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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
JUNE 30, 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 August 14, 2001 was
6,977,794.
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PART I
ITEM 1. FINANCIAL STATEMENTS
ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, September 30,
2001 2000
---- ----
(Unaudited)
ASSETS
Current assets:
Cash $ 867 2,825
Accounts receivable, net of allowance for
doubtful accounts of $1,066 and $434 9,643 12,840
Revenue in excess of billings 10,352 18,018
Deferred income taxes 1,968 1,968
Income tax receivable 33 3,145
Prepaid expenses and other 1,209 517
--------- --------
Total current assets 24,072 39,313
--------- --------
Equipment and leasehold improvements, at cost:
Equipment 8,101 15,363
Furniture and fixtures 830 1,720
Leasehold improvements 713 1,104
--------- --------
9,644 18,187
Less accumulated depreciation and amortization (7,147) (11,872)
--------- --------
2,497 6,315
--------- --------
Deferred income taxes 726 432
Goodwill net of accumulated amortization
of $5,140 and $4,911 3,633 3,862
Investment securities 123 340
--------- --------
Total assets $ 31,051 50,262
========= ========
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ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, September 30,
2001 2000
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines-of-credit $ 4,400 5,890
Current portion of long-term debt 10,932 13,555
Billings in excess of revenue 733 1,850
Accounts payable and other accrued liabilities 4,820 7,833
Accrued payroll and related benefits 2,165 3,112
-------- -------
Total current liabilities 23,050 32,240
Long-term debt, less current portion 293 5,952
-------- -------
Total liabilities 23,343 38,192
-------- -------
Stockholders' equity:
Common stock; no par value. Authorized 100,000 shares;
6,978 and 6,974 shares issued and outstanding
at June 30, and September 30, respectively 32,191 32,185
Accumulated other comprehensive loss (336) (119)
Accumulated deficit (24,147) (19,996)
-------- -------
Total stockholders' equity 7,708 12,070
-------- -------
Total liabilities and stockholders' equity $ 31,051 50,262
======== =======
See accompanying notes to consolidated financial statements.
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ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 7,751 11,708 34,340 46,506
Costs and expenses
Salaries, wages and related benefits 5,496 10,118 20,654 35,662
Subcontractor costs 1,550 5,724 7,383 11,441
Other general and administrative 2,327 3,424 8,971 11,339
Depreciation and amortization 551 1,501 2,195 3,982
Severance and related costs 20 -- 230 1,755
---------- ---------- --------- ---------
9,944 20,767 39,433 64,179
--------- --------- --------- ---------
Loss from operations (2,193) (9,059) (5,093) (17,673)
---------- --------- ---------- ----------
Other income (expense)
Gain on sale of Colorado assets 3,342 -- 3,342 --
Interest expense, net (316) (588) (1,667) (1,699)
Litigation settlement costs -- -- (748) --
Other 9 153 15 244
---------- --------- --------- ---------
3,035 (435) 942 (1,455)
---------- --------- --------- ----------
Income (loss) before income taxes and
extraordinary item 842 (9,494) (4,151) (19,128)
Income tax benefit -- -- -- (3,617)
---------- ---------- --------- ----------
Income (loss) before extraordinary item 842 (9,494) (4,151) (15,511)
Extraordinary loss on extinguishment of debt, net of tax -- -- -- 209
---------- --------- --------- ---------
Net income (loss) 842 (9,494) (4,151) (15,720)
Other comprehensive income (loss), net of income taxes 49 (336) (217) (5)
--------- --------- ---------- ----------
Comprehensive income (loss) $ 891 (9,830) (4,368) (15,725)
========= ========== ========== ==========
Basic and diluted income (loss) per common share:
Income (loss) before extraordinary item $ .12 (1.36) (.59) (2.23)
Extraordinary loss $ -- -- -- .03
Net income (loss) $ .12 (1.36) (.59) (2.26)
Weighted average common shares:
