potential lending and equity
sources, but there is no assurance it will be successful within the time
constraints and that the Senior Lenders will not accelerate the maturity of the
loans.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS.
THE DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS FORM
10-Q. THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS FORM 10-Q THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. WHEN USED IN THIS FORM
10-Q, OR IN THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS FORM 10-Q, THE
WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "INTEND" AND "EXPECT" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THE STATEMENTS REGARDING
THE COMPANY'S STRATEGY, FUTURE SALES, FUTURE EXPENSES AND FUTURE LIQUIDITY AND
CAPITAL RESOURCES. ALL FORWARD-LOOKING STATEMENTS IN THIS FORM 10-Q ARE BASED
UPON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE OF THIS FORM 10-Q, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS
FORM 10-Q. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN ITEM 1. BUSINESS--"RISK FACTORS" AND
ELSEWHERE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K.
9
10
OVERVIEW
ASI, a provider of data conversion and digital mapping services to users of
customized geographic information systems, was founded in 1981. From 1981 to
1990, the Company experienced steady growth in revenues with periodic
fluctuations in financial results. In 1990, the Company implemented a growth
strategy, including improving and standardizing operating controls and
procedures, investing in infrastructure, upgrading the Company's proprietary
software, and establishing capital sources.
In 1995, ASI embarked on an acquisition strategy that included consolidation of
the fragmented GIS services industry. The Company completed four strategic
acquisitions that expanded the Company's geographical scope, capacity, customer
base, product offerings, proprietary technology and operational expertise.
In conjunction with these acquisitions, the Company recorded goodwill, which
represents the excess of the purchase price over the fair value of the net
assets acquired in utility business acquisitions. The Company assigned a useful
life of 15 years to the goodwill acquired in these business acquisitions,
representing the expected period of benefit from the acquisitions. As of March
31, 2001, goodwill, net of accumulated amortization and impairment charges, was
$3.7 million. The Company believes the remaining amortization period is
appropriate based on the forecasted operating results of the Company and the
Utility Division.
The Company recognizes revenue using the percentage of completion method of
accounting on a cost-to-cost basis. For each contract, an estimate of total
production costs is determined and these estimates are reevaluated monthly.
Production costs consist of internal costs, primarily salaries and wages, and
external costs, primarily subcontractor costs. Internal and external production
costs may vary considerably among projects and during the course of completion
of each project. At each accounting period, the percentage of completion is
based on production costs incurred to date as a percentage of total estimated
production costs for each of the Company's contracts. This percentage is then
multiplied by the contract's total value to calculate the sales revenue to be
recognized. The percentage of completion is affected by any factors which
influence either the estimate of future productivity or the production cost per
hour used to determine future costs.
Backlog increases when new contracts are signed and decreases as revenue is
recognized. As of March 31, 2001, backlog was $35.6 million as compared with
$78.3 million as of March 31, 2000. Changes in market conditions were
encountered in fiscal 1999 and have persisted through March 31, 2001. Management
believes these adverse market conditions were primarily caused by the
consolidation in the utility industry, and increased competition from companies
with offshore operations. Those market changes, together with the impact of the
Company's adverse financial results for fiscal year 2000 and the securities
litigation, have resulted in a reduction of timely order flow to the Company and
reduced the customer order backlog.
10
11
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected consolidated
statements of operations data expressed as a percentage of revenues:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
---- ---- ---- ----
PERCENTAGE OF REVENUES:
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Salaries, wages and related benefits 63.0 72.4 57.0 73.4
Subcontractor costs 22.6 15.3 21.9 16.4
Other general and administrative 29.5 22.4 25.0 22.2
Depreciation and amortization 6.7 6.8 6.2 7.1
Severance and related costs 1.8 9.8 0.8 5.1
----- ----- ----- -----
Loss from operations (23.6) (26.7) (10.9) (24.2)
Litigation settlement costs (6.3) -- (2.8) --
Other (expense), net (6.0) (3.8) (5.1) (3.5)
----- ----- ----- -----
Loss before income taxes
And extraordinary loss (35.9) (30.5) (18.8) (27.7)
Income tax benefit -- 11.9 -- 10.4
----- ----- ----- -----
Loss before extraordinary loss (35.9) (18.6) (18.8) (17.3)
Extraordinary loss -- 1.2 -- .6
===== ===== ===== =====
Net loss (35.9%) (19.8%) (18.8%) (17.9%)
===== ===== ===== =====
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
REVENUES. The Company's revenues are recognized as services are performed.
