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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED
DECEMBER 31, 1995
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UTILX CORPORATION
COMMISSION FILE NUMBER 0-16821
DELAWARE 91-1171716
(State of Incorporation) (I.R.S. Identification Number)
22404 - 66TH AVENUE SOUTH
P. O. BOX 97009
KENT, WASHINGTON 98064-9709 (206) 395-0200
(Address of Principal Executive Offices) (Telephone Number)
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Securities registered pursuant to Section 12(b) or (g) of the Act:
COMMON STOCK, .01 PAR VALUE THE NASDAQ STOCK MARKET, INC.
(Class of Security) (Exchange on Which Registered)
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The registrant 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
and has been subject to such filing requirements for the past 90 days.
As of December 31, 1995, 7,184,116 shares of Common Stock were outstanding.
The total number of pages in this Form 10-Q is 14.
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TABLE OF CONTENTS
ITEM PAGE
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PART I
1. Financial Statements
Consolidated Balance Sheet
December 31, 1995 and March 31, 1995. . . . . . . . . 3
Consolidated Statement of Operations
For the Three Months Ended
December 31, 1995 and 1994. . . . . . . . . . . . . . 4
Consolidated Statement of Operations
For the Nine Months Ended
December 31, 1995 and 1994. . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows
For the Nine Months Ended
December 31, 1995 and 1994. . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . 9
PART II
5. Other . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UTILX CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31 AND MARCH 31, 1995
(IN THOUSANDS, EXCEPT SHARES)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . $ 513 $ 840
Accounts receivable, trade, net. . . . . 10,906 11,525
Materials, supplies and inventories. . . 9,300 8,486
Income taxes receivable. . . . . . . . . 1,109 786
Current portion of deferred income taxes 2,829 2,829
Prepaid expenses and other . . . . . . . 414 177
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Total current assets 25,071 24,643
Equipment and improvements, net. . . . . . 9,105 9,489
Other assets, net. . . . . . . . . . . . . 1,045 1,216
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Total assets . . . . . . . . . . . . $35,221 $35,348
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank . . . . . . . . . . $2,750
Accounts payable . . . . . . . . . . . . 2,508 $ 2,346
Accrued liabilities. . . . . . . . . . . 2,123 4,224
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Total current liabilities . . . . . . 7,381 6,570
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Long term portion of deferred income taxes 708 708
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Total liabilities . . . . . . . . . . 8,089 7,278
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Stockholders' equity:
Convertible preferred stock (no shares
issued and outstanding) . . . . . . .
Common Stock, $0.01 par value
(authorized 25,000,000 shares). . . . 72 72
Common Stock Warrants. . . . . . . . . . 936 936
Additional paid-in capital . . . . . . . 17,405 17,404
Retained earnings. . . . . . . . . . . . 9,580 10,429
Unearned compensation. . . . . . . . . . (101) (158)
Cumulative foreign currency translation
adjustment. . . . . . . . . . . . . . (760) (613)
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Total stockholders' equity. . . . . . 27,132 28,070
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Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . $35,221 $35,348
------ ------
------ ------
Common Stock issued and outstanding. . . 7,184,116 7,185,012
</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $13,155 $13,322
Cost of revenues . . . . . . . . . . . . . . 10,798 12,217
------- -------
Gross profit . . . . . . . . . . . . . . . 2,357 1,105
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Operating expenses:
Selling, general and administrative. . . . 2,048 1,898
Research and engineering . . . . . . . . . 168 386
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Total operating expenses. . . . . . . . 2,216 2,284
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Operating income (loss). . . . . . . . . . . 141 (1,179)
Other income (expense), net. . . . . . . . . 22 (83)
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Income (loss) before income taxes. . . . . . 163 (1,262)
Income tax provision (benefit) . . . . . . . 59 (286)
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Net income (loss). . . . . . . . . . . . . . $ 104 $ (976)
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Earnings (loss) per share (Note 2):
Primary. . . . . . . . . . . . . . . . . . .01 (.14)
Fully diluted. . . . . . . . . . . . . . . .01 (.14)
Weighted average number of shares (Note 2):
Primary. . . . . . . . . . . . . . . . . . 7,192 7,230
