<PAGE>
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, 1999
or
Transition Report Pursuant to Section 13 or 15(d)
- ----- of the Securities Exchange Act of 1934
Commission File Number 0-13111
ANALYTICAL SURVEYS, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0846389
(State of incorporation) (IRS Employer Identification No.)
941 NORTH MERIDIAN STREET INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices) (Zip Code)
(317) 634-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past (12) months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
ninety (90) days.
Yes X No
--- ---
The number of shares of common stock outstanding as of May 10, 1999 was
6,829,028.
<PAGE>
PART I ITEM 1.
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, March 31,
--------- ---------
1998 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,243 2,617
Accounts receivable, net of allowance
for doubtful accounts of $161 and $106
in 1998 and 1999, respectively 17,501 17,637
Revenue in excess of billings 39,316 42,792
Prepaid expenses and other 659 1,152
Deferred income taxes 557 398
Income taxes receivable 675 77
------ ------
Total current assets 60,951 64,673
------ ------
Equipment and leasehold improvements, at cost:
Equipment 13,015 15,304
Furniture and fixtures 1,594 1,780
Leasehold improvements 817 966
------ ------
15,426 18,050
Less accumulated depreciation and amortization (7,470) (9,097)
------ ------
7,956 8,953
------ ------
Goodwill, net of accumulated amortization of
$1,654 and $2,464 in 1998 and 1999,
respectively 25,272 24,190
Other assets, net of accumulated amortization of
$549 and $824 in 1998 and 1999, respectively 227 52
Deferred income taxes 134 263
------ ------
Total assets $94,540 98,131
------ ------
------ ------
</TABLE>
<PAGE>
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, March 31,
--------- ---------
1998 1999
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 4,594 6,672
Billings in excess of revenue 1,232 2,253
Accounts payable and other accrued expenses 8,229 5,207
Accrued payroll and related benefits 5,910 4,358
------ ------
Total current liabilities 19,965 18,490
Long-term debt, less current portion 29,920 28,518
Deferred compensation payable 192 174
------ ------
Total liabilities 50,077 47,182
------ ------
Stockholders' equity:
Preferred stock-authorized 2,500 shares of
no par value; no shares issued or
outstanding
Common stock-authorized 100,000 shares of
no par value; issued and outstanding
6,732 shares at September 30, 1998 and
6,821 shares at March 31, 1999 28,670 30,304
Retained earnings 15,793 20,645
------ ------
Total stockholders' equity 44,463 50,949
------ ------
Total liabilities and
stockholders' equity $94,540 98,131
------ ------
------ ------
</TABLE>
<PAGE>
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $19,951 29,166 37,353 57,396
------ ------ ------ ------
Costs and expenses
Salaries, wages and benefits 9,583 14,716 18,405 29,004
Subcontractor costs 2,735 3,671 4,345 7,379
Other general and administrative 3,426 4,494 6,601 8,860
Depreciation and amortization 830 1,395 1,608 2,744
------ ------ ------ ------
16,574 24,276 30,959 47,987
------ ------ ------ ------
Earnings from operations 3,377 4,890 6,394 9,409
------ ------ ------ ------
Other income (expense)
Interest expense (448) (696) (884) (1,388)
Other income, net 17 102 31 160
------ ------ ------ ------
(431) (594) (853) (1,228)
------ ------ ------ ------
Earnings before income taxes 2,946 4,296 5,541 8,181
Income tax expenses 1,145 1,716 2,184 3,329
------ ------ ------ ------
Net earnings $ 1,801 2,580 3,357 4,852
------ ------ ------ ------
------ ------ ------ ------
Basic earnings per share $ 0.29 0.38 0.54 0.72
Diluted earnings per share $ 0.27 0.36 0.50 0.68
Weighted average shares outstanding
Basic 6,207 6,799 6,163 6,769
------ ------ ------ ------
------ ------ ------ ------
Diluted 6,713 7,181 6,671 7,155
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<PAGE>