Revenues decreased $6.2 million to $11.8 million for the three months ended
March 31, 2001 from $18.0 million for the same three month period of fiscal 2000
as a result of a reduction in revenue generating capacity and a lower level of
new contract signings during fiscal 2001.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
includes employee compensation for production, marketing, selling,
administrative and executive employees. Salaries, wages and related benefits
decreased 42.6% to $7.5 million for the three months ended March 31, 2001 from
$13.0 million for the three months ended March 31, 2000, as a result of
reductions in the Company's workforce. The reductions in the workforce were a
result of reduced
11
12
anticipated revenue volume and the Company's decision to subcontract a higher
percentage of its production work to offshore subcontractors. As a percentage of
revenues, salaries, wages and related benefits decreased to 63.0% for the three
months ended March 31, 2001 from 72.4% for the same three month period of fiscal
2000.
SUBCONTRACTOR COSTS. Subcontractor costs includes production costs incurred
through the use of third parties for production tasks, such as data conversion
services to meet contract requirements, aerial photography and ground and
airborne survey services. Subcontractor costs decreased 2.7% to $2.7 million for
the three months ended March 31, 2001 from $2.8 million for the three months
ended March 31, 2000, and increased as a percentage of revenues to 22.6% for the
three months ended March 31, 2001 from 15.3% for the same period of fiscal 2000.
The percentage of subcontractor costs as a percentage of revenues was higher as
a result of the Company's transition to subcontracting a greater percentage of
its production offshore.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 12.9% to $3.5 million for the three
months ended March 31, 2001 from $4.0 million for the same period of fiscal
2000, as a result of reductions in workforce. As a percentage of revenues, other
general and administrative costs increased to 29.5% for the three months ended
March 31, 2001 from 22.4% for the same period of fiscal 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consists primarily
of amortization of goodwill incurred in connection with the Company's
acquisitions, less a $16.5 million valuation allowance established in September
2000, as well as depreciation of certain of the Company's operating assets. For
the three months ended March 31, 2001, depreciation and amortization decreased
35.6% to $792,000 from $1.2 million for the same period of fiscal 2000 due to
lower asset amounts after a valuation allowance. As a percentage of revenues,
depreciation and amortization decreased to 6.7% for the three months ended March
31, 2001 from 6.8% in the same period of fiscal 2000.
SEVERANCE AND RELATED COSTS. The Company incurred one-time officer severance
costs of $210,000 for the three months ended March 31, 2001 and one-time officer
severance, legal, accounting and consulting expenses of $1.8 million associated
with officer resignations and the in-depth review of contract cost-of-completion
assumptions and accounting systems for the three months ended March 31, 2000.
Severance and related costs represent 1.8% of revenues for the three months
ended March 31, 2001 compared to 9.8% for the three months ended March 31, 2000.
LITIGATION SETTLEMENT COSTS. Litigation settlement costs of $748,000 relate to
the Company's cost to settle a consolidated putative securities class action
lawsuit against the Company and certain of its directors and former officers.
Such costs include a $100,000 cash payment and the value of 1,256,000 common
shares on the date of the agreement in principle. Litigation settlement costs
represent 6.3% of revenues for the three months ended March 31, 2001.
12
13
OTHER EXPENSE, NET. Other expense, net is comprised primarily of net interest
expense. Net interest expense increased 10.2% to $672,000 for the three months
ended March 31, 2001 from $610,000 for the same period of fiscal 2000, as a
result of increases in interest rates more than offsetting debt reduction.
INCOME TAXES. As a result of the uncertainty that sufficient taxable income can
be recognized to realize additional deferred tax assets, no income tax benefit
is recognized for the three months ended March 31, 2001. In comparison, an
income tax benefit of $2.1 million was recognized for the same period of fiscal
2000. The Company's effective income tax rate for the three months ended March
31, 2001 was 0.0%, in comparison to 41.6% for the same period of fiscal 2000.
OTHER COMPREHENSIVE INCOME (LOSS). Other comprehensive income (loss) relates to
the after tax change in value of marketable equity securities owned by the
Company.
