-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, APzIscNlKSFs0IzB+aMN6qGqIeDyGaPX7W7GcHX1KRXYPIUDKHWG1ZltBbV7nBZV gsCrJ2riwDiIDvBR6lyg8w== 0000054441-04-000014.txt : 20040506 0000054441-04-000014.hdr.sgml : 20040506 20040506145517 ACCESSION NUMBER: 0000054441-04-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XANSER CORP CENTRAL INDEX KEY: 0000054441 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 741191271 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05083 FILM NUMBER: 04784768 BUSINESS ADDRESS: STREET 1: 2435 N. CENTRAL EXPRESSWAY STREET 2: SUITE 700 CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 9726994000 MAIL ADDRESS: STREET 1: P O BOX 650283 CITY: DALLAS STATE: TX ZIP: 75265-0283 FORMER COMPANY: FORMER CONFORMED NAME: KANEB SERVICES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: KANEB PIPE LINE CO DATE OF NAME CHANGE: 19710610 10-Q 1 xnr1q04.txt XANSER FORM 10-Q 1ST QTR 2004 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-05083 XANSER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 74-1191271 (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2435 North Central Expressway Richardson, Texas 75080 (Address of principal executive offices, including zip code) (972) 699-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ------------ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X ---------- ------------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class of Common Stock Outstanding at April 30, 2004 - --------------------- ----------------------------- No par value 31,617,254 shares - -------------------------------------------------------------------------------- XANSER CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED MARCH 31, 2004 - --------------------------------------------------------------------------------
Page No. Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Statements of Income - Three Months Ended March 31, 2004 and 2003 1 Condensed Consolidated Balance Sheets - March 31, 2004 and December 31, 2003 2 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2004 and 2003 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk 16 Item 4. Controls and Procedures 16 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 17
XANSER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands - Except Per Share Amounts) (Unaudited) - --------------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- 2004 2003 ------------ ------------- Revenues: Services $ 31,841 $ 28,861 Products 323 3,363 ------------ ------------- Total revenues 32,164 32,224 ------------ ------------- Costs and expenses: Operating costs 29,962 27,390 Cost of products sold 181 2,707 Depreciation and amortization 879 1,094 General and administrative 752 807 ------------ ------------- Total costs and expenses 31,774 31,998 ------------ ------------- Operating income 390 226 Interest income 34 90 Interest expense (239) (359) ------------ ------------- Income (loss) before income taxes 185 (43) Income tax benefit (expense) (75) 186 ------------ ------------- Net income $ 110 $ 143 ============ ============= Earnings per common share - Basic and diluted $ - $ - ============ =============
See notes to condensed consolidated financial statements. 1 XANSER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) - --------------------------------------------------------------------------------
March 31, December 31, 2004 2003 --------------- --------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 21,121 $ 21,240 Accounts receivable, trade 31,117 31,902 Receivable from businesses distributed to common shareholders 7,595 7,564 Inventories 8,428 8,697 Prepaid expenses and other 3,319 4,182 -------------- ------------- Total current assets 71,580 73,585 -------------- ------------- Property and equipment 42,811 42,152 Less accumulated depreciation and amortization 30,503 29,879 -------------- ------------- Net property and equipment 12,308 12,273 -------------- ------------- Excess of cost over fair value of net assets of acquired businesses 13,802 13,802 Deferred income taxes and other assets 6,047 5,130 -------------- ------------- $ 103,737 $ 104,790 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 819 $ 738 Accounts payable 4,134 3,098 Accrued expenses 17,389 18,255 Accrued income taxes 7,150 7,391 -------------- ------------- Total current liabilities 29,492 29,482 -------------- ------------- Long-term debt, less current portion: Technical services 14,571 15,457 Parent company 5,000 5,000 -------------- ------------- Total long-term debt, less current portion 19,571 20,457 -------------- ------------- Other liabilities 2,406 2,399 Commitments and contingencies Stockholders' equity: Common stock, without par value 4,346 4,333 Additional paid-in capital 126,505 126,561 Treasury stock, at cost (26,180) (26,267) Retained earnings (accumulated deficit) (48,585) (48,695) Accumulated other comprehensive income (loss) (3,818) (3,480) -------------- ------------- Total stockholders' equity 52,268 52,452 -------------- ------------- $ 103,737 $ 104,790 ============== =============
