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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
- ----- of the Securities Exchange Act of 1934
For the quarterly period ended
DECEMBER 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 February 17, 2000 was
6,955,690.
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PART I
ITEM 1. FINANCIAL STATEMENTS
ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,659 4,018
Accounts receivable net of allowance for doubtful
accounts of $138 and $119 15,074 15,863
Revenue in excess of billings 30,898 24,229
Deferred income taxes 402 405
Income tax receivable 4,085 7,111
Prepaid expenses and other 1,066 1,316
-------- --------
Total current assets 58,184 52,942
-------- --------
Equipment and leasehold improvements, at cost:
Equipment 13,916 14,305
Furniture and fixtures 1,581 1,585
Leasehold improvements 1,076 1,078
-------- --------
16,573 16,968
Less accumulated depreciation and amortization (8,740) (9,571)
-------- --------
7,833 7,397
-------- --------
Investment securities 535 2,062
Deferred income taxes 590 --
Goodwill net of accumulated amortization
of $3,174 and $3,597 22,100 21,680
-------- --------
Total assets $ 89,242 84,081
======== ========
</TABLE>
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ANALYTICAL SURVEYS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,265 7,450
Billings in excess of revenue 2,008 2,080
Accounts payable and other accrued liabilities 5,063 3,629
Accrued payroll and related benefits 3,819 2,807
------- -------
Total current liabilities 18,155 15,966
Long-term debt, less current portion 20,339 18,640
Deferred income taxes -- 402
Deferred compensation payable 85 84
------- -------
Total liabilities 38,579 35,092
------- -------
Stockholders' equity
Preferred stock; no par value. Authorized 2,500
shares; none issued or outstanding -- --
Common stock; no par value. Authorized 100,000 shares;
6,948 and 6,956 shares issued and outstanding
at September 30, and December 31, respectively 32,080 32,105
Accumulated other comprehensive income - unrealized gain
on equity investments -- 947
Retained earnings 18,583 15,937
------- -------
Total stockholders' equity 50,663 48,989
------- -------
Total liabilities and stockholders' equity $89,242 84,081
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
December 31,
1998 1999
---- ----
Sales $ 26,851 16,843
-------- --------
Costs and expenses
Salaries, wages and related benefits 14,288 12,540
Subcontractor costs 3,708 2,962
Other general and administrative 4,365 3,715
Depreciation and amortization 1,349 1,252
-------- --------
23,710 20,469
-------- --------
Earnings (loss) from operations 3,141 (3,626)
-------- --------
Other income (expense):
Interest expense, net (691) (501)
Other 58 (25)
-------- --------
(633) (526)
-------- --------
Earnings (loss) before income taxes 2,508 (4,152)
Income tax expense (benefit) 1,089 (1,475)
-------- --------
Net earnings (loss) 1,419 (2,677)
Other comprehensive income, net of income taxes -- 947
-------- --------
Comprehensive income (loss) $ 1,419 (1,730)
======== ========
Earnings (loss) per common share:
Basic $ 0.21 (0.39)
Diluted $ 0.20 (0.39)
Weighted average outstanding common shares:
Basic 6,739 6,949
Diluted 7,128 7,085
See accompanying notes to consolidated financial statements.
4
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ANALYTICAL SURVEYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1998 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,273 (2,677)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,349 1,252
Deferred income tax expense (benefit) (158) 409
Tax benefit relating to exercise of stock options 132 17
Changes in operating assets and liabilities, net of effect of
business combinations:
Accounts receivable, net (4,094) (789)
Revenue in excess of billings (1,215) 6,699
Income taxes 1,285 (3,026)
Prepaid expenses and other (56) (250)
Billings in excess of revenue 1,160 72
Accounts payable and other accrued liabilities (1,698) (1,434)
Accrued payroll and related benefits (2,418) (1,012)
------- -------
Net cash used by operating activities (3,440) (739)
------- -------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (1,169) (396)
------- -------
Cash flows from financing activities:
Net borrowings (payments) under lines of credit with banks 3,400 --
Proceeds from issuance of long-term debt 1,339 307
Loan fees on long-term debt (162) --
Principal payments on long-term debt (302) (1,821)
Proceeds from exercise of stock options 249 8
------- -------
Net cash provided by financing activities 4,524 (1,506)
------- -------
Net increase in cash (85) (2,641)
Cash at beginning of period 2,243 6,659
------- -------
Cash at end of period $ 2,158 4,018
======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 677 362
======= =======
Cash paid for income taxes $ 195 1,192
======= =======
Common stock issued for net assets acquired
in business combinations $ 514 --
======= =======
</TABLE>
See accompanying notes to financial statements.