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March 31,
1998 1999
---- ----
<S> <C> <C>
Cash flows from (used by) operating activities:
Net earnings $ 3,357 4,852
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 1,608 2,744
Gain on the sale of assets (15) --
Deferred income tax benefits (262) 31
Tax benefit relating to exercise of stock options 2,509 516
Changes in operating assets and liabilities, net of
effect of business combinations:
Accounts receivable, net (1,754) (136)
Revenue in excess of billings (11,018) (3,489)
Prepaid expenses and other (153) (387)
Income taxes receivable (1,035) 598
Goodwill -- 173
Billings in excess of revenue 622 1,033
Accounts payable and other accrued liabilities 2,227 (3,021)
Accrued payroll and related benefits 7 (1,569)
------ ------
Net cash provided (used) by operating activities (3,907) 1,345
------ ------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (1,924) (2,110)
Proceeds from the sale of equipment 21 --
------ ------
Net cash used by investing activities (1,903) (2,110)
------ ------
Cash flows from financing activities:
Net borrowings (payments) under lines-of-credit with bank 4,517 (250)
Proceeds from issuance of long-term debt 1,000 2,696
Loan fees on long-term debt -- (141)
Principal payments of long-term debt (1,506) (1,770)
Proceeds from exercise of stock options 1,280 604
------ ------
Net cash provided by financing activities 5,291 1,139
------ ------
Net increase/(decrease) in cash and cash equivalents (519) 374
------ ------
Cash at beginning of period 1,559 2,243
------ ------
------ ------
Cash at end of period $ 1,040 2,617
------ ------
------ ------
Supplemental cashflow disclosures:
Interest paid $ 886 1,255
------ ------
------ ------
Income taxes paid $ 1,042 2,295
------ ------
------ ------
Common Stock issued for net assets acquired in business
combinations $ -- 514
------ ------
------ ------
</TABLE>
<PAGE>
ANALYTICAL SURVEYS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Quarterly Report on Form 10-Q
March 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements as of March
31, 1999 and for the six months ended March 31, 1998 and 1999 have been prepared
by management in accordance with the accounting policies described in the
Company's Annual Report for the year ended September 30, 1998. The consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation. The 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, 1998.
The consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary to present fairly the financial position of
Analytical Surveys, Inc., and subsidiaries at March 31, 1999 and its results of
operations for the three months and six months ended March 31, 1998 and 1999,
and its cash flows for the six months ended March 31, 1998 and 1999. All such
adjustments are of a normal recurring nature.
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 ELSEWHERE IN THIS FORM
10-Q. THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS FORM 10-Q THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. WHEN USED IN THIS FORM
10-Q, OR IN THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS FORM 10-Q, THE
WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "INTEND" AND "EXPECT" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THE STATEMENTS REGARDING
THE COMPANY'S STRATEGY, FUTURE SALES, YEAR 2000 COMPLIANCE, FUTURE EXPENSES AND
FUTURE LIQUIDITY AND CAPITAL RESOURCES. ALL FORWARD-LOOKING STATEMENTS IN THIS
FORM 10-Q ARE BASED UPON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE OF
THIS FORM 10-Q, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED IN THIS FORM 10-Q. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AND
IN ITEM 1. BUSINESS--"RISK FACTORS" AND ELSEWHERE IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K.
<PAGE>
ANY STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q RELATED TO THE
YEAR 2000 ARE HEREBY DENOMINTED AS "YEAR 2000 STATEMENTS" WITHIN THE MEANING OF
THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.