See notes to condensed consolidated financial statements. 2 XANSER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) - --------------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- 2004 2003 ------------ ------------- Operating activities: Net income $ 110 $ 143 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 879 1,094 Deferred income taxes (788) (796) Other 7 92 Changes in working capital components 1,846 2,751 ------------ ------------- Net cash provided by operating activities 2,054 3,284 ------------ ------------- Investing activities: Capital expenditures (977) (1,228) Other (228) 66 ------------ ------------- Net cash used in investing activities (1,205) (1,162) ------------ ------------- Financing activities: Issuance of debt and capital leases 183 211 Payments on debt and capital leases (1,077) (315) Common stock issued and other 44 (23) Increase in receivable from businesses distributed to common shareholders (31) (236) ------------ ------------- Net cash used in financing activities (881) (363) ------------ ------------- Effect of exchange rate changes on cash (87) 14 ------------ ------------- Increase (decrease) in cash and cash equivalents (119) 1,773 Cash and cash equivalents at beginning of period 21,240 25,624 ------------ ------------- Cash and cash equivalents at end of period $ 21,121 $ 27,397 ============ ============= Supplemental cash flow information: Cash paid for interest $ 339 $ 652 ============ ============= Cash paid for income taxes $ 1,069 $ 147 ============ =============
See notes to condensed consolidated financial statements. 3 XANSER CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) - -------------------------------------------------------------------------------- 1. GENERAL AND SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements include the accounts of Xanser Corporation (the "Company") and its subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation. The unaudited condensed consolidated financial statements of the Company for the three month periods ended March 31, 2004 and 2003 have been prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies followed by the Company are disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of the Company's management, the accompanying condensed consolidated financial statements contain all of the adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position of the Company and its consolidated subsidiaries at March 31, 2004 and the consolidated results of income and cash flows for the periods ended March 31, 2004 and 2003. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. Certain prior year financial statement items have been reclassified to conform with the March 31, 2004 presentation. On November 27, 2000, the Board of Directors of the Company authorized the distribution of its pipeline, terminaling and product marketing businesses (the "Distribution") to its stockholders in the form of a new limited liability company, Kaneb Services LLC ("KSL"). On June 29, 2001, the Distribution was completed, with each shareholder of the Company receiving one common share of KSL for each three shares of the Company's common stock held on June 20, 2001, the record date for the Distribution, resulting in the distribution of 10.85 million KSL common shares. Pursuant to the Distribution, the Company entered into an agreement (the "Distribution Agreement") with KSL, whereby, KSL is obligated to pay the Company amounts equal to certain expenses and tax liabilities incurred by the Company in connection with the Distribution. The Distribution Agreement also requires KSL to pay the Company an amount calculated based on any income tax liability of the Company that, in the sole judgement of the Company, (i) is attributable to increases in income tax from past years arising out of adjustments required by federal and state tax authorities, to the extent that such increases are properly allocable to the businesses that became part of KSL, or (ii) is attributable to the distribution of KSL's common shares and the operations of KSL's businesses prior to the Distribution date. In the event of an examination of the Company by federal or state tax authorities, the Company will have unfettered control over the examination, administrative appeal, settlement or litigation that may be involved, notwithstanding that KSL has agreed to pay any additional tax. At March 31, 2004, $6.5 million was recorded as receivable from businesses distributed to common shareholders pursuant to the provisions of the Distribution Agreement. In December of 2002, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS No. 148, which amends SFAS No. 123, provides for alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires additional disclosures in annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on financial results. In accordance with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost based on the fair value of the options granted at the grant date as prescribed by SFAS 123. The Black-Scholes option pricing model has been used to estimate the value of stock options issued. The following illustrates the effect on net income and basic and diluted earnings per share if the fair value based method had been applied:
Three Months Ended March 31, --------------------------------- 2004 2003 ------------- -------------- (in thousands) Reported net income $ 110 $ 143 Stock-based employee compensation expense determined under the fair value based method, net of income taxes (15) (21) ------------- ------------- Pro forma net income $ 95 $ 122 ============= ============= Earnings per share: Basic and diluted - as reported $ - $ - ============= ============= Basic and diluted - pro forma $ - $ - ============= =============
2. COMPREHENSIVE INCOME Comprehensive income (loss) for the three months ended March 31, 2004 and 2003 is as follows:
Three Months Ended March 31, --------------------------------- 2004 2003 ------------- -------------- (in thousands) Net income $ 110 $ 143 Other comprehensive income (loss) - foreign currency translation adjustment (338) (24) ------------- -------------- Comprehensive income (loss) $ (228) $ 119 ============= ==============
At March 31, 2004 and December 31, 2003, accumulated other comprehensive income (loss) consisted of cumulative foreign currency translation adjustments of $(1.2) million and $(1.5) million, respectively, and minimum pension liability adjustments for subsidiaries of $5.0 million and $5.0 million, respectively. 3. EARNINGS PER SHARE The following is a reconciliation of basic and diluted earnings per share (in thousands, except for per share amounts):
Weighted Average Net Common Per Share Income Shares Amount --------------- --------------- ---------------- Three Months Ended March 31, 2004 --------------------------------- Basic earnings per share - Net income $ 110 32,008 $ - ================ Effect of dilutive securities - 1,056 --------------- --------------- Diluted earnings per share - Net income $ 110 33,064 $ - =============== =============== ================ Three Months Ended March 31, 2003 --------------------------------- Basic earnings per share - Net income $ 143 31,993 $ - ================ Effect of dilutive securities - 591 --------------- --------------- Diluted earnings per share - Net income $ 143 32,584 $ - =============== =============== ================
The Company's 8.75% convertible subordinated debentures were excluded from the computation of diluted earnings per share for both three month periods ended March 31, 2004 and 2003, because the effects of assumed conversion would be anti-dilutive. Options to purchase 216,200 and 1,600,728 shares of common stock at weighted average prices of $2.70 and $2.40, were outstanding for the three month periods ended March 31, 2004 and 2003, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market prices of the common stock. 4. CONTINGENCIES The Company has contingent liabilities resulting from litigation, claims and commitments incident to the ordinary course of business. Management believes, based on the advice of counsel, that the ultimate resolution of such contingencies will not have a materially adverse effect on the financial position or results of operations or liquidity of the Company. 5. BUSINESS SEGMENT DATA The Company provides technical services to an international client base that includes refineries, chemical plants, pipelines, offshore drilling and production platforms, steel mills, food and drink processing facilities, power generation, and other process industries. Additionally, the Company's information technology services segment provides consulting services, hardware sales and other related information management and processing services to healthcare, governmental, insurance and financial institutions. General corporate includes compensation and benefits paid to officers and employees of the Company, insurance premiums, general and administrative costs, tax and financial reporting costs, legal and audit fees not reasonably allocable to specific business segments. General corporate assets include cash, deferred taxes and other assets not related to the Company's segments. The Company measures segment profit as operating income. Total assets are those assets, including excess of cost over fair value of acquired businesses, controlled by each reportable segment. Business segment data is as follows:
Three Months Ended March 31, --------------------------------- 2004 2003 ------------- -------------- (in thousands) Business segment revenues: Technical services $ 26,982 $ 23,008 Information technology services 5,182 9,216 ------------- -------------- $ 32,164 $ 32,224 ============= ============== Technical services segment revenues: Underpressure services $ 11,485 $ 10,815 Turnaround services 12,874 9,940 Other services 2,623 2,253 ------------- -------------- $ 26,982 $ 23,008 ============= ============== Business segment profit (loss): Technical services $ 1,140 $ 1,341 Information technology services 2 (308) General corporate (752) (807) ------------- -------------- Operating income 390 226 Interest income 34 90 Interest expense (239) (359) ------------- -------------- Income (loss) before income taxes $ 185 $ (43) ============= ==============
March 31, December 31, 2004 2003 ------------- ------------- (in thousands) Total assets: Technical services $ 65,428 $ 66,117 Information technology services 10,842 14,902 General corporate 27,467 23,771 ------------- ------------- $ 103,737 $ 104,790 ============= =============