5
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Notes to Consolidated Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements have been
prepared by management in accordance with the accounting policies described in
the Company's annual report for the year ended September 30, 1999. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain information and note disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1999.
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 December 31, 1999 and the results
of their operations and cash flows for the three months ended December 31, 1998
and 1999.
Investment securities consist of corporate equity securities that are classified
as available-for-sale. Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
2. LITIGATION
The Company has been named as a defendant in several putative securities class
actions alleging a misstatement or omission of material facts concerning the
Company's operations and financial results. Plaintiffs seek to represent
themselves and a class of all public investors who purchased or otherwise
acquired common stock of the Company and who suffered damages, and seek an award
of compensatory damages and attorneys' fees and costs.
Because this litigation is at an early stage, it is impossible to evaluate the
impact that the above actions, or any future, related actions, may have on the
Company. However, it is reasonably possible that an unfavorable outcome in the
present litigation, or in any related future actions, could have a material
adverse impact on the Company's financial condition or results of operations in
one or more future reporting periods. The Company intends to defend itself
vigorously in this litigation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS.
THE DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS FORM
10-Q. THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE 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, FUTURE EXPENSES AND FUTURE LIQUIDITY AND
CAPITAL RESOURCES. ALL FORWARD-LOOKING STATEMENTS IN THIS FORM 10-Q ARE BASED
UPON
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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, IN ITEM 1. BUSINESS--"RISK
FACTORS" AND ELSEWHERE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K.
OVERVIEW
ASI, a leading provider of data conversion and digital mapping services to users
of customized geographic information systems, was founded in 1981. From 1981 to
1995, the Company experienced steady growth in revenues with periodic
fluctuations in financial results. In 1995, the Company embarked on a growth
strategy, which sought to consolidate the fragmented GIS services industry. The
Company's acquisitions during the period are summarized in the following table:
Date Company Location Employees
---- ------- -------- ---------
12/95 Intelligraphics Wisconsin 200
7/96 Westinghouse Landmark North Carolina 105
7/97 MSE Corporation Indiana 325
6/98 Cartotech Texas 270
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; these estimates are reevaluated regularly.
Production costs consist of internal costs, primarily salaries and wages, and
external costs, primarily subcontractor costs. Internal and external production
costs may vary considerably among projects and during the course of completion
of each project. At each accounting period 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. The percentage of completion is effected by any factors which
influence either the estimate of future productivity or the production cost per
hour used to determine future costs.
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 three
months of fiscal 2000, the Company has recognized aggregate losses on contracts
of approximately $1.6 million. Over the same period, the Company recognized
sales of approximately $250 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 December 31, 1999, backlog was $79.8 million as compared with
$91.3 million as of September 30, 1999.
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 three months ended December 31, 1998 and 1999, the
Company expended $67,072 and $95,567, respectively on such independent research
and development activities in the Advanced Technology Division.
On December 30, 1999, the Company announced it had revised its previously
announced fiscal 1999 results. On January 27, 2000, the Company announced that
it was conducting a detailed review of its cost-of-completion assumptions
related to its contracts under the supervision of the Audit Committee of the
Board of Directors that might lead to a restatement of its financial results for
fiscal 1999. As a result of this comprehensive review, the Company discovered
certain accounting errors that required a downward adjustment of the revenues
recognized in
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each of the four quarters of fiscal 1999. The errors related principally to the
exclusion of certain contract-related costs in the estimated costs to complete
on certain projects; the untimely recognition of additional anticipated costs to
complete; and the inaccurate assessment of future production efficiencies and
inefficiencies affecting estimated costs to complete. When the Company's
analysis indicated that the estimated costs to complete a specific project were
based on inaccurate information or assumptions, an estimate was made of the
impact on previously recognized revenues as well as timing of the error, and the
appropriate fiscal 1999 quarter's operating results were restated accordingly.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected consolidated
statements of operations data expressed as a percentage of sales:
Three Months Ended
December 31
-------------------
1998 1999
---- ----
PERCENTAGE OF SALES:
Sales............................................ 100.0% 100.0%
Costs and expenses
Salaries, wages and related benefits......... 53.2 74.5
Subcontractor costs.......................... 13.8 17.6
Other general and administrative.............. 16.3 22.1
Depreciation and amortization................. 5.0 7.4
----- -----
Earnings (loss) from operations.................. 11.7 (21.5)
Other expense, net............................... (2.4) (3.1)
----- -----
Earnings (loss) before income taxes.............. 9.3 (24.7)
Income tax expense (benefit)..................... 4.1 (8.8)
----- -----
Net earnings (loss).............................. 5.2% (15.9)%
===== =====
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
SALES. The Company's sales consist of revenue recognized for services performed.