Fully diluted. . . . . . . . . . . . . . . 7,192 7,230
</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $36,028 $37,430
Cost of revenues from operations . . . . . . 30,905 32,182
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Gross profit . . . . . . . . . . . . . . . 5,123 5,248
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Operating expenses:
Selling, general and administrative. . . . 5,951 5,488
Research and engineering . . . . . . . . . 489 1,119
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Total operating expenses. . . . . . . . 6,440 6,607
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Operating income (loss). . . . . . . . . . . (1,317) (1,359)
Other income (expense), net. . . . . . . . . 154 (263)
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Income (loss) before income taxes. . . . . . (1,163) (1,622)
Income tax provision (benefit) . . . . . . . (314) (423)
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Net income (loss). . . . . . . . . . . . . . $(849) $(1,199)
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Earnings (loss) per share (Note 2):
Primary. . . . . . . . . . . . . . . . . . (.12) (.17)
Fully diluted. . . . . . . . . . . . . . . (.12) (.17)
Weighted average number of shares (Note 2):
Primary. . . . . . . . . . . . . . . . . . 7,185 7,208
Fully diluted. . . . . . . . . . . . . . . 7,185 7,209
</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(849) $(1,199)
Adjustments to reconcile to net cash used by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 2,744 2,437
Net book value of drilling systems sold . . . . . . . . . . . . 115 39
Other non-cash (income) expenses, net . . . . . . . . . . . . . (136) (35)
Changes in:
Accounts receivable, trade . . . . . . . . . . . . . . . . . . 572 (2,926)
Materials, supplies and inventories . . . . . . . . . . . . . (884) (3,582)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . (258) (110)
Income taxes receivable . . . . . . . . . . . . . . . . . . . (319) (832)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 103 981
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . (2,033) 663
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Total adjustments . . . . . . . . . . . . . . . . . . . . . . . (96) (3,365)
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Net cash used by operating activities . . . . . . . . . . . . (945) (4,564)
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INVESTING ACTIVITIES:
Cost of additions to equipment . . . . . . . . . . . . . . . . . . (2,287) (3,380)
Proceeds from sale of equipment . . . . . . . . . . . . . . . . . . 178 122
Advances to FlowMole Environmental Services Corporation . . . . . . (150)
Sales of short-term investments . . . . . . . . . . . . . . . . . . 3,733
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Net cash provided by (used by) investing activities . . . . . (2,109) 325
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FINANCING ACTIVITIES:
Net borrowings on note payable . . . . . . . . . . . . . . . . . . 2,750 1,950
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . 2 271
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . (1) (338)
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Net cash provided by financing activities . . . . . . . . . . 2,751 1,883
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CUMULATIVE TRANSLATION ADJUSTMENT
OF FOREIGN CURRENCY TRANSACTIONS . . . . . . . . . . . . . . . . . . (24) 25
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Net decrease in cash and cash equivalents . . . . . . . . . . . . . (327) (2,331)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 840 2,673
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End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 513 $ 342
--------- --------
--------- --------
</TABLE>
(See Notes to Consolidated Financial Statements)
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<PAGE>
UTILX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENT PRESENTATION
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
and operating results for the three-month and nine-month periods ended
December 31, 1995 and 1994. The statements should be read in conjunction
with the March 31, 1995 audited consolidated financial statements included in
the fiscal 1995 Annual Report on Form 10-K.
2. EARNINGS PER SHARE
Primary earnings per share is computed by dividing net income (loss) by the
weighted average number of shares of Common Stock of UTILX Corporation, $0.01
par value per share (the "Common Stock"), and common stock equivalents
outstanding during the period. Common stock equivalents, when dilutive,
include shares issuable upon exercise of the Company's stock options and
certain warrants. Fully diluted earnings per share is computed based on the
weighted average number of shares of Common Stock and common stock
equivalents outstanding during the period taking into consideration maximum
potential dilution.