Basic 6,978 6,974 6,978 6,960
========= ========= ========= =========
Diluted 6,979 7,040 6,981 7,058
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
June 30,
2001 2000
---- ----
Cash flow from operating activities:
Net loss $ (4,151) (15,720)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Gain on sale of Colorado assets (3,342) --
Depreciation and amortization 2,195 3,982
Extraordinary loss on extinguishment of debt -- 209
Deferred income tax benefit (294) (1,267)
Tax benefit relating to exercise of stock options -- 37
Changes in operating assets and liabilities:
Accounts receivable, net 1,558 (617)
Revenue in excess of billings 5,041 8,195
Income taxes 3,112 321
Prepaid expenses and other (740) 443
Billings in excess of revenue (692) (260)
Accounts payable and other accrued liabilities (2,149) 3,176
Accrued payroll and related benefits (804) (285)
--------- -------
Net cash used by operating
activities (266) (1,786)
--------- -------
Cash flow from investing activities:
Purchase of equipment and leasehold improvements (329) (1,821)
Proceeds from sale of equipment -- 178
Proceeds from sale of Colorado assets 8,403 --
--------- -------
Net cash provided (used) by investing activities 8,074 (1,643)
--------- -------
Cash flow from financing activities:
Net borrowings (payments) under lines-of-credit (1,490) 4,450
Principal payments on long-term debt (8,282) (7,252)
Proceeds from exercise of stock options 6 123
--------- -------
Net cash used by financing activities (9,766) (2,679)
--------- -------
Net decrease in cash (1,958) (6,108)
Cash at beginning of period 2,825 6,659
--------- -------
Cash at end of period $ 867 551
========= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,825 1,550
========= =======
Cash paid for income taxes, net of refunds $ (2,819) (2,847)
========= ========
See accompanying notes to financial statements.
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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 June 30, 2001 and the results of
their operations for the three months and nine months ended June 30, 2001 and
2000 and cash flows for the nine months ended June 30, 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 final
approval by the Court after a hearing. The Company's cost of this settlement,
excluding legal fees, 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. The Court has
limited the award under the Colorado Wage Claim Act to a maximum of
approximately $88,000. The suit also claims that the Company has breached an
obligation to indemnify Mr. Corder in connection with a pending securities
lawsuit against the Company and
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certain of its directors and former officers. A trial date of November 13, 2001
has been set. It is impossible to evaluate what 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.
Two shareholders of the Company, the Epner Family Limited Partnership and the
Braverman Family Limited Partnership, filed suit in Indiana state court
(Hamilton County Superior Court, State of Indiana, Cause No. 29001-0105 CP 289)
against four former officers of the Company on May 8, 2001. The former officers
are: Sidney Corder, Chief Executive Officer; Scott Benger, Senior Vice President
of Finance; Randy Sage, Chief Operations Officer; and John Dillon, Chief
Administrative Officer. The plaintiffs claimed that the former officers violated
Texas and Indiana securities laws and other provisions of Texas law in
connection with the Company's acquisition of Cartotech, Inc., in June 1998. The
four defendants have sent the Company written demands for indemnification. The
Company has tendered the defense of these claims to its insurer. The Company has
not been named a party to the suit.
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, Sale of Colorado Assets, 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. Management intends to reassess its internal
segment reporting based on the sale of the Colorado operation.