Sales decreased $10.0 million to $16.8 million for the first three months of
fiscal 2000 from $26.9 million for the first three months of fiscal 1999 as a
result of a reduction of new contract signings during fiscal 1999. Management
believes these market conditions were caused by consolidation in the utility
industry, year 2000 computer concerns and increased competition from companies
with offshore operations.
SALARIES, WAGES AND RELATED BENEFITS. Salaries, wages and related benefits
includes employee compensation for production, marketing, selling,
administrative and executive employees. Salaries, wages and related benefits
decreased 12.2% to $12.5 million for the first three months of fiscal 2000 from
$14.3 million for the first three months of fiscal 1999, as a result of
reductions in its workforce. The reductions in the workforce were a result the
Company's decision to subcontract a higher percentage of its production work to
offshore subcontractors. As a percentage of sales, salaries, wages and related
benefits increased to 74.5% for the first three months of fiscal 2000 from 53.2%
for the first three months of fiscal 1999, as reductions in the workforce were
insufficient to offset the reduced sales volume.
SUBCONTRACTOR COSTS. Subcontractor costs includes production costs incurred
through the use of third parties for production tasks, such as data conversion
services to meet contract requirements, aerial photography and ground and
airborne survey services. Subcontractor costs decreased 20.1% to $3.0 million
for the first three months of fiscal 2000 from $3.7 million for the first three
months of fiscal 1999, and increased as a percentage of sales to
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17.6% for the first three months of fiscal 2000 from 13.8% for the first three
months of fiscal 1999. While overall subcontractor costs declined because of
lower sales volume, the percentage of subcontractor costs to total costs was
higher as a result of the Company's transition to subcontracting a greater
percentage of its production offshore.
OTHER GENERAL AND ADMINISTRATIVE COSTS. Other general and administrative costs
includes rent, maintenance, travel, supplies, utilities, insurance and
professional services. Such costs decreased 14.9% to $3.7 million for the first
three months of fiscal 2000 from $4.4 million for the first three months of
fiscal 1999, as a result of reductions in force. As a percentage of sales, other
general and administrative costs increased to 22.1% for the first three months
of fiscal 2000 from 13.8% for the first three months of fiscal 1999. While other
general and administrative costs declined overall, they increased as a
percentage of costs due to significantly lower sales in the three months ended
December 31, 2000 compared to the same period in the prior year.
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 first three months of fiscal 2000, depreciation and amortization
decreased 7.2% to $1.25 million from $1.35 million for the first three months of
fiscal 1999. As a percentage of sales, depreciation and amortization increased
to 7.4% for the first three months of fiscal 2000 from 5.0% in the first three
months of fiscal 1999.
OTHER EXPENSE, NET. Other expense, net is comprised primarily of net interest
expense. Net interest expense decreased 27.5% to $501,000 for the first three
months of fiscal 2000 from $691,000 for the first three months of fiscal 1999,
as a result of reduced borrowing outstanding, offset in part by higher interest
rates.
INCOME TAXES. Income tax benefit was $1.5 million for the first three months of
fiscal 2000 compared to an expense of $1.1 million for the first three months of
fiscal 1999. The Company's effective income tax rate for the first three months
of fiscal 2000 was 35.5%, a decrease from 43.4% for the first three months of
fiscal 1999.
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 December 31,
1999, the Company had not drawn on its line of credit. 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 these 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 approximately 7% on December 31,
1999.
The Company's loan agreement was amended on March 6, 2000 to establish new
covenants requiring the Company to maintain a minimum of $25 million in net
tangible assets and to achieve a minimum level of profitability for the three
remaining quarters of fiscal 2000. The amended agreement also reduced the line
of credit to a maximum of $7.5 million based on eligible accounts receivable,
increased the interest rate to LIBOR plus 3%, and accelerated the final maturity
of the balance of the term loan to February 2001.
