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, 1998
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 July 31, 1998 was
6,721,749.
PART I ITEM 1.
ANALYTICAL SURVEYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30, June 30,
1997 1998
------------- --------
ASSETS
CURRENT ASSETS
Cash $ 1,559 $ 1,571
Accounts receivable, net of allowance for doubtful
accounts of $164 and $179 8,991 14,881
Revenue in excess of billings 21,613 37,608
Deferred income taxes 136 330
Prepaid expenses and other 545 911
Prepaid income taxes --- 1,470
------- -------
Total current assets 32,844 56,771
------- -------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Equipment 7,983 12,109
Furniture and fixtures 1,151 1,411
Leasehold improvements 499 530
------- -------
9,633 14,050
Less accumulated depreciation and amortization (5,483) (6,708)
------- -------
4,150 7,342
Deferred income taxes 41 140
Goodwill, net of accumulated amortization
of $368 and $1,199 12,353 25,491
Other assets, net of accumulated
amortization of $130 and $511 758 374
------- -------
TOTAL ASSETS $50,146 $90,118
------- -------
------- -------
See accompanying notes to financial statements.
ANALYTICAL SURVEYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30, June 30,
1997 1998
------------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit with banks (Note 2) $ 1,473 $ 67
Current portion of long-term debt 3,051 4,714
Billings in excess of revenue 789 1,376
Accounts payable and other accrued liabilities 3,693 6,986
Accrued payroll and related benefits 2,753 5,044
------- -------
Total current liabilities 11,759 18,187
Line of credit with bank (note 2) --- 7,300
Long-term debt, less current portion 14,145 22,502
Deferred compensation payable 411 295
------- -------
Total liabilities 26,315 48,284
------- -------
STOCKHOLDERS' EQUITY
Preferred stock; no par value. Authorized 2,500
shares; none issued or outstanding -- --
Common stock; no par value. Authorized 100,000 shares;
6,114 and 6,700 shares issued and outstanding
at September 30, 1997 and June 30, 1998, respectively 15,269 28,030
Retained earnings 8,562 13,804
------- -------
Total stockholders' equity 23,831 41,834
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $50,146 $ 90,118
------- -------
------- -------
See accompanying notes to financial statements.
ANALYTICAL SURVEYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three months Nine Months
Ended Ended
June 30, June 30,
1997 1998 1997 1998
------ ------- ------- -------
SALES $8,484 $22,752 $24,643 $60,105
------ ------- ------- -------
COSTS AND EXPENSES
Salaries, wages and related benefits 3,983 10,553 11,524 28,958
Subcontractor costs 1,391 3,750 4,419 8,096
Other general and administrative 1,382 3,931 4,029 10,531
Depreciation and amortization 320 905 973 2,513
------ ------- ------- -------
7,076 19,139 20,945 50,098
------ ------- ------- -------
EARNINGS FROM OPERATIONS 1,408 3,613 3,698 10,007
------ ------- ------- -------
OTHER (INCOME) EXPENSE
Interest expense, net 123 541 382 1,425
Other (7) (84) (8) (115)
------ ------- ------- -------
116 457 374 1,310
------ ------- ------- -------
EARNINGS BEFORE INCOME TAXES 1,292 3,156 3,324 8,697
INCOME TAX EXPENSE 490 1,271 1,267 3,455
------ ------- ------- -------
NET EARNINGS $ 802 $ 1,885 $ 2,057 $ 5,242
------ ------- ------- -------
------ ------- ------- -------
EARNINGS PER COMMON SHARE
Basic $0.16 $0.30 $ 0.41 $0.84
------ ------- ------- -------
------ ------- ------- -------
Diluted $0.15 $0.28 $0.39 $0.78
------ ------- ------- -------
------ ------- ------- -------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 5,090 6,345 4,978 6,224
------ ------- ------- -------
------ ------- ------- -------
Diluted 5,409 6,819 5,260 6,720
------ ------- ------- -------
------ ------- ------- -------
See accompanying notes to financial statements and common stock equivalent.