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 JUNE 30, 2001
Operations
Revenues $ 6,344 1,407 -- 7,751
Loss from operations (1,518) (675) -- (2,193)
Gain on sale of Colorado assets -- -- 3,342 3,342
Interest expense, net -- -- (316) (316)
Litigation settlement costs -- -- -- --
Other -- -- 9 9
-------
Net income -- -- -- 842
=======
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NON-
UTILITIES LAND SEGMENT TOTAL
NINE MONTHS ENDED JUNE 30, 2001
Operations
Revenues 24,263 10,077 -- 34,340
Loss from operations (3,292) (1,801) -- (5,093)
Gain on sale of Colorado assets -- -- 3,342 3,342
Interest expense, net -- -- (1,667) (1,667)
Litigation settlement costs -- -- (748) (748)
Other -- -- 15 15
-------
Net loss -- -- -- (4,151)
=======
Assets at June 30, 2001
Segment assets 24,288 1,837 -- 26,125
Non-segment assets -- -- 4,926 4,926
-------
Consolidated Assets -- -- -- 31,051
=======
THREE MONTHS ENDED JUNE 30, 2000
Operations
Revenues $ 12,000 (292) -- 11,708
Loss from operations (6,431) (2,628) -- (9,059)
Interest expense, net -- -- (588) (588)
Other -- -- 153 153
Income tax benefit -- -- -- --
Extraordinary loss on
extinguishment of debt -- -- -- --
-------
Net loss -- -- -- (9,494)
=======
NINE MONTHS ENDED JUNE 30, 2000
Operations
Revenues $ 36,690 9,816 -- 46,506
Loss from operations (10,107) (7,566) -- (17,673)
Interest expense, net -- -- (1,699) (1,699)
Other -- -- 244 244
Income tax benefit -- -- 3,617 3,617
Extraordinary loss on
extinguishment of debt -- -- (209) (209)
-------
Net loss -- -- -- (15,720)
=======
Assets at September 30, 2000
Segment assets $ 29,038 11,997 -- 41,035
Non-segment assets -- -- 9,227 9,227
-------
Consolidated Assets -- -- -- 50,262
=======
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4. SALE OF COLORADO ASSETS
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 sales price of approximately $9.9 million, including cash proceeds of
$8.4 million and the assumption of $1.5 million of certain liabilities. The
Company transferred approximately $2.9 million of net working capital and $2.2
million of net book value of equipment and leasehold improvements to the buyer
and recorded a gain on sale of approximately $3.3 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.
The following summarized pro forma unaudited information represents the
historical operating results of Analytical Surveys, Inc. assuming the sale of
the Colorado assets had occurred at the beginning of the periods presented,
adjusted to give effect to events that are directly attributable to the
transaction. The pro forma financial information presented is not necessarily
indicative of what the Company's actual operating results would have been had
the sale of the Colorado assets occurred before such periods (in thousands,
except per share amounts):
2001 2000
Nine months ended June 30 (Pro Forma) (Pro Forma)
----------- -----------
Revenues $ 25,966 36,831
Net loss $ (8,375) (13,251)
Weighted average shares outstanding:
Basic 6,978 6,960
Diluted 6,981 7,058
Net loss per common share:
Basic $ (1.20) (1.90)
Diluted $ (1.20) (1.90)
5. SUBSEQUENT EVENTS
On July 27, 2001, the Company announced it had completed a Waiver Agreement and
Amendment No. 11 to Credit Agreement and Other Loan and Lease Documents with its
Senior Lenders. The Agreement was dated July 26, 2001 but is effective May 31,
2001. The Agreement waives any financial covenant defaults, changes loan
maturity dates and offers the Company principal prepayment incentives. Under
this Agreement, the maturities of ASI's bank credit facilities have been
extended initially to November 1, 2001. An additional extension of those
maturities to January 31, 2002 becomes effective upon a $1 million principal
payment to the senior lenders by November 1, 2001. Payments previously scheduled
to be made by ASI to its senior lenders prior to November 1, 2001, including the
required full payment of ASI's revolving line of credit, have been deferred to
the new maturity dates.