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
business investment, affect the Company's cash flow as projects are signed,
performed, billed and collected.
Net cash used by the Company's operating activities was $3.4 million and $0.8
million for first three months of fiscal years 1999 and 2000, respectively. The
change in operating cash flows is primarily attributable to normal fluctuations
in the contract-related accounts described in the previous paragraph. At
December 31, 1999, the working capital in contract-related accounts was
equivalent to 215 days sales outstanding, up from 202 days at
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September 30, 1999. The Company believes that this level of investment is at the
high end of the normal operating range of days sales outstanding.
Cash used by investing activities for the first three months of fiscal years
2000 and 1999 was $0.4 million and $1.2 million, respectively. Such investing
activities principally consisted of payments for purchases of equipment and
leasehold improvements.
Cash used by financing activities for the first three months of fiscal year 2000
was $1.5 million as compared to $4.5 million provided by financing activities
for the first three months of fiscal 1999. Financing activities consisted
primarily of net borrowings and payments under lines of credit for working
capital purposes and net borrowings and payments of long-term debt used for
business combinations and the purchase of equipment and leasehold improvements.
The Company believes that funds available under its lending arrangements and
cash flow from operations are adequate to finance its operations for at least
the next twelve months.
YEAR 2000 ISSUES
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 systems failures and
miscalculations. The Company and the third parties with which it does business
rely on numerous computer programs in their daily operations.
To the best of its knowledge, the Company believes that neither it nor any of
its customers or key suppliers experienced any adverse impact due to Year 2000
problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company may from time to time employ risk management techniques such as
interest rate swaps and foreign currency hedging transactions. None of these
techniques are used for speculative or trading purposes and the amounts involved
are not considered material.
Short-term interest rate changes can impact the Company's interest expense on
its variable interest rate debt. Variable interest rate debt of $20.7 million
was outstanding as of December 31, 1999. Assuming December 31, 1999 debt levels,
an increase or decrease in interest rates of one percentage point would impact
the Company's interest expense by $207,000.
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company and certain of its present and former officers and employees (the
"Individual Defendants") have been named as defendants in several putative
securities class actions filed in the United States District Court for the
Southern District of Indiana, beginning February 2, 2000. Plaintiffs in each of
the actions allege that the defendants violated Section 10(b) of the Exchange
Act, and SEC Rule 10b-5 promulgated thereunder, alleging that they misstated or
omitted to state material facts concerning the Company's operations and
financial results in the Company's financial statements filed with the SEC, and
in press releases and other public statements, issued during the period from
January 25, 1999, through January 27, 2000 (the "putative class period").
Plaintiffs seek to represent themselves and a class of all public investors who
purchased or otherwise acquired common stock of the Company during the putative
class period and who suffered damages thereby, and seek an award of compensatory
damages and attorneys' fees and costs.
It is expected that the various actions will be consolidated before one judge,
and that plaintiffs then will file a single, consolidated class action
complaint. Because this litigation is at an early stage, it is impossible to
evaluate the impact that the above actions, or any future, related actions, may
have on the Company. However, it is reasonably possible that an unfavorable
outcome in the present litigation, or in any related future actions, could have
a material
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adverse impact on the Company's financial condition or results of operations in
one or more future reporting periods. The Company and the Individual Defendants
intend to defend themselves vigorously in this litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits: 10.12 Amendment No. 5 to Credit Agreement dated March 6, 2000
Forms 8-K: None
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: March 6, 2000 /s/ Sol C. Miller
------------------------
Sol C. Miller, Chief Executive Officer
Date: March 6, 2000 /s/ Michael A. Renninger
------------------------
Michael A. Renninger, Vice President
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EXHIBIT 10.12
AMENDMENT NO. 5
TO
CREDIT AGREEMENT
This Amendment to Credit Agreement ("Amendment") is dated as of March 6,
2000 by the BANKS listed on the signature pages hereof (the "Banks") and
ANALYTICAL SURVEYS, INC.
WITNESSETH
WHEREAS, Analytical Surveys, Inc. (the "Borrower"), the Banks and Bank One,
Colorado, N.A., as Agent (the "Agent"), are parties to a Credit Agreement dated
as of June 3, 1998, as amended (the "Credit Agreement") (capitalized terms used
herein that are not otherwise defined herein shall have the meanings ascribed
to them in the Credit Agreement); and
WHEREAS, the Borrower has requested amendments to certain financial
covenants and the amendment of certain provisions of the Credit Agreement.