ANALYTICAL SURVEYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine months Nine months
Ended Ended
June 30, June 30,
1997 1998
----------- -----------
CASH FLOWS PROVIDED (USED)
BY OPERATING ACTIVITIES $2,680 $ (5,994)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 157 21
Purchase of equipment and leasehold improvements (709) (2,668)
Payments for net assets acquired in business
combinations ----- (8,304)
------ --------
Net cash used in investing activities (552) (10,951)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under lines of credit with
banks (500) 5,347
Proceeds from issuance of long-term debt 214 11,501
Principal payments of long-term debt (948) (1,481)
Proceeds from issuance of common stock 486 1,590
------ --------
Net cash provided (used)
by financing activities (748) 16,957
------ --------
Net increase in cash 1,380 12
Cash at beginning of period 1,022 1,559
------ --------
Cash at end of period $2,402 $ 1,571
------ --------
------ --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 386 $ 1,278
------ --------
------ --------
Cash paid for income taxes $ 738 $ 2,197
------ --------
------ --------
Common stock issued for net assets acquired
in business combinations $ 0 $ 8,270
------ --------
------ --------
See accompanying notes to financial statements.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim condensed 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, 1997. The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries. (See Note 3 regarding recent acquisitions). All
significant intercompany balances and transactions have been eliminated in
consolidation. The condensed consolidated financial statements have not been
audited by independent auditors. 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 for the year ended September 30, 1997.
The condensed consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary to present fairly the
financial position of Analytical Surveys, Inc., at June 30, 1998 and its results
of operations for the three and nine months ended June 30, 1998 and 1997, and
its cash flows for the nine months ended June 30, 1998 and 1997. All such
adjustments are of a normal recurring nature.
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 requires the restatement of all
prior-period earnings per share ("EPS") data. SFAS 128 replaces the
presentation of primary EPS, with a presentation of basic EPS and diluted EPS.
Under SFAS 128, basic EPS excludes dilution for common stock equivalents and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company. The Company's diluted EPS for prior periods is the same as the primary
EPS previously reported while the Company's basic EPS will be greater than the
primary EPS previously reported.
2. NOTES PAYABLE TO BANK
On June 3, 1998, the Company replaced its existing lines of credit with a
three-year $11,000,000 secured line of credit and a $10,000,000 line of credit
for acquisitions (which is due in quarterly installments over a five-year
period), and the Company refinanced $16,000,000 of term debt. Borrowings under
the new credit facilities bear interest at either LIBOR plus 1.25% to 2.25% or
the prime rate.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
3. ACQUISITIONS
In June 1998, the Company, through its wholly owned subsidiary, Surveys
Holdings, Inc. acquired all of the issued and outstanding common stock of
Cartotech, Inc. for cash of $8,059,000 and 354,167 shares of restricted common
stock valued at $8,269,799 for total consideration of $16,328,799.
In May 1998, the Company acquired all of the issued and outstanding common
stock of Interra Technologies (India) Private Limited for cash of $437,701.
Interra had previously been an exclusive subcontractor to Analytical Surveys,
Inc.
Current assets $ 3,600,702
Equipment 1,950,146
Other assets, including Goodwill 13,806,988
Current liabilities (2,591,336)
Non current liabilities -----
-----------
$16,766,500
-----------
-----------
4. STOCK OPTIONS
The following table summarizes stock option transactions under the
Company's four non-qualified stock option plans (in thousands except per
share amounts):
Average
Shares under Option Price
option per share
------------ ------------
Outstanding at September 30, 1997 1,288 $ 9.23
Granted 728 39.19
Exercised (232) 6.88
Cancelled (1) 10.01
-----
Outstanding June 30, 1998 1,783 21.78
-----
-----
Options Exercisable at June 30, 1998: 730
-----
-----
Available for Grant at June 30, 1998 82
-----
-----
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
PART I ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION 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 IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1997. THIS QUARTERLY REPORT
ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON 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 QUARTERLY REPORT, OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