OVERVIEW
ASI, a leading provider of data conversion and digital mapping services to users
of customized geographic information systems, was founded in 1981 by 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's recent
acquisitions are summarized in the following table:
<TABLE>
<CAPTION>
Date Company Location Employees
---- ------- -------- ---------
<S> <C> <C> <C>
12/95 Intelligraphics Wisconsin 200
7/96 Westinghouse Landmark North Carolina 105
7/97 MSE Corporation Indiana 325
6/98 Cartotech Texas 270
</TABLE>
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:
<TABLE>
<CAPTION>
Year Six Months
Ended September 30, 1998 Ended March 31, 1999
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---- ---- ---- ---- -----
PERCENTAGE OF SALES:
Salaries, wages and related benefits 46.3% 48.5% 48.7% 49.3% 50.5%
Subcontractor costs 17.2 14.5 13.6 11.6 12.9
Total production costs 63.5% 63.0% 62.3% 60.9% 63.4%
</TABLE>
<PAGE>
The Company recognizes losses on contracts in the period such loss is
determined. From the beginning of fiscal 1995 through the end of the first six
months of fiscal 1999, the Company has recognized aggregate losses on contracts
of approximately $910,000. Over the same period, the Company recognized sales of
$222.6 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 March 31, 1999, backlog was approximately $105 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 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 the six months ended March 31, 1998 and 1999, the Company
expended $120,029 and $131,677, respectively on such independent research and
development activities in the Advanced Technology Division.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected consolidated
statements of operations data expressed as a percentage of sales:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31 March 31
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
PERCENTAGE OF SALES:
Sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Salaries, wages and related benefits 48.0 50.5 49.3 50.5
Subcontractor costs 13.7 12.6 11.6 12.9
Other general and administrative 17.2 15.4 17.7 15.4
Depreciation and amortization 4.2 4.8 4.3 4.8
---- ---- ---- ----
Earnings from operations 16.9 16.7 17.1 16.4
Other expense, net 2.2 2.0 2.3 2.1
---- ---- ---- ----
Earnings before income taxes 14.7 14.7 14.8 14.3
Income tax expense 5.7 5.9 5.8 5.8
---- ---- ---- ----
Net earnings 9.0 8.8 9.0 8.5
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
SALES. The Company's sales consist of revenue recognized for services
performed. Sales increased 46% to $29.2 million for the three months ended March
31, 1999 from $20.0 million for the same period in fiscal 1998. This increase
was due to an increase in the number and size of customer contracts with the
Company as well as the impact of the acquisition of Cartotech in June 1998.
Prior to its acquisition by the Company, Cartotech's sales for the three months
ended March 31, 1998 were approximately $3.8 million.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
includes employee compensation for production, marketing, selling,
administrative and executive employees. Salaries, wages and related benefits
increased 53.6% to $14.7 million for the three months ended March 31, 1999 from
$9.6 million for the three months ended March 31, 1998. This increase was
primarily due to the addition of over 270 employees as a result of the Cartotech
acquisition in June 1998, 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 50.5% for the three months ended March
31, 1999 from 48.0% for the three months ended March 31, 1998.
SUBCONTRACTOR COSTS. Subcontractor costs includes production costs incurred
through the use of third parties for production tasks such as data conversion
services to meet contract requirements, aerial photography and ground and
airborne survey services. Subcontractor costs increased 34.2% to $3.7 million
for the three months ended March 31, 1999 from $2.7 million for the three months
ended March 31, 1998, but decreased as a percentage of sales to 12.6% for the
three months ended March 31, 1999 from 13.7% for the three months ended March
31, 1998. Subcontractor costs declined as a percentage of sales because a
greater proportion of production work was performed by employees in the three
months ended March 31, 1999 than in the same period of 1998.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs increased 31.2% to $4.5 million for the three
months ended March 31, 1999 from $3.4 million for the three months ended March
31, 1998, primarily due to the acquisition of Cartotech. As a percentage of
sales, other general and administrative costs decreased to 15.4% for the three
months ended March 31, 1999 from 17.2% for the three months ended March 31,
1998.
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 March 31, 1999, depreciation and amortization
increased 68.0% to $1.4 million from $830,000 for the three months ended March
31, 1998. This increase was primarily attributable to the increased goodwill
recorded as a result of the Cartotech acquisitions. As a percentage of sales,
depreciation and amortization increased to 4.8% for the three months ended March
31, 1999 from 4.2% for the same period of fiscal 1998.
OTHER EXPENSE, NET. Other expense, net is comprised primarily of net interest
expense. Net interest expense increased 55.2% to $696,000 for the three months
ended March 31, 1999 from $448,000 for the three months ended March 31, 1998.
This increase was primarily due to increased term debt incurred in connection
with the acquisition of Cartotech in June 1998 and increased utilization of the
Company's lines of credit for working capital.
INCOME TAX EXPENSE. Income tax expense was $1.7 million for the three months
ended March 31, 1999 compared to $1.1 million for the three months ended March
31, 1998. The Company's effective income tax rate for the three months ended
March 31, 1999 was 40.0%, an increase from 38.9% for the three months ended
March 31, 1998, due to increases in state income taxes and nondeductible
goodwill relating to the Cartotech acquisition.
NET EARNINGS. Due to the factors discussed above, net earnings increased 43.2%
to $2.6 million for the three months ended March 31, 1999 from $1.8 million for
the three months ended March 31, 1998.