NOW THEREFORE, in consideration of the covenants, conditions and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Amendments. Upon and after the Amendment Effective Date (as defined
below).
a) The defined term "Applicable Margin" in Section 1.1 of the Credit
Agreement is amended and restated in its entirety to read as follows:
"Applicable Margin" means 3.00% for LIBOR Rate Loans and 1.00% for
Prime Rate Loans.
b) The defined term "Commitment Fee Rate" in Section 1.1 of the Credit
Agreement is amended and restated in its entirety to read as follows:
"Commitment Fee Rate" means .50%.
c) Subsection (g) of the defined term "Eligible Account Receivable" is
amended in its entirety to read as follows:
(g) Accounts Receivable owing from a single account debtor if more
that Twenty-five percent (25%) of its Accounts Receivable with the
Borrower and all Guarantors is more than 90 days past due;
d) The defined term "Eligible Unbilled Account Receivable" in Section
1.1 of the Credit Agreement is deleted.
<PAGE> 2
e) The first clause of the second sentence of the defined term "Interest
Period" in Section 1.1 of the Credit Agreement is amended in its entirety to
read as follows:
The duration of each Interest Period shall be one (1) month;
provided, however, that:
f) The defined term "Maturity Date" in Section 1.1 of the Credit
Agreement is amended and restated in its entirety to read as follows:
"Maturity Date" means the first to occur of (i) February 5, 2001 and
(ii) the date on which the due date of the Loans have been accelerated
and payment demanded by the Banks by reason of an Event of Default
pursuant to Article VI.
g) The defined term "Maximum Revolving Credit Amount" in Section 1.1 of
the Credit Agreement is amended and restated in its entirety to read as follows:
"Maximum Revolving Credit Amount" means the lesser of (i)
$7,500,000.00 or (ii) the Borrowing Base in effect at the time of
determination.
h) The defined term "Net Income" in Section 1.1 of the Credit Agreement
is amended and restated in its entirety as follows:
"Net Income (or Deficit)" means, for any computation period, with
respect to the Borrower on a consolidated basis, cumulative net
income (or a deficit as the case may be) earned during such period as
determined in accordance with GAAP.
i) The defined term "Revolving Loans Commitment" in Section 1.1 of the
Credit Agreement is amended and restated in its entirety to read as follows:
"Revolving Loans Commitment" means the commitment of the Banks to
Advance Revolving Loans to the Borrower from time to time as provided
in Section 2.1 in the aggregate amount of $7,500,000.00.
j) The defined term "Revolving Loans Scheduled Maturity Date" in Section
1.1 of the Credit Agreement is amended and restated in its entirety to read as
follows:
"Revolving Loans Scheduled Maturity Date" means February 5, 2001.
k) Section 1.1 of the Credit Agreement is amended by the insertion in
alphabetical order of the defined term "Tangible Net Worth" that shall read in
its entirety as follows:
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<PAGE> 3
"Tangible Net Worth" means as of any date, the total shareholders
equity; (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock) of Borrower,
less the aggregate book value of all intangible assets of the
Borrower,
less the aggregate amount of all loans due from the Borrower's
Affiliates, officers, directors and shareholders,
less the Borrower's unrealized gain in its investment in
Infotech Enterprises, Inc., all determined in accordance with
GAAP
l) The defined term "Term Loan Scheduled Maturity Date" in Section 1.1
of the Credit Agreement is amended and restated in its entirety to read as
follows:
"Term Loan Scheduled Maturity Date" means February 5, 2001.
m) Section 2.1(a) of the Credit Agreement is amended in its entirety to
read as follows:
(a) Revolving Loans Commitment. Pursuant to the Revolving Loans
Commitment, from the Effective Date until the Maturity Date, each Bank
severally agrees to Advance funds to the Borrower as Revolving Loans,
provided, however, that at no time shall the Banks be required to
Advance Revolving Loans to the Borrower if, after such Advance the sum
of the principal amount of Revolving Loans outstanding is in excess
of the Maximum Revolving Credit Amount; and provided, further, that no
Bank shall be required to Advance Revolving Loans in an aggregate
amount exceeding the Bank's Revolving Loan Commitments described on
Schedule 2.1. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow funds Advanced to the Borrower as
Revolving Loans.
n) The first sentence of Subsection (a) of Section 2.15 of the Credit
Agreement is amended in its entirety to read as follows:
Not later than 20 days after the end of each month, the Borrower
shall deliver to the Agent a Borrowing Base Certificate, in the form
of Exhibit B-4, duly executed by an Authorized Signatory, which
Borrowing Base Certificate will set forth the information contained
therein as of the end of the preceding month end.