SIX MONTHS ENDED MARCH 31, 2001 AND 2000
REVENUES. The Company's revenues are recognized as services are performed.
Revenues decreased $8.2 million to $26.6 million for the first six months of
fiscal 2001 from $34.8 million for the first six months of fiscal 2000 as a
result of a reduction in revenue generating capacity and a lower level of new
contract signings during fiscal 2001.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
includes employee compensation for production, marketing, selling,
administrative and executive employees. Salaries, wages and related benefits
decreased 40.7% to $15.2 million for the first six months of fiscal 2001 from
$25.5 million for the first six months of fiscal 2000, as a result of reductions
in the Company's workforce. The reductions in the workforce were a result of
reduced anticipated revenue volume and the Company's decision to subcontract a
higher percentage of its production work to offshore subcontractors. As a
percentage of revenues, salaries, wages and related benefits decreased to 57.0%
for the first six months of fiscal 2001 from 73.4% for the first six months of
fiscal 2000.
SUBCONTRACTOR COSTS. Subcontractor costs includes production costs incurred
through the use of third parties for production tasks, such as data conversion
services to meet contract requirements, aerial photography and ground and
airborne survey services. Subcontractor costs increased 2.0% to $5.8 million for
the first six months of fiscal 2001 from $5.7 million for the first six months
of fiscal 2000, and increased as a percentage of revenues to 21.9% for the first
six months of fiscal 2001 from 16.4% for the first six months of fiscal 2000.
The percentage of subcontractor costs as a percentage of revenues was higher as
a result of the Company's transition to subcontracting a greater percentage of
its production offshore.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 14.1% to $6.6 million for the first
six months of fiscal 2001 from $7.7 million for the first six months of fiscal
2000, as a result of reductions in workforce. As a percentage of revenues,
13
14
other general and administrative costs increased to 25.0% for the first six
months of fiscal 2001 from 22.2% for the first six months of fiscal 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consists primarily
of amortization of goodwill incurred in connection with the Company's
acquisitions, less a $16.5 million valuation allowance established in September
2000, as well as depreciation of certain of the Company's operating assets. For
the first six months of fiscal 2001, depreciation and amortization decreased
33.8% to $1.6 million from $2.5 million for the first six months of fiscal 2000
due to lower asset amounts after a valuation allowance. As a percentage of
revenues, depreciation and amortization decreased to 6.2% for the first six
months of fiscal 2001 from 7.1% in the first six months of fiscal 2000.
SEVERANCE AND RELATED COSTS. The Company incurred one-time officer severance
costs of $210,000 for the six months ended March 31, 2001 and one-time officer
severance, legal, accounting and consulting expenses of $1.8 million associated
with officer resignations and the in-depth review of contract cost-of-completion
assumptions and accounting systems for the six months ended March 31, 2000.
Severance and related costs represent 0.8% of revenues for the six months ended
March 31, 2001 compared to 5.1% for the six months ended March 31, 2000.
LITIGATION SETTLEMENT COSTS. Litigation settlement costs of $748,000 relate to
the Company's cost to settle a consolidated putative securities class action
lawsuit against the Company and certain of its directors and former officers.
Such costs include a $100,000 cash payment and the value of 1,256,000 common
shares on the date of the agreement in principle. Litigation settlement costs
represent 2.8% of revenues for the six months ended March 31, 2001.
OTHER EXPENSE, NET. Other expense, net is comprised primarily of net interest
expense. Net interest expense increased 21.6% to $1.4 million for the first six
months of fiscal 2001 from $1.1 million for the first six months of fiscal 2000,
as a result of increases in interest rates more than offsetting debt reduction.
INCOME TAXES. As a result of the uncertainty that sufficient taxable income can
be recognized to realize additional deferred tax assets, no income tax benefit
is recognized for the first six months of fiscal 2001. In comparison, an income
tax benefit of $3.6 million was recognized for the first six months of fiscal
2000. The Company's effective income tax rate for the first six months of fiscal
2001 was 0.0%, in comparison to 38.0% for fiscal 2000.