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ASI's Senior Lenders also have agreed to forgive a portion of ASI's loan
indebtedness, with the amount of the forgiveness determined based on the amount
of principal paid by ASI to the Senior Lenders after July 1, 2001 and on or
prior to the November 1, 2001 and January 31, 2002 scheduled maturity dates. If
ASI is able to take full advantage of this debt forgiveness commitment, it can
obtain maximum debt forgiveness from its senior lenders in the approximate
amount of $10.9 million. The scheduled maturity date for the unpaid balance of
ASI's credit facilities, if reduced to $5 million or less by January 31, 2002,
will be extended to October 1, 2002.
6. CURRENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board issued FASB Statement
No. 141, "Business Combinations" and FASB Statement No. 142, "Goodwill and Other
Intangible Assets." Among other matters, Statement No. 141 requires all business
combinations to be accounted for using the purchase method of accounting, thus
eliminating the pooling-of-interests method. The statement is effective for all
business combinations initiated after June 30, 2001.
Statement No. 142 states that goodwill and intangible assets with indefinite
lives should be assigned to reporting units and should not be amortized but
should be tested for impairment at least annually using a fair-value-based test
at the reporting unit level. Recognized intangible assets are to be amortized
over their useful lives and reviewed for impairment in accordance with Statement
No. 121. The Company will adopt Statement No. 142 on October 1, 2002, at which
time the Company will cease amortizing its existing goodwill and begin testing
the recorded goodwill for impairment at the reporting unit level.
Other than the cessation of the amortizing of goodwill, the adoption of
Statements No. 141 and 142 is not expected to have a material effect on the
Company's financial position, results of operations, and cash flows.
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
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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.
OVERVIEW
ASI, a provider of data conversion and digital mapping services to users of
customized geographic information systems, was founded in 1981.
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. A goodwill
valuation allowance of $16.5 million was established on September 30, 2000. As
of June 30, 2001, goodwill, net of accumulated amortization and impairment
charges, was $3.6 million. The Company believes the remaining amortization
period is appropriate based on the forecasted operating results of the Company.
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 June 30, 2001, backlog was $26.8 million as compared with
$63.4 million as of June 30, 2000. Major factors impacting backlog include the
sale of the Colorado Springs office, reduced new bookings resulting from the
Company's adverse financial results for fiscal year 2000, the securities
litigation suit, increased competition from competitors with offshore operations
and overall softening of new investment by utility industry companies.
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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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
PERCENTAGE OF REVENUES:
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Salaries, wages and related benefits 70.9 86.4 60.1 76.7
Subcontractor costs 20.0 48.9 21.5 24.6
Other general and administrative 30.0 29.2 26.1 24.4
Depreciation and amortization 7.1 12.8 6.4 8.5
Severance and related costs 0.3 -- 0.7 3.8
------- ------- -------- ------
Loss from operations (28.3) (77.3) (14.8) (38.0)
Gain on sale of Colorado assets 43.1 -- 9.7 --
Litigation settlement costs -- -- (2.2) --
Other (expense), net (3.9) (3.7) (4.8) (3.1)
------- ------- ------- ------
Income (loss) before income taxes
and extraordinary loss 10.9 (81.0) (12.1) (41.1)
Income tax benefit -- -- -- (7.7)
------- ------- ------- ------
Income (loss) before extraordinary loss 10.9 (81.0) (12.1) (33.4)
Extraordinary loss -- -- -- 0.4
======= ======= ======= ======
Net income (loss) 10.9% (81.0%) (12.1%) (33.8%)
======= ======= ======= ======
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES. The Company's revenues are recognized as services are performed.
Revenues decreased $3.9 million to $7.8 million for the three months ended June
30, 2001 from $11.7 million for the same three month period of fiscal 2000 as a
result of a reduction in revenue generating capacity, a lower level of new
contract signings during fiscal 2001 and the sale of the Colorado office.