-3-
<PAGE> 4
o) Subsection (b) of Section 2.15 of the Credit Agreement is amended in
its entirety to read as follows:
For purposes of determining the applicable Borrowing Base, Eligible
Accounts Receivable shall be valued at eighty percent (80%) of the
amount thereof.
p) Section 2.6(b) of the Credit Agreement is amended by deleting all
Repayment Dates and Quarterly Principal Installment Amounts after January 1,
2001 and inserting after the entry for January 1, 2001:
On February 5, 2001, payment in full of the outstanding principal
balance and accrued interest on the Term Loan.
q) Section 5.1 of the Credit Agreement is amended by the addition of a
new subsection (r), (s), (t) and (u) that shall read in their entirety as
follows:
(r) Consultant. The Agent may retain a consultant of its choice
to review the Borrower's and Guarantors' financial statements, agings,
facilities, business plans, forecasts, proposed debt and equity
offerings and, among other things, assess the going concern value and
viability of the Borrower and the Guarantors. Such review shall be
in scope and detail satisfactory to the Agent. The Borrower shall, and
shall cause the Guarantors, to cooperate fully with such consultant,
and its agents and employees. Upon reasonable notice to the Borrower,
the consultant shall have unrestricted access to the books and records
during normal business hours of the Borrower and Guarantors, and their
facilities and employees. The reports, conclusions and analysis of the
consultant shall be delivered only to the Agent for the consideration
and use by the Banks. The Borrower shall promptly pay or reimburse the
Agent for the actual cost of the consultant's review and report,
including all out-of-pocket expenses for travel, food and lodging.
(s) Tax Refund. On or before April 30, 2000, the Borrower and
Guarantors shall file all income tax returns, schedules and other
filings with the Internal Revenue Service, Colorado Department of
Revenue and Indiana Department of Revenue to claim the Federal and
State tax refunds reflected in the financial projections provided by
the Borrower to the Agent on or about March 1, 2000. The Borrower
shall provide the Agent with copies of all such filings on or before
April 30, 2000. On or before June 30, 2000, the Borrower and
Guarantors shall file all income tax returns, schedules and other
filings with all other Government Authorities to claim the other tax
refunds reflected in the financial projects provided by the Borrower
to the Agent on or about March 1, 2000. The Borrower shall provide the
Agent with copies of all such filings on or before
-4-
<PAGE> 5
June 30, 2000. To the extent permitted by law, the Borrower shall, and
shall cause the Guarantors, to assign and cause such tax refunds to be
paid directly to the Agent for the benefit of the Banks. Tax refunds
shall be immediately applied upon receipt, as mandatory payments on
the Term Loan and will be applied to Term Loan principal payment
installments in inverse order of maturity.
(t) Netherlands and Portugal Operations. On or before July 6,
2000, the Borrower shall comply with the requirements of Section
5.2(n) of the Credit Agreement with respect to the entities now in
existence or to be formed through which the Borrower conducts or will
conduct business, directly or indirectly, in the Netherlands and
Portugal; provided, however, Agent may waive compliance with this
provision if Borrower provides information satisfactory to the Agent
that satisfaction of such requirements would be illegal or subject the
officers or directors of such entities to legal sanction under
applicable law, would violate existing agreements applicable to such
entities, or would be unduly expense.
(u) Infotech Enterprises, Inc. On or before April 6, 2000 the
Borrower shall deliver to the Agent all of the capital stock or other
instruments establishing its ownership interest in Infotech
Enterprises, Inc. and a stock power signed in blank and shall execute
and deliver any amendments to the Pledge Agreement or other Collateral
Documents that the Agent may in its discretion require to evidence a
pledge of such capital stock as security for the Obligations.