INTO THIS QUARTERLY REPORT, 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, STATEMENTS RELATING TO COMPETITION, FUTURE ACQUISITIONS, MANAGEMENT
OF GROWTH, INTERNATIONAL SALES, THE COMPANY'S STRATEGY, FUTURE SALES, FUTURE
EXPENSES AND FUTURE LIQUIDITY AND CAPITAL RESOURCES. ALL FORWARD-LOOKING
STATEMENTS IN THIS QUARTERLY REPORT ARE BASED UPON INFORMATION AVAILABLE TO THE
COMPANY ON THE DATE OF THIS QUARTERLY REPORT, 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 QUARTERLY REPORT.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1997, AND OTHER FILINGS MADE WITH THE
SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
ASI, a leading provider of data conversion and digital mapping services to
users of customized geographic information systems, was founded in 1981 by its
current Chief Technical Officer, John A. Thorpe. From 1981 to 1990, the Company
experienced steady growth in revenues with periodic fluctuations in financial
results. After the hiring of the Company's current Chief Executive Officer and
Chief Financial Officer in 1990, the Company implemented a controlled 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, the Company embarked on a more aggressive growth strategy,
including consolidation of the fragmented GIS services industry. The Company
acquired substantially all of the assets of Wisconsin-based Intelligraphics,
Inc. ("Intelligraphics") in December 1995 for $3.5 million in cash and 345,000
shares of restricted Common Stock valued at $891,000. Intelligraphics, with over
200 employees, significantly expanded the Company's capacity to perform large
projects, added utility industry expertise, and established ASI's presence in
the midwestern United States. The acquisition contributed over 25 new customers
and $12.3 million in "backlog," which represents the amount of revenue that has
not been recognized on signed contracts.
In July 1996, the Company expanded its services to state and local
governments by acquiring substantially all of the assets of Westinghouse
Landmark GIS, Inc. ("ASI Landmark") for $2.0 million in cash. Based in North
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
Carolina, ASI Landmark's primary business is land base and cadastral mapping.
Prior to this acquisition, ASI had utilized subcontractors for certain of these
services. ASI Landmark also provided the Company with additional capacity for
photogrammetry, and a presence in the eastern and southeastern United States.
The acquisition contributed approximately 20 new customers, $9.1 million in
backlog and 105 employees to the Company.
The Company acquired MSE Corporation ("MSE") in July 1997 for $12.5 million
in cash and 925,000 shares of restricted Common Stock valued at $7.3 million.
The acquisition of Indiana-based MSE gave the Company greater capacity to serve
the utility market and further enhanced ASI's presence in the midwestern United
States. In addition, the acquisition of MSE contributed over 200 customers and
$43.0 million of backlog to the Company. Over 325 employees joined the ASI
workforce as a result of the MSE acquisition, including the Company's current
Chief Operations Officer and Chief Administrative Officer.
The Company acquired Texas-based Cartotech, Inc. ("Cartotech") in June 1998
for approximately $7.7 million in cash, net of cash acquired, and 354,167 shares
of restricted Common Stock valued at approximately $8.3 million, plus
acquisition costs of $359,000. The Cartotech acquisition extended ASI's presence
in the utility market, enhanced the Company's field inventory operations and
provided the Company with a strong presence in the southwestern United States.
The Cartotech acquisition contributed over 50 new customers and 270 employees to
the Company. One of Cartotech's customers, FirstEnergy Corp. (formerly known as
Ohio Edison), accounted for approximately 46.0% of Cartotech's revenues in
calendar 1997.
In conjunction with the above acquisitions, the Company has recorded
goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired in business combinations. As of June 30, 1998,
goodwill, net of accumulated amortization, was $25.5 million. The Company will
amortize the value of the intangible assets acquired in its recent business
acquisitions over a period of 15 years, representing the expected period of
benefit from the acquisitions. The Company believes this amortization period to
be appropriate based on the historical and forecasted operating results of the
acquired businesses.
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. At each accounting period and for each of the
Company's contracts, the percentage of completion is based on production costs
incurred to date as a percentage of total estimated production costs. This
percentage is then multiplied by the contract's total value to calculate the
sales revenue to be recognized.