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 45.7% to $5.5 million for the three
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months ended June 30, 2001 from $10.1 million for the three months ended June
30, 2000, as a result of reductions in the Company's workforce. The reductions
in the workforce were a result of reduced anticipated revenue volume, the
Company's decision to subcontract a higher percentage of data conversion work to
offshore subcontractors and the sale of the Colorado office. As a percentage of
revenues, salaries, wages and related benefits decreased to 70.9% for the three
months ended June 30, 2001 from 86.4% 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 72.9% to $1.6 million
for the three months ended June 30, 2001 from $5.7 million for the three months
ended June 30, 2000, and decreased as a percentage of revenues to 20.0% for the
three months ended June 30, 2001 from 48.9% for the same period of fiscal 2000.
The percentage of subcontractor costs as a percentage of revenues was lower as a
result of lower revenues, completing backlog that utilized subcontractor labor
and the sale of the Colorado office contracts.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 32.0% to $2.3 million for the three
months ended June 30, 2001 from $3.4 million for the same period of fiscal 2000,
as a result of reductions in workforce and the sale of the Colorado office. As a
percentage of revenues, other general and administrative costs increased to
30.0% for the three months ended June 30, 2001 from 29.2% 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 June 30, 2001, depreciation and amortization decreased
63.3% to $551,000 from $1.5 million for the same period of fiscal 2000 due to
lower asset amounts after a valuation allowance and the sale of the Colorado
office. As a percentage of revenues, depreciation and amortization decreased to
7.1% for the three months ended June 30, 2001 from 12.8% in the same period of
fiscal 2000.
SEVERANCE AND RELATED COSTS. The Company incurred net one-time officer severance
costs of $20,000 for the three months ended June 30, 2001. Severance and related
costs represent 0.3% of revenues for the three months ended June 30, 2001. There
were no comparable expenses for the same period last year.
GAIN ON SALE OF COLORADO ASSETS. On April 27, 2001, the Company completed the
sale of substantially all of the assets of its Colorado Springs, Colorado land
mapping office, resulting in a gain of approximately $3.3 million. See Footnote
4-Sale of Colorado Assets, for additional information.
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INTEREST EXPENSE, NET. Net interest expense decreased 46.3% to $316,000 for the
three months ended June 30, 2001 from $588,000 for the same period of fiscal
2000, as a result of decreases in interest rates and debt reduction from
application of the proceeds of the sale of the Colorado assets to pay down debt.
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 June 30, 2001 and for the same period
ending June 30, 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.
NINE MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES. The Company's revenues are recognized as services are performed.
Revenues decreased $12.2 million to $34.3 million for the first nine months of
fiscal 2001 from $46.5 million for the first nine months of fiscal 2000 as a
result of a reduction in revenue generating capacity, a lower level of new
contract signings during fiscal 2001 and the sale of the Colorado office.
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 42.1% to $20.7 million for the first nine months of fiscal 2001 from
$35.7 million for the first nine months of fiscal 2000, as a result of
reductions in the Company's workforce and the sale of the Colorado office. The
reductions in the workforce were a result of reduced anticipated revenue volume
and the Company's decision to subcontract a higher percentage of data conversion
work to offshore subcontractors. As a percentage of revenues, salaries, wages
and related benefits decreased to 60.1% for the first nine months of fiscal 2001
from 76.7% for the first nine 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 decreased 35.5% to $7.4 million
for the first nine months of fiscal 2001 from $11.4 million for the first nine
months of fiscal 2000, and decreased as a percentage of revenues to 21.5% for
the first nine months of fiscal 2001 from 24.6% for the first nine months of
fiscal 2000. The percentage of subcontractor costs as a percentage of revenues
was lower as a result of the Company's decrease in revenue, completing backlog
that utilized subcontractor labor and the sale of the Colorado office.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 20.9% to $9.0 million for the first
nine months of fiscal 2001 from $11.3 million for the first nine months of
fiscal 2000, as a result of reductions in workforce, various cost containment
initiatives and the sale of the Colorado office. As a percentage of revenues,
other
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general and administrative costs increased to 26.1% for the first nine months of
fiscal 2001 from 24.4% for the first nine 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 nine months of fiscal 2001, depreciation and amortization decreased
44.9% to $2.2 million from $4.0 million for the first nine months of fiscal 2000
due to lower asset amounts after a valuation allowance and the sale of Colorado
depreciable assets. As a percentage of revenues, depreciation and amortization
decreased to 6.4% for the first nine months of fiscal 2001 from 8.5% in the
first nine months of fiscal 2000.