r) Section 5.1(b)(iv) of the Credit Agreement is amended and restated to
read in its entirety as follows:
within 20 days after the end of each month (A) a Borrowing Base Certificate
signed by an Authorized Signatory, (B) a consolidated unaudited balance
sheet and income statement of the Borrower prepared in accordance with
GAAP, (C) a Contract Progress Report of the Borrower and all Guarantors
identifying all outstanding contracts, and on an individual contract basis
disclosing, expenses incurred to date, estimated expenses remaining,
payments received to date, payments remaining and projected profit for each
contract (presented in a columnar format with totals), (D) a Compliance
Certificate signed by an Authorized Signatory, (E) a listing and aging of
all Accounts Receivable of the Borrower and the Guarantors, and (F) a
listing and aging of all accounts payable of the Borrower and Guarantors
(with all of the foregoing in form, substance and level of detail
acceptable to the Agent);
s) Section 5.2(a) of the Credit Agreement is amended by the deletion of
subsections (i) Maximum Total Debt to EBITDA, (ii) Minimum Fixed Charge Coverage
-5-
<PAGE> 6
Ratio, (iii) and Minimum Net Income and (iv) Maximum Annual Capital
Expenditures and the replacement of such subsections with the following
financial covenants that shall read in their entirety as follows:
(i) Minimum Tangible Net Worth. Fail to maintain as of the end of
each month on a consolidated basis for the Borrower and all
Subsidiaries Tangible Net Worth in excess of
During the Time Period Minimum Tangible Net Worth
---------------------- --------------------------
March 1, 2000 through March 31, 2000 $25,000,000
April 1, 2000 through June 30, 2000 $25,500,000
July 1, 2000 and thereafter $26,000,000
(ii) Maximum Net Deficit/Minimum Net Income. Have
(A) a Net Deficit in excess of $775,000 for the Fiscal
Quarter ending March 31, 2000,
(B) Net Income less than $120,000 for the Fiscal Quarter
ending June 30, 2000,
(C) Net Income less than $700,000 for the Fiscal Quarter
ending September 30, 2000 and for any Fiscal Quarter
thereafter.
(iii) Maximum Capital Expenditures. From March 1, 2000 through the
Maturity Date make Capital Expenditures for the Borrower and all
Subsidiaries on a consolidated basis in excess of $2,000,000.
t) Section 5.2(d) of the Credit Agreement is amended by the deletion
of subsection (v) thereto and the insertion of a new subsection (v) that
shall read in its entirety as follows:
(v) other Debt in the aggregate principal amount of
$2,000,000 from March 1, 2000 through the Maturity Date.
u) Section 5.2(g) of the Credit Agreement is amended by the deletion
of subsection (iii) thereto and the insertion of a new subsection (iii)
that shall read in its entirety as follows:
(iii) up to $250,000 in fair market value of other
Dispositions from March 1, 2000 to the Maturity Date, or
v) Subsections (a) and (c) of Section 6.1 of the Credit Agreement
are amended and restated in their entirety as follows:
-6-
<PAGE> 7
(a) Payments under the Agreement and the Notes. The Borrower
shall fail to pay any principal of, or interest on, the Notes
when the same become due and payable.
(c) Other Loan Instrument Obligations. (i) The Borrower shall
fail to perform or observe any term, covenant or agreement
contained in the Agreement, or (ii) the Borrower shall fail to
perform or observe any term, covenant or agreement contained in
any Loan Instrument to which it is a party, or (iii) any
Guarantor shall fail to perform or observe any term, covenant or
agreement contained in any Loan Instrument to which it is a
party.
w) Schedule 2.1 of the Credit Agreement is amended and restated in
the form of the attached Exhibit A and the Commitments of the Banks
shall be reduced to the amounts set forth in such Schedule 2.1, as
amended.
x) The Agent shall from time to time provide to Borrower revisions
of Exhibit B-2, Form of Compliance Certificate and Exhibit B-4, Form of
Borrowing Base Certificate, that shall accommodate the amendments to
such forms that arise out of this Amendment. The Borrower shall utilize
the revised forms of Compliance Certificate and Borrowing Base
Certificate on and after its receipt thereof.
2. Conditions Precedent. In the judgement of the Agent, each of the
following conditions shall have been satisfied:
(a) A Reaffirmation of Guaranty, in form and substance satisfactory
to the Agent, shall have been executed and delivered to the Agent by all
of the Guarantors:
(b) The Borrower shall have paid the Agent an Amendment Fee of
$34,375.00 for the pro rata benefit of the Banks;
(c) The Borrower shall have paid the Agent an Administrative Fee of
$5,000.00 for the sole benefit of the Agent; and
(d) The Borrower shall have paid the reasonable legal fees and
expenses incurred by the Agent in connection with the preparation of
this Amendment and related instruments.