3. MATERIALS, SUPPLIES AND INVENTORIES
Materials, supplies and inventories at December 31, 1995 and March 31, 1995
consists of the following:
<TABLE>
<CAPTION>
(In thousands)
December 31, March 31,
1995 1995
------------ ----------
<S> <C> <C>
Materials and Supplies $5,020 $4,886
Work in Process 1,826 2,184
Finished Goods 2,454 1,416
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$9,300 $8,486
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</TABLE>
4. DEFERRED INCOME TAXES
In order to realize the carrying amount of its net deferred tax assets at
December 31, 1995, the Company will be required to generate certain amounts
of taxable income in future years. As required by Statement of Financial
Accounting Standards No. 109, management estimates that it is more likely
than not that the Company will be able to generate sufficient taxable income
in future years and, accordingly, has not provided a valuation allowance as
of December 31, 1995. This estimate is required to be updated on a quarterly
basis, and a change in management's estimate could result in a decision to
establish a valuation reserve in the future.
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5. NOTE PAYABLE TO BANK
The Company has obtained a renewal of its committed, uncollateralized credit
facility of $5,000,000. The credit agreement requires that the Company
maintain certain financial covenants, including requirements to maintain
certain levels of tangible net worth, current ratio and debt ratio. This
line of credit now expires on November 30, 1996.
6. LITIGATION
The Company is involved in matters of litigation, both as plaintiff and as
defendant, all arising in the ordinary course of business. In August 1995,
the Company was named a defendant in litigation filed in the United States
District Court for the Southern District of Texas on behalf of a person
alleging serious personal injury in June 1994 while performing work at a
Company work site. The plaintiff has alleged negligence, gross negligence
and breach of contract by the Company. The complaint requests an unspecified
amount of damages in excess of $50,000 and punitive damages, plus interest
and costs. The Company has received a settlement offer near the limits of
the Company's insurance policy. The Company is defending this matter. A
co-defendant has tendered its defense in this litigation to the Company's
insurer, which has accepted the tender under reservation of rights.
Management expects that these matters will not have a materially adverse
effect on the consolidated financial position, results of operations or
liquidity of the Company.
7. STOCK OPTION PLAN
The Company accounts for its stock option plans under the provisions of
Accounting Principles Board Opinion No. 25 ("APB 25"). In October 1995, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"). FAS 123 establishes a fair value based method of accounting for
stock-based compensation plans and encourages entities to adopt that method
in place of the provisions of APB 25. The Company intends to continue to
apply the provisions of APB 25 in recognizing compensation expenses related
to its stock option plans.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THIRD QUARTER
OF FISCAL YEAR 1996
COMPARED TO THIRD QUARTER
OF FISCAL YEAR 1995
----------------------------------------
REVENUES:
Consolidated revenues decreased 1.3% in the third quarter of fiscal 1996, and
3.7% in the first nine months of fiscal 1996, compared to the same periods in
fiscal 1995.
NORTH AMERICAN OPERATIONS. Revenues from FlowMole drilling operations in
North America ("FlowMole operations") decreased 14% to $8.8 million in the
third quarter of fiscal 1996 compared to $10.2 million in the same period of
fiscal 1995. Revenues from FlowMole operations were 67% of consolidated
revenues in the third quarter of fiscal 1996 compared to 77% in the same
period of fiscal 1995. Revenues from CableCure services in North America
("CableCure operations") increased 53% to $2.3 million in the third quarter
of fiscal 1996 compared to $1.5 million in the same period of fiscal 1995.
Revenues from FlowMole operations decreased 12% to $26.1 million in the first
nine months of fiscal 1996, compared to $29.5 million in the same period in
fiscal 1995. Revenues from CableCure operations increased 45% to $4.5 million
in the first nine months of fiscal 1996, compared to $3.1 million in the same
period in fiscal 1995.
The decrease in revenues from FlowMole operations resulted from a combination
of lower prices and reduced total footage drilled. During the third quarter
of fiscal 1996, the Company's revenue per foot decreased by approximately 4%
compared to the same period of fiscal 1995. During the first nine months of
fiscal 1996, the Company's revenue per foot decreased by approximately 1%
compared to the same period of fiscal 1995. The price decrease in the third
quarter was primarily attributed to a change in the mix of work towards
smaller-diameter, lower-priced installations, as well as towards regions
where lower local labor rates produce lower prices for such services. In
addition, the impact of competition and increased use of competitive bidding
by customers contributed to the price decrease.