SEVERANCE AND RELATED COSTS. The Company incurred net one-time officer severance
costs of $230,000 for the nine months ended June 30, 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 nine months ended June 30, 2000.
Severance and related costs represent 0.7% of revenues for the nine months ended
June 30, 2001 compared to 3.8% for the nine months ended June 30, 2000.
GAIN ON SALE OF COLORADO ASSETS. On April 27, 2001, the Company completed the
sale of substantially all of the assets of its Colorado Springs, Colorado land
mapping office, resulting in a gain of approximately $3.3 million. See Footnote
4 - Sale of Colorado Assets, for additional information.
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,
excluding legal fees, represent 2.2% of revenues for the nine months ended June
30, 2001.
INTEREST EXPENSE, NET. Net interest expense was approximately $1.7 million for
the nine months ended June 30, 2001 and for the same period in fiscal 2000.
Interest expense increased during the first six months of fiscal 2001 as a
result of increases in interest rates more than offsetting debt reduction.
Interest expense decreased during the three months ended June 30, 2001 as a
result of decreases to interest rates and debt reduction from application of the
proceeds of the sale of the Colorado assets.
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 nine months of fiscal 2001. In comparison, an income
tax benefit of $3.6 million was recognized for the first nine months of fiscal
2000. The Company's effective income tax rate for the first nine months of
fiscal 2001 was 0.0%, in comparison to 18.9% for fiscal 2000.
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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 June 30, 2001, the Company had $4.4 million in borrowings
outstanding on its working capital lines-of-credit and $10.1 million on its term
debt, of which $5.0 million is non-interest bearing. The effective interest rate
on the line of credit and the interest bearing portion of term debt was prime
rate plus 2.0% and 1.0%, respectively (8.75% and 7.75%, respectively at June 30,
2001). The availability of the line of credit is based on eligible accounts
receivable, which exceeds $4.4 million at June 30, 2001.
On July 27, 2001, the Company announced it had completed a Waiver Agreement and
Amendment No. 11 to Credit Agreement and Other Loan and Lease Documents with its
Senior Lenders. The Agreement was dated July 26, 2001 but is effective May 31,
2001. The Agreement waives any financial covenant defaults, changes loan
maturity dates and offers the Company principal prepayment incentives. Under
this Agreement, the maturities of ASI's bank credit facilities have been
extended initially to November 1, 2001. An additional extension of those
maturities to January 31, 2002 becomes effective upon a $1.0 million principal
payment to the senior lenders by November 1, 2001. Payments previously scheduled
to be made by ASI to its senior lenders prior to November 1, 2001, including the
required full payment of ASI's revolving line of credit, have been deferred to
the new maturity dates.
ASI's Senior Lenders also have agreed to forgive a portion of ASI's loan
indebtedness, with the amount of the forgiveness determined based on the amount
of principal paid by ASI to the Senior Lenders after July 1, 2001 and on or
prior to the November 1, 2001 and January 31, 2002 scheduled maturity dates. If
ASI is able to take full advantage of this debt forgiveness commitment, it can
obtain maximum debt forgiveness from its senior lenders in the approximate
amount of $10.9 million. The scheduled maturity date for the unpaid balance of
ASI's credit facilities, if reduced to $5 million or less by January 31, 2002,
will be extended to October 1, 2002.
The Company is working with potential lending and equity sources to secure funds
to repay Senior Lenders and to take advantage of the debt forgiveness
opportunity, but there is no assurance it will be successful within the time
constraints. 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
three quarters 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 June 30, 2001
because it is due within one year. The Company's revenues and backlog have also
decreased substantially since 1999.