<PAGE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1999
SALES. Sales increased 54% to $57.4 million for the six months ended March 31,
1999 from $37.4 million for the six months ended March 31, 1998. This increase
was due to an increase in the number and size of customer contracts with the
Company (including Cartotech) as well as the impact of the acquisition of
Cartotech in June 1998. Prior to its acquisition by the Company, Cartotech's
sales for the six months ended March 31, 1998 were approximately $7.8 million.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
increased 57.6% to $29.0 million for the six months ended March 31, 1999 from
$18.4 million for the six months ended March 31, 1998. This increase was
primarily due to the addition of over 270 employees as a result of the Cartotech
acquisition in June 1998, 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 50.5% for the six months ended March 31,
1999 from 49.3% for the six months ended March 31, 1998.
SUBCONTRACTOR COSTS. Subcontractor costs increased 69.8% to $7.4 million for
the six months ended March 31, 1999 from $4.3 million for the six months ended
March 31, 1998, and decreased as a percentage of sales to 12.9% for the six
months ended March 31, 1999 from 11.6% for the six months ended March 31, 1998.
Subcontractor costs declined as a percentage of sales because a greater
proportion of production work was performed by employees in 1999 than in the
same period of 1998.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative
increased 34.2% to $8.9 million for the six months ended March 31, 1999 from
$6.6 million for the six months ended March 31, 1998, primarily due to the
acquisition of Cartotech. As a percentage of sales, other general and
administrative costs decreased to 15.4% for the six months ended March 31, 1999
from 17.7% for the six months ended March 31, 1998.
DEPRECIATION AND AMORTIZATION. For the six months ended March 31, 1999,
depreciation and amortization increased 70.7% to $2.7 million from $1.6 million
for the six months ended March 31, 1998. This increase was primarily
attributable to the increased goodwill recorded as a result of the Cartotech
acquisitions. As a percentage of sales, depreciation and amortization increased
to 4.8% for the six months ended March 31, 1999 from 4.3% for same period of
fiscal 1998.
OTHER EXPENSE, NET. Other expense, net is comprised primarily of net interest
expense. Net interest expense increased 55.2% to $1.4 million for the six months
ended March 31, 1999 from $884,000 for the six months ended March 31, 1998. This
increase was primarily due to increased term debt incurred in connection with
the acquisition of Cartotech in June 1998 and increased utilization of the
Company's lines of credit for working capital.
INCOME TAX EXPENSE. Income tax expense was $3.3 million for the six months
ended March 31, 1999 compared to $2.2 million for the six months ended March 31,
1998. The Company's effective income tax rate for the six months ended March 31,
1999 was 40.7%, an increase from 39.4% for the six months ended March 31, 1998,
due to increases in state income taxes and nondeductible goodwill relating to
the Cartotech acquisition.
NET EARNINGS. Due to the factors discussed above, net earnings increased 44.6%
to $4.9 million for the six months ended March 31, 1999 from 3.4 million for the
six months ended March 31, 1998.
<PAGE>
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. As of March 31,
1999, the Company's outstanding balance on its lines of credit was $5.5 million.
During 1998, the Company replaced its existing lines of credit with a
three-year, $21.0 million secured working capital line of credit and the Company
refinanced $25.4 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 1.75%. The effective borrowing
rate was 6.2% on March 31, 1999.
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.
Net cash provided by operations was $1.3 million for the six months ended March
31, 1999. Net cash used by the Company's operating activities was ($3.9)
million for the six months ended March 31 1998. The change in operating cash
flows is primarily attributable to normal fluctuations in the contract-related
accounts described in the previous paragraph. At March 31, 1999, the working
capital in contract-related accounts was equivalent to 180 days sales
outstanding, down from 194 days at December 31, 1998. The Company believes that
this level of investment is consistent with its normal operating range of days
sales outstanding.
Cash used by investing activities for the first six months of fiscal years 1998
and 1999 was ($1.9) million and ($2.1) million, respectively. Such investing
activities principally consisted of payments for purchases of equipment.
Cash provided by financing activities for the first six months of fiscal years
1998 and 1999 was $5.3 million and $1.1 million, respectively. 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.
The Company believes that funds available under its lending arrangements and
cash flow from operations are adequate to finance its operations for at least
the next 18 months.