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. As a result, the Company experiences yearly and
quarterly fluctuations in production costs, in salaries, wages and related
benefits and in subcontractor costs. These costs may vary as a percentage of
sales from period to period. Since 1995 the Company has relied less on
subcontractors and more on employees. The Company anticipates that, as a
percentage of sales, salaries, wages and related benefits will continue to
increase, with a corresponding decrease in subcontractor costs, due, in part, to
the Company's May 1998 purchase of Interra Technologies, an India-based company
that had been a provider of subcontractor services to the Company. The following
table illustrates the relationship of salaries, wages and related benefits and
subcontractor costs:
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
Nine Months Ended
Year Ended September 30, June 30,
------------------------ -----------------
1995 1996 1997 1997 1998
PERCENTAGE OF SALES:
Salaries, wages and related benefits 38.8% 46.3% 48.5% 46.8% 48.2%
Subcontractor costs . . . . . . . . . 23.9% 17.2% 14.5% 17.9% 13.5%
----- ----- ----- ----- -----
Total . . . . . . . . . . . . . . . . 62.7% 63.5% 63.0% 64.7% 61.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
The Company recognizes losses on contracts in the period such loss is
determined. From the beginning of fiscal 1995 through the nine-month period
ending June 30, 1998, the Company has recognized aggregate losses on contracts
of approximately $913,000. Over the same period, the Company recognized sales of
$137.2 million. Sales and marketing expenses associated with obtaining contracts
are expensed as incurred.
Backlog increases when new contracts are signed and decreases as revenue is
recognized. As of June 30, 1998, backlog was $113.6 million. Recently, the
number of large projects awarded to the Company has increased. Contracts for
larger projects generally increase the Company's risk due to inflation as well
as changes in customer expectations and funding availability. The Company's
contracts are generally terminable on short notice, and while in the Company's
experience such termination is rare, there is no assurance that the Company will
receive all of the revenue anticipated under signed contracts.
The Company engages in significant research and development activities. The
majority of these activities occur as the Company develops software or designs a
product for a particular contract, so that the costs of such efforts are
included as an integral part of the Company's services. Such custom-designed
software can often be applied to projects for other customers. These amounts
expended by the Company are not included in research and development expenses,
although the Company retains ownership of such proprietary software or products.
The Company, through its Advanced Technology Division, also engages in research
and development activities independently of the Company's work on particular
customer projects. For fiscal 1997 and for the nine months ended June 30, 1998,
the Company expended $275,000 and $190,000, respectively, on such independent
research and development activities.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
consolidated statements of operations data expressed as a percentage of sales:
Three months ended Nine months ended
June 30 June 30
1997 1998 1997 1998
---- ---- ---- ----
PERCENTAGE OF SALES:
Sales. . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Salaries, wages and related benefits. . . . . . 46.9 46.4 46.8 48.2
Subcontractor costs . . . . . . . . . . . . . . 16.4 16.4 17.9 13.5
Other general and administrative. . . . . . . . 16.2 17.3 16.4 17.5
Depreciation and amortization . . . . . . . . . 3.8 4.0 3.9 4.2
----- ----- ----- -----
Earnings from operations . . . . . . . . . . . . . 16.7 15.9 15.0 16.6
Other expense, net . . . . . . . . . . . . . . . . 1.4 2.0 1.5 2.2
----- ----- ----- -----
Earnings before income taxes . . . . . . . . . . . 15.3 13.9 13.5 14.4
Income tax expense . . . . . . . . . . . . . . . . 5.8 5.6 5.1 5.7
----- ----- ----- -----
Net earnings . . . . . . . . . . . . . . . . . . . 9.5% 8.3% 8.4% 8.7%
----- ----- ----- -----
----- ----- ----- -----
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
SALES. The Company's sales consist of revenue recognized for services
performed. Sales increased $14.3 million or 168.2% to $22.8 million for the
three months ended June 30, 1998 from $8.5 million for the three months ended
June 30, 1997. This increase was due to an increase in the number and size of
customer contracts with the Company (including MSE) as well as the impact of the
acquisition of MSE in July 1997. Prior to its acquisition by the Company, MSE's
sales for the three months ended June 30, 1997 were $6.9 million.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related
benefits include employee compensation for production, marketing, selling,
administrative and executive employees. Salaries, wages and related benefits
increased 165.0% to $10.6 million for the three months ended June 30, 1998
from $4.0 million for the three months ended June 30, 1997. This increase was
primarily due to the addition of over 325 employees as a result of the MSE
acquisition in July 1997, as well as the hiring of additional employees to
support the Company's increased business. As a percentage of sales, salaries,
wages and related benefits decreased to 46.4% for the three months ended June
30, 1998 from 46.9% for the three months ended June 30, 1997. This decrease
was primarily attributable to normal fluctuations in the mix of contracts
worked. The Company anticipates that, as a percentage of sales, salaries,
wages and related benefits will increase, with a corresponding decrease in
subcontractor costs, due, in part, to the Company's May 1998 purchase of
Interra Technologies, an India-based company that had been a provider of
subcontractor services to the Company.