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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.
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 used by the Company's operating activities was $266,000 for the first
nine months of fiscal 2001 as compared to $1.8 million used for operations in
the first nine months of fiscal 2000. Cash used by operations in fiscal 2001 is
primarily attributable to the decrease in contract assets (accounts receivables
and revenue in excess of billings) and income tax receivables and decreases to
accounts payable and other accrued liabilities.
Cash provided from investing activities for the first nine months of fiscal year
2001 was $8.1 million as compared to $1.6 million used by investing activities
in 2000. Cash provided from investing activities in fiscal 2001 is primarily
attributable to the $8.4 million in proceeds from the sale of the Colorado
office.
Cash used by financing activities for the first nine months of fiscal year 2001
was $9.8 million as compared to $2.7 million used by financing activities for
the first nine 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.
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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 $9.5 million was
outstanding as of June 30, 2001. Assuming June 30, 2001 debt levels, an increase
or decrease in interest rates of one percentage point would impact the Company's
annual interest expense by $95,000.
PART II
ITEM 1. LEGAL PROCEEDINGS.
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 final
approval by the Court after a hearing. The Company's cost of this settlement,
excluding legal fees, 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. The Court has
limited the award under the Colorado Wage Claim Act to a maximum of
approximately $88,000. The suit also claims that the Company has breached an
obligation to indemnify Mr. Corder in connection with a 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
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.
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Two shareholders of the Company, the Epner Family Limited Partnership and the
Braverman Family Limited Partnership, filed suit in Indiana state court
(Hamilton County Superior Court, State of Indiana, Cause No. 29001-0105 CP 289)
against four former officers of the Company on May 8, 2001. The former officers
are: Sidney Corder, Chief Executive Officer; Scott Benger, Senior Vice President
of Finance; Randy Sage, Chief Operations Officer; and John Dillon, Chief
Administrative Officer. The plaintiffs claimed that the former officers violated
Texas and Indiana securities laws and other provisions of Texas law in
connection with the Company's acquisition of Cartotech, Inc., in June 1998. The
four defendants have sent the Company written demands for indemnification. The
Company has tendered the defense of these claims to its insurer. The Company has
not been named a party to the suit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 10.25: Waiver Agreement and Amendment No. 11 to Credit Agreement and
Other Loan and Lease Documents dated as of July 26, 2001
Exhibit 99: Press Release dated May 9, 2001 announcing "ASI Leads with
Experience".
Press Release dated May 16, 2001 announcing "Analytical
Surveys Announces Second Quarter and Six-Month Results".
Press Release dated May 25, 2001 announcing "Two Shareholders
File Lawsuit Against Former Officers".
Press Release dated May 29, 2001 announcing "Reliant Energy
Awards ASI Data Maintenance Contract".
Press Release dated July 27, 2001 announcing "Analytical
Surveys Obtains New Waiver Agreement and Amendment to Credit
Agreement from Senior Lenders.
Forms 8-K: Date of Report May 18, 2001 announcing Mr. Willem Andersen
resigned as a director effective May 11, 2001.
Date of Report July 13, 2001 announcing Unaudited Condensed
Consolidated Balance Sheet Information.
Date of Report July 27, 2001 Press Release dated July 27, 2001
announcing "Analytical Surveys Obtains New Waiver Agreement
and Amendment to Credit Agreement from Senior Lenders" and
Exhibit 10.25 pertaining to same subject.
Form 8-KA: Date of report July 13, 2001 regarding Unaudited Condensed
Consolidated Balance Sheet Information.
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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: August 14, 2001 /s/ J. Norman Rokosh
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J. Norman Rokosh
President and Chief Executive Officer
Date: August 14, 2001 /s/ Michael A. Renninger
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Michael A. Renninger
Chief Financial Officer
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