6. RECENT ACCOUNTING PRONOUNCEMENTS In December of 2003, SFAS No. 132 (revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits", was issued. SFAS No. 132 (revised) prescribes employers' disclosures about pension plans and other postretirement benefit plans, but does not change the measurement or recognition of those plans. SFAS No. 132 (revised) retains and revises the disclosure requirements contained in the original SFAS No. 132 and requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. SFAS No 132 (revised), which applies to a defined benefits pension plan of a foreign subsidiary of the Company, must be adopted by the Company in the fiscal year ending December 31, 2004. In December 2003, the FASB issued Interpretation No. 46 (Revised December 2003), "Consolidation of Variable Interest Entities (FIN 46R), primarily to clarify the required accounting for interests in variable interest entities (VIEs). This standard replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, that was issued in January 2003 to address certain situations in which a company should include in its financial statements the assets, liabilities and activities of another entity. For the Company, application of FIN 46R is required for interests in certain VIEs that are commonly referred to as special-purpose entities, or SPEs, as of December 31, 2003, and for interests in all other types of VIEs as of March 31, 2004. The application of FIN 46R did not have any impact on the consolidated financial statements of the Company. XANSER CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- This discussion should be read in conjunction with the condensed consolidated financial statements of Xanser Corporation (the "Company") and notes thereto included elsewhere in this report. General The Company, formed in 1953, conducts its principal businesses in two industry segments, technical services and information technology services. The Company's technical services business, which is conducted through its Furmanite group of subsidiaries, offers specialized technical services to an international base of clients located in the United States, Europe and Asia-Pacific regions. The technical services business provides on-line repairs of leaks in valves, pipes and other components of piping systems and related equipment, typically in the flow-process industries. Other services provided include on-site machining, bolting and valve testing and repair on such systems and equipment. In addition, the division provides hot tapping, fugitive emissions monitoring, passive fire protection, concrete repair and heat exchanger repair. The Company's information technology services business, Xtria, provides services and related products to the healthcare industry, the financial and insurance industries, and various governmental agencies. The segment's primary business is information technology services, including application software, hardware, web hosted data processing, networking, consulting and support services. Consolidated Results of Operations
Three Months Ended March 31, --------------------------------- 2004 2003 ------------- -------------- (in thousands - except per share amounts) Revenues $ 32,164 $ 32,224 ============= ============== Operating income $ 390 $ 226 ============= ============== Net income $ 110 $ 143 ============= ============== Earnings per common share - basic and diluted $ - $ - ============= ============== Capital expenditures $ 977 $ 1,228 ============= ==============
For the three months ended March 31, 2004, consolidated revenues were flat, when compared to the same 2003 period, due to a $4.0 million increase in revenues from the technical services business (see "Technical Services" below), offset by a $4.0 million decrease in revenues from the information technology services business, primarily related to non-performing operations closed in late 2003 (see "Information Technology Services" below). Consolidated operating income increased by $0.2 million, or 73%, when compared to 2003, due to a $0.3 million increase in operating income from the information technology services business, partially offset by a $0.2 million decrease in operating income from the technical services business. First quarter 2004 net income decreased slightly when compared to the same 2003 period, as higher operating income and lower interest expense (see "Interest Expense" below) were more than offset by a reduction in income tax benefits recognized (see "Income Taxes" below). Technical Services
Three Months Ended March 31, --------------------------------- 2004 2003 ------------- -------------- (in thousands) Revenues: United States $ 7,207 $ 6,113 Europe 15,890 13,868 Asia-Pacific 3,885 3,027 ------------- -------------- Total Revenues $ 26,982 $ 23,008 ============= ============== Operating income (loss): United States $ 107 $ 130 Europe 1,027 1,575 Asia-Pacific 524 346 Headquarters (518) (710) ------------- -------------- Total operating income $ 1,140 $ 1,341 ============= ============== Capital expenditures, excluding acquisitions $ 847 $ 609 ============= ==============