SUBCONTRACTOR COSTS. Subcontractor costs include 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 169.6% to
$3.8 million for the three months ended June 30, 1998 from $1.4 million for
the three months ended June 30, 1997. As a percentage of sales, however, sub
contractor costs remained constant at 16.4% for both the three months ended
June 30, 1998 and the three months ended June 30, 1997.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and
administrative costs include rent, maintenance, travel, supplies, utilities,
insurance and professional services. Such costs increased 184.4% to $3.9
million for the three months ended June 30, 1998 from $1.4 million for the
three months ended June 30, 1997, primarily due to greater supplies expense,
increased travel, and employee recruiting and relocation expenses related to
the integration of MSE. As a percentage of sales, other general and
administrative costs increased to 17.3% for the three months ended June 30,
1997 from 16.2% for the three months ended June 30, 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consists
primarily of amortization of goodwill incurred in connection with the Company's
acquisitions, as well as depreciation of certain of the Company's operating
assets. For the three months ended June 30, 1998, depreciation and amortization
increased 182.8% to $905,000 from $320,000 for the three months ended June 30,
1997. This increase was primarily attributable to the increased goodwill
recorded as a result of the MSE acquisition. As a percentage of sales,
depreciation and amortization increased slightly to 4.0% for the three months
ended June 30, 1998 from 3.8% for the three months ended June 30, 1997. The
Company expects amortization expense to increase substantially as a result of
the Cartotech acquisition.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
OTHER EXPENSE, NET. Other expense, net is comprised primarily of net
interest expense. Net interest expense increased 341.0% to $541,000 for the
three months ended June 30, 1998 from $123,000 for the three months ended June
30, 1997. This increase was primarily due to increased term debt incurred in
connection with the acquisition of MSE in July 1997 and increased utilization of
the Company's lines of credit for working capital.
INCOME TAX EXPENSE. Income tax expense was $1.3 million for the three
months ended June 30, 1998 compared to $490,000 for the three months ended June
30, 1997. The Company's effective income tax rate for the three months ended
June 30, 1998 was 40.3%, an increase from 37.9% for the three months ended June
30, 1997, due to the change in the mix of state tax rates as a result of the MSE
acquisition.
NET EARNINGS. Due to the factors discussed above, net earnings increased
135% to $1.9 million for the three months ended June 30, 1998 from $802,000 for
the three months ended June 30, 1997.
NINE MONTHS ENDED JUNE 30, 1998 AND 1997
SALES. Sales increased $35.5 million or 143.9% to $60.1 million for the
nine months ended June 30, 1998 from $24.6 million for the nine months ended
June 30, 1997. This increase was due to an increase in the number and size of
customer contracts with the Company (including MSE) as well as the impact of the
acquisition of MSE in July 1997. Prior to its acquisition by the Company, MSE's
sales for the nine months ended June 30, 1997 were $20.7 million.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
increased 151.3% to $29.0 million for the nine months ended June 30, 1998 from
$11.5 million for the nine months ended June 30, 1997. This increase was
primarily due to the addition of over 325 employees as a result of the MSE
acquisition in July 1997, as well as the hiring of additional employees to
support the Company's increased business. As a percentage of sales, salaries,
wages and related benefits increased to 48.2% for the nine months ended June 30,
1998 from 46.8% for the nine months ended June 30, 1997. This increase, and the
corresponding decrease in subcontractor costs, was primarily attributable to the
Company's increased capability to perform more tasks internally as well as a
decrease in the number of projects which required subcontractor services.