OTHER COMPREHENSIVE INCOME (LOSS). Other comprehensive income (loss) relates to
the after tax change in value of marketable equity securities owned by the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal source of liquidity has consisted of cash
flow from operations supplemented by secured lines-of-credit and other
borrowings. As of March 31, 2001, the Company had $7.1 million in borrowings
outstanding on its working capital lines-of-credit and $12.5 million
14
15
on its term debt. The effective interest rate on the line of credit and term
debt was prime rate plus 3.5% (11.5% at March 31, 2001). The availability of the
line of credit is based on eligible accounts receivable, which exceeds $7.1
million at March 31, 2001.
On May 1, 2001, the Company announced it had completed a Waiver Agreement and
Amendment No. 10 to Credit Agreement and Other Loan and Lease Documents with its
Senior Lenders. The Agreement was dated April 26, 2001 but is effective March
31, 2001. The Agreement waives any financial covenant defaults, lowers interest
rates, and changes loan maturity dates. The most significant financial covenant
default related to delinquent principal payments resulting from the delay in
consummating the sale of the Colorado Springs office. Upon the completion of
that transaction, the Company fulfilled its obligation to pay a total of $6.0
million of the proceeds of the transaction as principal payments on the line of
credit, term and lease debt. The interest rate on $5.0 million of term debt has
been reduced to zero. The remaining term debt, the balance of which is $5.1
million after the transaction, bears interest at prime rate plus 1.0%. The
non-interest bearing portion of term debt has been extended to October 1, 2002
and the interest-bearing portion is due December 31, 2001. The total amount
available under the line of credit was reduced to the amount outstanding on
April 26, 2001 of $4.4 million and the Agreement requires the Company to obtain
a replacement lender for its line of credit by May 31, 2001. The Company is
working with potential lending and equity sources but there is no assurance it
will be successful within the time constraints and that the Senior Lenders will
not accelerate the maturity of the loans. The debt facility is secured by
substantially all assets of the Company.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During fiscal 2000 and the first
half of fiscal 2001, the Company experienced significant losses with
corresponding reductions in working capital and net worth, and a substantial
portion of its bank debt is included in current liabilities as of March 31, 2001
because it is due within one year. The Company's revenues and backlog have also
decreased substantially since 1999. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Since joining the Company in July 2000, the Chief Executive Officer and the
Company's new management team have been developing operational and financial
restructuring plans designed to improve operating efficiencies, eliminate cash
losses and position the Company for profitable operations. Under this new
leadership, the Company implemented plans to reduce non-core spending
activities, reduce overhead, outsource certain components of projects and
renegotiate its bank agreements. The Company is also actively pursuing
additional financing alternatives that include new strategic investors, or
potentially selling additional assets. Although management has developed
strategies to meet the revised plan, there is no certainty that such strategies
will be successful in the planned timeframe.
15
16
The financial statements do not include any adjustments relating to the
recoverability of assets and the classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern. However,
management believes that its restructuring plans can significantly improve
operations and generate sufficient cash to meet its obligations in a timely
manner.
The Company's cash flow is significantly affected by customer contract terms and
progress achieved on projects. Fluctuations in cash flow from operations are
reflected in three contract-related accounts: accounts receivable; revenues in
excess of billings; and billings in excess of revenues. Under the percentage of
completion method of accounting, an "account receivable" is created when an
amount becomes due from a customer, which typically occurs when an event
specified in the contract triggers a billing. "Revenues in excess of billings"
occur when the Company has performed under a contract even though a billing
event has not been triggered. "Billings in excess of revenues" occur when the
Company receives an advance or deposit against work yet to be performed. These
accounts, which represent a significant investment by ASI in its business,
affect the Company's cash flow as projects are signed, performed, billed and
collected.
Net cash provided by the Company's operating activities was $2.0 million for the
first six months of fiscal 2001 as compared to $5.1 million used for operations
in the first six months of fiscal 2000. Cash provided from operations in fiscal
2001 is primarily attributable to the receipt of $2.8 million in tax refunds and
more aggressive management of customer receivables and billings.
Cash used by investing activities for the first six months of fiscal year 2001
was $293,000 and $1.3 million in 2000. Such investing activities principally
consisted of payments for purchases of equipment and leasehold improvements.