(e) The Agent shall have received such other documents and
instruments that the Agent may request to effect the purposes of this
Amendment.
3. Representations and Warranties. In order to induce the Banks to
agree to this Amendment, the Borrower makes the following representations and
warranties, which shall survive the execution and delivery of this Amendment:
(a) No Event of Default has occurred and is continuing and no Event
of Default will exist immediately after giving effect to the amendment
contained herein;
-7-
<PAGE> 8
(b) Each of the representations and warranties set forth in Article
IV of the Credit Agreement are true and correct as though such
representations and warranties were made at and as of the Amendment
Effective Date, except to the extent that any such representations or
warranties are made as of a specified date or with respect to a
specified period of time, in which case such representations and
warranties shall be made as of such specified date or with respect to
such specified period. Each of the representations and warranties made
under the Credit Agreement shall survive to the extent provided therein
and not be waived by the execution and delivery of this Amendment;
(c) The Borrower is a duly organized, and validly existing
corporation and has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Amendment, and
has taken or caused to be taken all necessary corporate action to
authorize the execution, delivery and performance of this Amendment;
(d) No consent of any other Person or filing or action by any
Governmental Authorities, is required to authorize the execution,
delivery and performance of this Amendment;
(e) This Amendment has been duly executed by a duly Authorized
Signatory on behalf of the Borrower and constitutes the legal, valid and
binding obligation of the Borrower, enforceable in accordance with its
terms, except as enforcement thereof may be subject to the effect of any
applicable (i) bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally and (ii) general
principals of equity; and
(f) The execution and delivery and performance of the agreements in
this Amendment will not violate any law, statute or regulation
applicable to the Borrower or any order or decree of any Governmental
Authorities, or conflict with or result in the breach or any contractual
obligation of the Borrower.
4. Effectiveness. The amendments to the Credit Agreement set forth
herein shall become effective as of March 6, 2000 after the Agent shall have
received this Amendment, executed and delivered by the Borrower and the Banks
and all of the conditions precedent set forth in Section 3 above, have been
satisfied (the "Amendment Effective Date").
5. Counterparts. This Amendment may be executed in counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered shall be deemed to be an original and all of which, when
taken together, shall constitute one and the same instrument.
6. Expenses. The Borrower agrees to pay all reasonable costs and
expenses, including filing and recording fees, incurred by the Agent in
connection with the preparation, execution and delivery of this Amendment and
any other documents, or instruments which may be delivered in connection
herewith, including without limitation, the reasonable fees and expenses of
Davis, Graham & Stubbs LLP, counsel for the Agent.
-8-
<PAGE> 9
7. Governing Law. The rights and duties of the Borrower, the Banks and
the Agent under this Amendment shall be governed by the law of the State of
Colorado.
8. Release. In consideration of the amendments provided herein, the
Borrower releases and discharges the Banks and the Agent, and their respective
directors, officers, employees, agents, successors and assigns from all claims
and causes of action of any nature whatsoever, which the Borrower, its
successors and assigns ever had or have as of the date hereof against the Banks
and the Agent that arise, directly or indirectly, out of or are related to the
Credit Agreement. The Borrower acknowledges that the Obligations arising under
the Credit Agreement are not subject to any such counterclaim, offset, defense
or rights of recoupment against the Banks.
9. Ratification. The Credit Agreement, as amended by this Amendment, is
and shall continue to be in full force and effect and is hereby in all respects
confirmed, approved and ratified. Except to the extent amended hereby, all terms
and conditions of the Credit Agreement remain the same. All references to the
Credit Agreement in any of the Loan Instruments shall mean the Credit Agreement
as amended by this Amendment.
IN WITNESS WHEREOF the Banks have caused this Amendment to be duly
executed as of the date first written above.
BANK ONE, COLORADO, N.A., KEYBANK NATIONAL ASSOCIATION
as Agent and Bank
By By
-------------------------------- --------------------------------
Shaun P. McCarthy K. Alexander Curry
Vice President Vice President
NATIONAL CITY BANK OF INDIANA THE FIFTH THIRD BANK OF
CENTRAL INDIANA
By By
-------------------------------- --------------------------------
Michael J. Stewart Erik Miner
Vice President Vice President
AGREED AND ACCEPTED:
ANALYTICAL SURVEYS, INC.
By
--------------------------------
Sol C. Miller
President and
Chief Executive Officer
-9-
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