SUBCONTRACTOR COSTS. Subcontractor costs increased 83.2% to $8.1 million
for the nine months ended June 30, 1998 from $4.4 million for the nine months
ended June 30, 1997, but decreased as a percentage of sales to 13.5% for the
nine months ended June 30, 1998 from 17.9% for the nine months ended June 30,
1997.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative
costs increased 161.4% to $10.5 million for the nine months ended June 30, 1998
from $4.0 million for the nine months ended June 30, 1997, primarily due to
greater supplies expenses, increased travel, and employee recruiting and
relocation expenses related to the integration of MSE. As a percentage of sales,
other general and administrative costs increased to 17.5% for the nine months
ended June 30, 1997 from 16.4% for the nine months ended June 30, 1997.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
DEPRECIATION AND AMORTIZATION. For the nine months ended June 30, 1998,
depreciation and amortization increased 158.3% to $2.5 million from $973,000 for
the nine months ended June 30, 1997. This increase was primarily attributable to
the increased goodwill recorded as a result of the MSE acquisition. As a
percentage of sales, depreciation and amortization increased slightly to 4.2%
for the nine months ended June 30, 1998 from 3.9% for the nine months ended June
30, 1997.
OTHER EXPENSE, NET. Net interest expense increased 272.4% to $1.4 million
for the nine months ended June 30, 1998 from $382,000 for the nine months ended
June 30, 1997. This increase was primarily due to increased term debt incurred
in connection with the acquisition of MSE in July 1997 and increased utilization
of the Company's lines of credit for working capital.
INCOME TAX EXPENSE. Income tax expense was $3.5 million for the nine
months ended June 30, 1998 compared to $1.3 million for the nine months ended
June 30, 1997. The Company's effective income tax rate for the nine months ended
June 30, 1998 was 39.7%, an increase from 38.1% for the nine months ended June
30, 1997, due to the change in the mix of state tax rates as a result of the MSE
acquisition.
NET EARNINGS. Due to the factors discussed above, net earnings increased
154.8% to $5.2 million for the nine months ended June 30, 1998 from $2.1 million
for the nine months ended June 30, 1997.
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. On June
3, 1998, the Company replaced its existing lines of credit with a three-year,
$11.0 million secured working capital line of credit and a $10.0 million line
of credit for acquisitions (which is due in quarterly installments over a
five-year period), and the Company refinanced $16.0 million of term debt.
Borrowings under the new credit facilities bear interest at a rate per annum
equal to, at the Company's option, (i) the agent bank's prime rate or (ii) an
adjusted London Interbank Offering Rate (LIBOR) plus a margin ranging from
1.25% to 2.25%. The agent bank's prime rate was 8.25% on June 3, 1998. The
Company borrowed approximately $8.9 million under the new acquisition line of
credit to fund the cash portion of the acquisition of Cartotech, related
transaction costs, retire existing Cartotech loans, and to provide working
capital. As of June 30, 1998, the Company's outstanding balances on its
working capital lines of credit were $7.4 million.
On June 26, 1998, the Company filed a registration statement with the
United States Securities and Exchange Commission for an offering of 2,250,000
shares of common stock, 1,750,000 of which will be sold by the Company and the
remaining 500,000 shares of which will be sold by existing shareholders. The
underwriters may exercise over allotment rights and increase the total offering
to 2,587,500 shares, of which 2,012,500 shares would be issued by the Company
and 575,000 shares would be sold by existing shareholders. If the offering is
successfully completed, the Company expects to use a portion of the net proceeds
of the offering to repay substantially all of the outstanding term debt and line
of credit loans.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
The Company's cash flow is significantly affected by 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.
Approximately $6.0 million in cash was used in operating activities for the
first nine months of fiscal 1998, compared to $2.7 million in cash generated for
the first nine months of fiscal 1997. The change in operating cash flows is
primarily attributable to normal fluctuations in the investment in
contract-related accounts. At June 30, 1998, the working capital in
contract-related accounts, excluding the newly acquired Cartotech balances, was
equivalent to 195 days sales outstanding, up from 189 days at March 31, 1998.
The Company believes that this level of investment is consistent with its normal
operating range of days sales outstanding.