Cash used by financing activities for the first six months of fiscal year 2001
was $3.5 million as compared to $1.0 million provided by financing activities
for the first six months of fiscal 2000. Financing activities consisted
primarily of net borrowings and payments under lines-of-credit for working
capital purposes and net borrowings and payments of long-term debt used for
business combinations and the purchase of equipment and leasehold improvements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company may from time to time employ risk management techniques such as
interest rate swaps and foreign currency hedging transactions. None of these
techniques are used for speculative or trading purposes and the amounts involved
are not considered material.
Short-term interest rate changes can impact the Company's interest expense on
its variable interest rate debt. Variable interest rate debt of $19.6 million
was outstanding as of March 31, 2001. Assuming March 31, 2001 debt levels, an
increase or decrease in interest rates of one percentage point would impact the
Company's annual interest expense by $196,000.
16
17
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company and certain of its directors and former officers were named as
defendants in thirteen putative securities class action complaints that were
filed in the United States District Court for the Southern District of Indiana
(the "Court") beginning on February 2, 2000. On May 12, 2000, the Court
consolidated the thirteen actions into one complaint. On July 26, 2000,
plaintiffs filed a Consolidated Amended Class Action Complaint on behalf of
themselves and a putative class consisting of all persons, other than defendants
and their affiliates, who purchased the Company's common stock on the open
market during the period from January 25, 1999, through and including March 7,
2000. The plaintiff's allege that the Company and the individual defendants
violated the federal securities laws, which prohibit fraud in connection with
the purchase or sale of securities, by knowingly or recklessly issuing financial
statements that failed to comply with generally accepted accounting principles.
The plaintiffs seek an award of compensatory damages, including interest
thereon, and attorneys' fees and other costs.
On September 11, 2000, the Company and the named individual defendants filed
motions to dismiss the plaintiffs' Consolidated Amended Class Action. On October
24, 2000, the plaintiffs filed a Memorandum in Opposition to Defendants' Motions
to Dismiss the Consolidated Amended Class Action Complaint. The Court has not
yet ruled on these motions.
On April 4, 2001, the Company entered into an agreement in principle to settle
this lawsuit against the Company and certain of its directors and former
officers. The proposed settlement provides for the dismissal of the lawsuit in
its entirety against all defendants and the establishment of a settlement fund
of $4 million, of which the Company is contributing $100,000, and approximately
1,256,000 shares of the Company's common stock for the class of open market
purchasers of the Company's shares between January 25, 1999 and March 7, 2000,
inclusive. The agreement in principle with the plaintiffs is subject to various
conditions, including execution of a Memorandum of Understanding and Stipulation
of Settlement, preliminary approval by the Court, notice to the class and final
approval by the Court after a hearing. The Company's cost of this settlement is
estimated at $748,000, based on the cash contribution, and the value of the
common shares on the date of the agreement in principle. This cost has been
included in the financial results of the Company in the fiscal quarter ended
March 31, 2001.
The Company and certain directors have been named as defendants in an action
that was filed by Sidney V. Corder, the former President, Chief Executive
Officer and Director of the Company. The suit claims that the Company violated
the Colorado Wage Claim Act and breached contractual obligations. It also claims
that the Company has breached an obligation to indemnify Mr. Corder in
connection with pending securities lawsuit against the Company and certain of
its directors and former officers. A trial date of November 13, 2001 has been
set. The Company intends to defend itself vigorously in this matter.
17
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 10.25: Waiver Agreement and Amendment No. 10 to Credit Agreement and
Other Loan and Lease documents between ASI and Bank One,
Colorado, N.A. dated as of April 26, 2001.
Exhibit 99: Press Release dated April 5, 2001 announcing "Analytical Surveys
Reaches Agreement in Principle to Settle Shareholder Lawsuit."
Forms 8-K: Date of Report May 2, 2001 Press Release dated April 27, 2001
stating "Analytical Surveys Completes Sale of Colorado Springs
office."
Date of Report May 2, 2001 Press Release dated May 1, 2001
announcing "Analytical Surveys Obtains New Waiver Agreement and
Amendment to Credit Agreement from Senior Lenders."
SIGNATURES
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.
Analytical Surveys, Inc.
(Registrant)
Date: May 15, 2001 /s/ J. Norman Rokosh
-------------------------------------
J. Norman Rokosh
President and Chief Executive Officer
Date: May 15, 2001 /s/ Michael A. Renninger
-------------------------------------
Michael A. Renninger
Chief Financial Officer
18