RECENT ACCOUNTING PRONOUNCEMENTS
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 adopted this statement beginning
October 1, 1998 with no effect on its financial statements.
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
<PAGE>
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). Presentation of segment information for earlier periods is required,
unless impracticable, for comparative purposes. The Company adopted this
statement beginning October 1, 1998 with no effect on its financial statements.
In addition, the Company believes the adoption of FASB Statements No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits", No.
133, "Accounting for Derivative Instruments and Hedging Activities" and No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" will not have a
material affect on its financial statements.
YEAR 2000 ISSUES
GENERAL
The "Year 2000" issue is the result of computer programs using two digits,
rather than four, to define the applicable year. The failure of such programs
to recognize the Year 2000 as such could result in system failures and
miscalculations or errors causing disruptions of operations or other business
problems, including among others a temporary inability to process transactions,
send invoices or engage in similar normal business activities. The Company and
the third parties with which it does business rely on numerous computer programs
in their daily operations.
Prior to the second quarter of fiscal 1999, the Company conducted an informal
survey of its material information technology ("IT") and operating systems;
non-information technology systems (such as buildings, plant, equipment and
other infrastructure systems that may contain embedded micro controller
technology), including its proprietary production software; and the Year 2000
readiness of the Company's major vendors and material service providers and
subcontractors. During the first quarter of fiscal 1999, the Company
established a formal Year 2000 program to address in detail the Year 2000 issue
with respect to all of the Company's IT and non-IT systems, its vendors, service
providers and material clients.
The Company's formal Year 2000 program is divided into four major phases:
inventory; validation; renovation; and implementation/testing.
The inventory phase involves an initial inventory of all hardware, software, and
infrastructure as well as material vendors and service providers, including
subcontractors and clients to identify all of the areas in the Company's and
such third parties' operations where the Year 2000 issue may arise to assess the
items identified as potentially having a Year 2000 issue. The Company completed
the inventory phase of its Year 2000 program during the second quarter although
the Company expects to continue monitoring activity in an effort to ensure that
unforeseen Year 2000 critical items will be discovered.
The validation phase involves the performance of tasks to identify potential
Year 2000 issues and to determine the action required, if any, to mitigate the
risks to the Company. The Company is also in the process of identifying which
of its IT and non-IT systems have Year 2000 issues. The Company's internal Year
2000 team is performing this phase with respect to its operations under the
direct control of the Company and anticipates that it will be substantially
complete by June 1, 1999. The Company is in the process of identifying its
vendors, suppliers and subcontractors and customers whose Year 2000 readiness
may impact its business. The Company expects to complete gathering information
from these parties by August 1, 1999 and expects to complete its assessment of
their readiness by October 1, 1999.
<PAGE>
The renovation phase is intended to ensure that the appropriate items as
identified in the validation phase as having Year 2000 issues are upgraded or
procedures put in place to meet Year 2000 compliance criteria. This may include
software updates, hardware updates, development of new processes or
"work-arounds," new business practices and training programs. While completion
of the various elements of this phase is tied to corresponding elements within
the inventory and validation phase, the Company anticipates that the material
repairs, replacements and renovations will be substantially complete by August
1, 1999 for systems under the direct control of the Company.
The implementation/testing phase involves verifying and testing the critical
business processes and systems and infrastructure to ensure Year 2000 issues
will not cause major disruption in the ongoing operation of the Company's
business. The Company expects that the implementation/testing phase will be
performed by its internal Year 2000 team following the completion of the repair
and renovation phase and will be substantially complete by November 1, 1999.
STATE OF READINESS
The Company's progress toward completing its formal risk assessment of the Year
2000 issue within the Company is on schedule to be completed by June 1, 1999.
However, based on the Company's preliminary assessment of its most critical
systems, its proprietary operations software, and its IT and non-IT systems, it
believes that no material Year 2000 issues will arise in the formal assessment.
In addition, although the Company cannot evaluate its total risk regarding the
Year 2000 issue because of the uncertainty of the readiness of third party
suppliers, vendors and subcontractors and of the Company's customers, based on
preliminary information concerning certain vendors, suppliers and subcontractors
the Company does not believe that its significant vendors, suppliers and
subcontractors are or are likely to present any significant exposure due to Year
2000 issues. The Company's customer contracts specify database designs,
including date fields, and the Company's delivery of data conforms to such
specifications. Accordingly, the Company has not formally evaluated and does
not anticipate evaluating the Year 2000 issue as it relates to the computer
systems used by its customers and potential customers. Although the renovation
and implementation/testing phases have not yet commenced, the Company
anticipates that these phases will proceed along the schedule that is identified
in the program described above.