For the three months ended March 31, 2004, revenues for the technical services business increased by $4.0 million, or 17%, when compared to the same 2003 period. In the United States, revenues increased by $1.1 million, or 18%, when compared to the first quarter of 2003, due to increases in turnaround and underpressure services, partially offset by decreases in other process plant services. In Europe, revenues increased by $2.0 million, or 15%, when compared to the first quarter of 2003, due to increases in turnaround and other process plant services and favorable foreign currency exchange rates, partially offset by decreases in underpressure services and product sales. In Asia-Pacific, revenues increased by $0.9 million, or 28%, when compared to the first quarter of 2003, due to increases in underpressure, turnaround and other process plant services and favorable foreign currency exchange rates, partially offset by decreases in product sales. For the three months ended March 31, 2004, technical services operating income decreased by $0.2 million, or 15%, when compared to the same 2003 period. In the United States, operating income was flat, when compared to the same period in 2003, due to higher insurance and sales and management costs which offset the higher revenue levels. In Europe operating income decreased by $0.5 million, or 35%, when compared to the same 2003 period, due to lower operating margins, which more than offset the higher revenues. In Asia-Pacific operating income increased by $0.2 million, or 51%, when compared to the same 2003 period, due to higher revenues and operating margins. Information Technology Services
Three Months Ended March 31, --------------------------------- 2004 2003 ------------- -------------- (in thousands) Revenues $ 5,182 $ 9,216 ============= ============== Operating income (loss) $ 2 $ (308) ============= ============== Capital expenditures, excluding acquisitions $ 130 $ 619 ============= ==============
For the three month period ended March 31, 2004, information technology revenues decreased by $4.0 million, or 44%, due primarily to the Company's strategic decision to close non-performing operations in the fourth quarter of 2003. The businesses closed included communications-related installation services operations and low margin government services and equipment sales operations. For the three month period ended March 31, 2004, information technology services operating income increased by $0.3 million, when compared to the same 2003 period, due to lower general and administrative costs, combined with the effects of closing the non-performing operations in late 2003. Interest Expense Interest expense decreased by $0.1 million during the three months ended March 31, 2004, when compared to the same 2003 period, due to reductions in both Parent Company and technical services debt (see "Liquidity and Capital Resources") and lower interest rates on variable rate borrowings. Income Taxes Prior to December 31, 2003, the Company recognized a full federal and state income tax expense or benefit for income or losses generated by its domestic operations. Federal and state benefits recorded for the three month period ended March 31, 2003 aggregated $0.5 million. During the fourth quarter of 2003, the Company, pursuant to an evaluation performed in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes", recorded a full valuation allowance for deferred tax assets arising from prior years' tax losses (net operating loss carryforwards) that are available to offset future taxable income. As a result of this evaluation, a valuation allowance has been provided against the domestic federal and state income tax benefits recorded in the first quarter of 2004. Liquidity and Capital Resources Cash provided by operating activities was $2.1 million and $3.3 million for the three months ended March 31, 2004 and 2003, respectively. The first quarter 2004 decrease, when compared to the same 2003 period, was due primarily to normal changes in working capital components resulting from the timing of cash receipts and disbursements. During the three months ended March 31, 2004, the Company's working capital requirements for operations and capital expenditures were funded through the use of internally generated funds. Capital expenditures were $1.0 million and $1.2 million for the three month periods ended March 31, 2004 and 2003, respectively. Consolidated capital expenditures for the year 2004 have been budgeted at $3 million to $4 million, depending on the economic environment and the needs of the business. Such expenditures, however, will depend on many factors beyond the Company's control, including demand for services in the technical services and information services businesses, and local, state and federal government regulations. No assurance can be given that required capital expenditures will not exceed anticipated amounts during 2004 or thereafter. Capital expenditures (excluding acquisitions) during the year are expected to be funded from existing cash and anticipated cash flows from operations. At March 31, 2004, $13.6 million was outstanding under a $25 million bank loan