For the nine months ended June 30, 1998, $11.0 million was used in
investing activities compared to $552,000 for the nine months ended June 30,
1997. Such investing activities principally consisted of payments for net assets
acquired in business combinations and purchases of equipment and leasehold
improvements.
For the nine months ended June 30, 1998, cash provided by financing
activities was $17.0 million compared to $748,000 in cash used for the nine
months ended June 30, 1997. 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.
The Company believes that funds available under its lines of credit and
cash flow from operations are adequate to finance its operations for at least
the next 18 months.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 requires the restatement of all
prior-period earnings per share ("EPS") data. SFAS 128 replaces the presentation
of the primary EPS with a presentation of "basic EPS" and "diluted EPS." Under
SFAS 128, basic EPS excludes dilution for common stock equivalents and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock are exercised or converted into common stock or result in the
issuance of common stock that then share in the earnings of the entity. Under
SFAS 128, the Company's diluted EPS is the same as the income per share reported
by the Company prior to the adoption of SFAS 128, while the Company's basic EPS
is greater than the income per share as previously reported.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This statement requires that changes
in comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The statement will be
effective for fiscal years beginning after December 15, 1997 (the Company's
fiscal year beginning October 1, 1998). Reclassification for earlier periods is
required for comparative purposes. The Company is currently evaluating the
impact this statement will have on its financial statements; however, because
the statement requires only additional disclosure, the Company does not expect
the statement to have a material impact on its financial position or results of
operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement will be effective for fiscal years beginning after December 15, 1997
(the Company's fiscal year beginning October 1, 1998). Reclassification for
earlier periods is required, unless impracticable, for comparative purposes. The
Company is currently evaluating the impact this statement will have on its
financial statements; however, because the statement requires only additional
disclosure, the Company does not expect the statement to have a material impact
on its financial position or results of operations.
YEAR 2000 ISSUES
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs that have been written using two digits, rather
than four, to define the applicable year. The Company and the third parties with
which it does business rely on numerous computer programs in their daily
operations. The Company has assessed its internal exposure to this issue and is
in the process of upgrading or replacing systems where necessary. The Company
does not believe that the costs to upgrade or replace such systems will be
material, and such costs will be expensed as incurred. The Company's customers
specify database designs, including date fields, and the Company's delivery of
data conforms to such specifications. Accordingly, the Company has not formally
evaluated the Year 2000 issue as it relates to the computer systems used by its
customers and potential customers.
PART II OTHER INFORMATION
Item 2. Legal Proceedings
The Company is not a party to any material pending legal proceeding nor
is its property the subject of a pending legal proceeding. The Company is
involved in routine litigation from time to time, which is incidental to the
business and the outcome of which is not expected to have a material effect
on the Company.
Item 5. Other Information
Shareholder Proposals
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
Shareholder proposals intended to be considered at the 1999 Annual Meeting
of Shareholders must be received by the Secretary of the Company not later than
September 9, 1998. Such proposals may be included in the 1999 Proxy Statement
if they comply with certain rules and regulations promulgated by the Securities
and Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Credit Agreement between the Company and
Bank One, Colorado dated June 3, 1998
10.2 Exhibit A-1 to Credit Agreement
Promissory Note - Revolving Loan
10.3 Exhibit A-2 to Credit Agreement
Promissory Note - Term Loan
10.4 Exhibit A-3 to Credit Agreement
Promissory Note - Acquisition Loan
10.5 Exhibit C to Credit Agreement
Guaranty
10.6 Exhibit D to Credit Agreement
Pledge and Security Agreement
10.7 Exhibit E to Credit Agreement
Security Agreement and Assignment
27. Financial Data Schedule
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the three months ended
June 30, 1998:
June 28, 1998 - Item 2 Acquisition on disposition of assets reporting
the acquisitions of Cartotech, Inc.
ANALYTICAL SURVEYS, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
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 4, 1998 /s/ Sidney V. Corder
---------------------------
Sidney V, Corder, Chairman
and Chief Executive Officer
Date: August 4, 1998 /s/ Scott C. Benger
---------------------------
Scott C. Benger, Secretary/
Treasurer (principal financial
officer and principal
accounting officer)
Date: August 4, 1998 /s/ Brian J. Yates
---------------------------
Brian J. Yates, Controller