COSTS
The Company expects to utilize internal resources to perform the work required
to address the Year 2000 issue. To date, these costs have not been material and
involve the temporary reallocation of existing resources. Although the Company
believes that the remaining cost of the Year 2000 modifications for its internal
systems will not be material, there can be no assurance that upon completion of
the validation phase, a Year 2000 compliance issue will arise that could result
in material expenditures or that could have an adverse effect on the Company's
business, operating results or financial position.
RISKS
In a reasonably likely worst-case scenario, the failure to correct a material
Year 2000 problem in the Company's internal IT and non-IT systems could result
in an interruption in or failure of certain normal business activities or
operations, including operations that are essential to the provision of the
Company's services. In addition, the Company also faces risks that its venders,
suppliers and subcontractors will not be able to remedy their Year 2000 issues
since the Company has not completed its assessment of these parties' Year 2000
readiness. The Company cannot determine the present risks to the Company of
such failures. Under a reasonably likely worst-case scenario, if such vendors
were not Year 2000 compliant and other vendors, suppliers or subcontractors
could not be readily substituted for them, such failures could have a material
adverse effect on the Company's operations. The Company currently believes that
its most reasonably likely worst-case scenario would occur if the Company's
present or future customers, which are primarily utilities, local and state
governments, would fail to achieve Year 2000 compliance. If the Company's
customers are not Year 2000 compliant, they may be unable to pay the Company's
invoices for
<PAGE>
some period of time or postpone, delay or cancel work on the Company's
contracts. In addition, they may expend material costs to remedy problems or
they may face litigation expenses. As a result, Year 2000 issues could reduce
or eliminate customers' budgets for purchases of the Company's services even if
those customers currently believe they are Year 2000 compliant. Depending on
the number of customers that experience these problems, these events could have
a material adverse effect on the Company's business, operating results and
financial condition.
CONTINGENCY PLANS
As the Company has not completed its validation phase, it has not yet developed
a contingency plan. When it completes the validation and repair and renovation
phases of its Year 2000 program it will determine whether a contingency plan is
necessary.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company may from time to time employ risk management techniques such as
interest rate swaps and foreign currency hedging transactions. None of these
techniques are used for speculative or trading purposes and the amounts involved
are not considered material.
Short-term interest rate changes can impact the Company's interest expense on
its variable interest rate debt. Variable interest rate debt of $31.6 million
was outstanding as of March 31, 1999. Assuming March 31, 1998 debt levels, an
increase or decrease in interest rates of one percentage point would impact the
Company's interest expense by $316,000.
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 4. Submission of Matters to a Vote of Security Holders
Two matters were voted upon at the Annual Meeting of Shareholders on February
17, 1999:
(a) All nominees for directors listed in the Company's proxy statement were
elected; there was no solicitation in opposition to management's nominees.
The following directors were re-elected to serve for one year or until the
next election of directors:
<TABLE>
<CAPTION>
For Withhold
<S> <C> <C>
Willem H. J. Andersen 4,850,928 7,122
Sidney V. Corder 4,850,928 7,122
Robert H. Keeley 4,850,928 7,122
Richard P. MacLeod 4,850,928 7,122
Sol C. Miller 4,850,928 7,122
James T. Rothe 4,850,928 7,122
John A. Thorpe 4,850,928 7,122
</TABLE>
(b) The proposal to ratify the selection of KPMG, LLP as Analytical Surveys,
Inc.'s independent auditors for the fiscal year ending September 30, 1999.
For 4,851,967
Against 628
Abstain 5,455
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended March
31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANALYTICAL SURVEYS, INC.
(Registrant)
Date: May 14, 1999 /s/ Sidney V. Corder
-----------------------------
Sidney V, Corder, Chairman
and Chief Executive Officer
Date: May 14, 1999 /s/ Scott C. Benger
-----------------------------
Scott C. Benger, Secretary/Treasurer
(principal financial officer and
principal accounting officer)
Date: May 14, 1999 /s/ Brian J. Yates
-----------------------------
Brian J. Yates, Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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