agreement that provides working capital for the technical services segment and is without recourse to the Company. Borrowings under the loan agreement bear interest at the option of the borrower at variable rates (2.98% at March 31, 2004), based on either the LIBOR rate or prime rate, have a commitment fee on the unused portion of the facility and contain certain financial and operational covenants with respect to the technical services group, including percentage of tangible assets and revenues related to certain geographical areas, ratios of debt to cash flow, as defined in the loan agreement, and cash flow to fixed charges and capital expenditures. At March 31, 2004, the Company was in compliance with all covenants. The loan agreement matures in January 2009 and is secured by substantially all of the tangible assets of the technical services group. The Parent Company's 8.75% subordinated debentures ($5.0 million outstanding at March 31, 2004) are convertible into shares of the Company's common stock at the conversion price of $5.26 per share. On September 30, 2003, the Company purchased $4.9 million of subordinated debentures at par value, plus accrued interest. The following schedule sets forth, by period, the Company's debt repayment obligations and material contractual commitments at December 31, 2003. There were no material changes to the Company's schedule of debt repayment obligations and material contractual commitments from December 31, 2003 to March 31, 2004.
Less than After Total 1 year 1 -3 years 4 -5 years 5 years ---------- ---------- ---------- ----------- -------------- (in thousands) Debt: Technical services credit facility $ 14,296 $ 12 $ - $ - $ 14,284 Parent company convertible subordinated debentures 5,000 - - 5,000 - Other 301 100 201 - - ---------- ---------- ----------- ------------ -------------- 19,597 112 201 5,000 14,284 Capital leases 1,598 626 722 250 - ---------- ---------- ----------- ------------ -------------- Debt subtotal 21,195 738 923 5,250 14,284 ---------- ---------- ----------- ------------ -------------- Other contractual commitments: Operating leases 10,477 3,326 4,311 1,367 1,473 ---------- ---------- ----------- ------------ -------------- Total $ 31,672 $ 4,064 $ 5,234 $ 6,617 $ 15,757 ========== ========== =========== ============ ==============
A foreign subsidiary of the Company has certain future funding requirements regarding a defined benefits pension plan, as set forth in Note 3 to the Company's Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. Additional information related to the sources and uses of cash is presented in the condensed consolidated financial statements included in this report. Off-Balance Sheet Transactions The Company was not a party to any off-balance sheet transactions at March 31, 2004, or for the three month periods ended March 31, 2004 and 2003. Critical Accounting Policies and Estimates The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant policies are presented in the Notes to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2003. Critical accounting policies are those that are most important to the portrayal of the Company's financial position and results of operations. These policies require management's most difficult, subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. The Company's most critical accounting policies pertain to revenue recognition, the impairment of excess of cost over fair value of net assets of acquired businesses and income taxes. The Company's information technology services segment includes revenue recognized under multiple element arrangements with its customers, which requires the use of significant judgments and estimates by management. The accounting policies for revenue recognition in the information technology services segment comply with AICPA Statement of Position No. 97-2 "Software Revenue Recognition". SOP No. 97-2 requires revenue to be recognized only after software is delivered, all significant obligations of the Company are fulfilled, and all significant uncertainties regarding customer acceptance have expired. SOP No. 97-2 also requires the unbundling of multiple elements and the allocation of pricing to each element based upon vendor specific objective evidence of fair value. In addition, the information technology services segment's revenues under long-term service contracts are accounted for using a proportional performance method or on a straight-line basis in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements", as amended by SAB No. 104. The Company follows the provisions of SFAS No. 142 "Goodwill and Other Intangible Assets," which eliminates the amortization for goodwill (excess of cost over fair value of net assets of acquired businesses) and other intangible assets with indefinite lives. Under SFAS No. 142, intangible assets with lives restricted by contractual, legal, or other means will continue to be amortized over their useful lives. As of March 31, 2004, the Company had no intangible assets subject to amortization under SFAS No. 142. Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. SFAS No. 142 requires a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If an impairment is indicated, then the implied fair value of the reporting unit's goodwill is determined by allocating the unit's fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill and other intangible assets is measured as the excess of its carrying value over its implied fair value. Based on valuations and analysis performed by the Company at December 31, 2003 (the last annual evaluation date), no impairment charge was required. Future evaluations of the fair value of goodwill and other intangible assets are dependent on many factors, several of which are out of the Company's control, including the demand for services provided. To the extent that such factors or conditions change, it is possible that future impairments could occur, which could have a material effect on the results of operations of the Company. At March 31, 2004, the Company had a significant amount of net deferred tax assets, which consisted principally of net operating loss carryforwards, alternative minimum tax credit carryforwards and temporary differences resulting from differences in the tax and book basis of certain assets and liabilities. The net operating loss carryforwards available as of December 31, 2003 expire, if unused, as follows: $1.2 million in 2006; $3.0 million in 2007; $13.4 million in 2022; and $9.6 million in 2023. The alternative minimum tax credit carryforwards have no expiration date. Based on evaluations performed by the Company pursuant to SFAS No. 109 in the fourth quarter of 2003, a full, non-cash, valuation allowance has been was provided with respect to the Company's domestic federal and state net deferred tax assets. The utilization of net operating loss carryforwards could be subject to limitation in the event of a change in ownership, as defined in the tax laws. XANSER CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Item 3. Quantitative and Qualitative Disclosure About Market Risk The principal market risks pursuant to this Item (i.e., the risk of loss arising from the adverse changes in market rates and prices) to which the Company is exposed are interest rates on the Company's debt and investment portfolios and fluctuations in foreign currency. The Company centrally manages its debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. The Company's investment portfolio consists of cash equivalents; accordingly, the carrying amounts approximate fair value. The Company's investments are not material to the financial position or performance of the Company. Assuming variable rate debt of $13.8 million at March 31, 2004, a one percent increase in interest rates would increase annual interest expense by approximately $0.1 million. A significant portion of the technical services business is exposed to fluctuations in foreign currency exchange rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Technical Services." Item 4. Controls and Procedures The Company's principal executive officer and principal financial officer, after evaluating as of March 31, 2004, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), have concluded that, as of such date, the Company's disclosure controls and procedures are adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities. During the first quarter of 2004, there have been no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those internal controls subsequent to the date of the evaluation. As a result, no corrective actions were required or undertaken. XANSER CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 3.1 Restated Certificate of Incorporation of the Registrant, dated September 26, 1979, filed as Exhibit 3.1 of the exhibits to the Registrant's Registration Statement on Form S-16, which exhibit is hereby incorporated by reference. 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated April 30, 1981, filed as Exhibit 3.2 of the exhibits to the Registrant's Annual Report on Form 10-K ("Form 10-K") for the year ended December 31, 1981, which exhibit is hereby incorporated by reference. 3.3 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated May 28, 1985, filed as Exhibit 4.1 of the exhibits to the Registrant's Quarterly Report on Form 10-Q ("Form 10-Q") for the quarter ended June 30, 1985, which exhibit is hereby incorporated by reference. 3.4 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated September 17, 1985, filed as Exhibit 4.1 of the exhibits to the Registrant's Form 10-Q for the quarter ended September 30, 1985, which exhibit is hereby incorporated by reference. 3.5 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated July 10, 1990, filed as Exhibit 3.5 of the exhibits to the Registrant's Form 10-K for the year ended December 31, 1990, which exhibit is hereby incorporated by reference. 3.6 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated September 21, 1990, filed as Exhibit 3.5 of the exhibits to the Registrant's Form 10-Q for the quarter ended September 30, 1990, which exhibit is hereby incorporated by reference. 3.7 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated August 8, 2001, filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on August 22, 2001, which exhibit is hereby incorporated by reference. 3.8 By-laws of the Registrant, filed as exhibit 3.7 to Registrant's Form 10-K for the year ended December 31, 1998, which exhibit is hereby incorporated by reference. 4.1 Certificate of Designation related to the Registrant's Adjustable Rate Cumulative Class A Preferred Stock, filed as Exhibit 4 of the exhibits to the Registrant's Form 10-Q for the quarter ended September 30, 1983, which exhibit is hereby incorporated by reference. 4.2 Certificate of Designation, Preferences and Rights related to the Registrant's Series B Junior Participating Preferred Stock, filed as Exhibit 4.2 to the Registrant's 10-K for the year ended December 31, 1998, which exhibit is incorporated herein by reference. 4.3 Certificate of Designation related to the Registrant's Adjustable Rate Cumulative Class A Preferred Stock, Series C, dated April 23, 1991, filed as Exhibit 4.4 of the exhibits to Registrant's Form 10-K for the year ended December 31, 1991, which exhibit is hereby incorporated by reference. 4.4 Certificate of Designation related to the Registrant's Adjustable Rate Cumulative Class A Preferred Stock, Series F, dated June 12, 1997, filed as Exhibit 4.4 of the Exhibits to Registrant's Form 10-K for the year ended December 31, 1997, which exhibit is hereby incorporated by reference. 4.5 Indenture between Moran Energy Inc. ("Moran") and First City National Bank of Houston ("First City"), dated January 15, 1984, under which Moran issued the 8 3/4% Convertible Subordinated Debentures due 2008, filed as Exhibit 4.1 to Moran's Registration Statement on Form S-3 (SEC File No. 2-81227), which exhibit is hereby incorporated by reference. 4.6 First Supplemental Indenture between the Registrant and First City, dated as of March 20, 1984, under which the Registrant assumed obligations under the Indenture listed as Exhibit 4.5 above, filed as Exhibit 4.7 of the Registrant's Form 10-K for the year ended December 31, 1983, which exhibit is hereby incorporated by reference. 31.1 Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 6, 2004. 31.2 Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 6, 2004. 32.1 Certification of Chief Executive Officer, Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002, dated May 6, 2004. 32.2 Certification of Chief Financial Officer, Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002, dated May 6, 2004. (b) Reports on Form 8-K Current Report on Form 8-K, filed February 26, 2004. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. XANSER CORPORATION (Registrant) Date: May 6, 2004 //s// MICHAEL R. BAKKE --------------------------------------------- Michael R. Bakke Controller Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John R. Barnes, Chief Executive Officer of Xanser Corporation certify that: 1. I have reviewed this quarterly report on Form 10-Q of Xanser Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [intentionally omitted pursuant to SEC Release No. 34-47986]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period cover by this quarterly report, based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 6, 2004 //s// JOHN R. BARNES ---------------------------------------- John R. Barnes President and Chief Executive Officer Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Howard C. Wadsworth, Chief Financial Officer of Xanser Corporation certify that: 1. I have reviewed this quarterly report on Form 10-Q of Xanser Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [intentionally omitted pursuant to SEC Release No. 34-47986]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period cover by this quarterly report, based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 6, 2004 //s// HOWARD C. WADSWORTH ---------------------------------------- Howard C. Wadsworth Vice President, Treasurer and Secretary (Chief Financial Officer) Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906(A) OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, being the Chief Executive Officer of Xanser Corporation (the "Company") hereby certifies that, to his knowledge, the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2004, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this written statement required by Section 906 has been provided to Xanser Corporation and will be retained by Xanser Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Date: May 6, 2004 //s// JOHN R. BARNES ---------------------------------------- John R. Barnes President and Chief Executive Officer Exhibit 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906(A) OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, being the Chief Financial Officer of Xanser Corporation (the "Company") hereby certifies that, to his knowledge, the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2004, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this written statement required by Section 906 has been provided to Xanser Corporation and will be retained by Xanser Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Date: May 6, 2004 //s// HOWARD C. WADSWORTH ---------------------------------------- Howard C. Wadsworth Vice President, Treasurer and Secretary (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----