The lower levels of footage drilled by the Company was attributed to a number
of factors which varied from region to region, including competition, crew
availability and increased customer requirements for "turnkey" services, such
as de-energizing cables, arranging for utility locate services and notifying
utility customers of pending work in the area. The Company had reduced its
crew count steadily between January 1995 and July 1995 in connection with its
plan for improved crew training, and subsequently began to add crews reaching
a peak of 70 crews in the third quarter of fiscal 1996 compared to 70 in the
same period of fiscal 1995.
The weighted average number of FlowMole crews actually drilling on any given
workday reflects the fluctuating levels of total crews, as well as downtime.
Downtime is caused by a number of factors including weather, soil conditions,
equipment downtime, customer scheduling difficulties, mobilization between
jobs and customer requirements for turnkey services. The weighted average
number of FlowMole crews working during the third quarter of fiscal 1996 was
50 compared to 56 in the same period of fiscal 1995. The weighted average
number of FlowMole crews working during the first nine months of fiscal 1996
was 48 compared to 56 in the same period of fiscal 1995.
Strong customer demand contributed to the increased revenue levels from
CableCure operations. The Company is offering customers a "treat or replace"
contract option involving the use of both CableCure and FlowMole services.
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Customers choosing "treat or replace" options accounted for approximately 49%
of the Company's CableCure revenues in the third quarter of fiscal 1996
compared to approximately 37% in the same period of fiscal 1995. In fiscal
1996, CableCure customers were primarily electric utilities which were not
significant FlowMole customers in the prior two years.
INTERNATIONAL OPERATIONS. Revenues from international operations increased
25% to $2.0 million in the third quarter of fiscal 1996 compared to $1.6
million in the same period of fiscal 1995, and increased 15% to $5.5 million
in the first nine months of fiscal 1996 compared to $4.8 million in the same
period of fiscal 1995. The increase was primarily attributed to higher levels
of shipments of equipment in the first and third quarters of fiscal 1996,
offset in part by lower levels of shipments in the second quarter of fiscal
1996. Revenue from equipment sales constituted 43% of international revenues
in the first nine months of fiscal 1996, compared to 41% in the same period
of fiscal 1995. Other international revenues are derived principally from
sales of spare parts, the operation of FlowMole drilling crews in the United
Kingdom and CableCure operations outside of the United States.
GROSS PROFIT
Gross profit increased 113% in the third quarter of fiscal 1996 compared to
the same period in fiscal 1995, and decreased 2% in the first nine months of
fiscal 1996 compared to the same period of fiscal 1995. In the third quarter
of fiscal 1995, the Company recorded provisions for casualty losses and state
taxes that contributed significantly to the net loss reported in that period.
Excluding the effect of these charges, gross profit increased 20% in the
third quarter of fiscal 1996 compared to the same period in fiscal 1995, and
decreased 16% in the first nine months of fiscal 1996 compared to the same
period of fiscal 1995.
NORTH AMERICAN OPERATIONS. Gross Profit from FlowMole operations and
CableCure operations increased in the third quarter of fiscal 1996 compared
to the same period of fiscal 1995, primarily due to the improved level of
CableCure revenues. The Company has improved its procedures for hiring and
training CableCure employees and, in general, now recognizes a higher level
of gross profit on CableCure operations than in its FlowMole operations. The
Company has also increased the number of its CableCure crews and utilities
subcontractors to add to its internal capacity.
The Company carries a high level of fixed costs, particularly equipment
depreciation expense, in its FlowMole operations. Therefore, the reduced
FlowMole revenue described above had an adverse impact on gross profit. In
addition, customers are requiring that the Company perform a higher level of
turnkey services, contributing to increased labor costs, which has had an
adverse impact on gross profit. The Company is investing in its revised
training program, and in the third quarter of fiscal 1996, gross profit per
foot drilled increased over the prior year.
INTERNATIONAL OPERATIONS. Overall gross profit from international operations
increased slightly in the third quarter of fiscal 1996 compared to the same
period of fiscal 1995. The increase was due to the higher level of equipment
sales. For the first nine months of fiscal 1996, gross profit from
international operations was essentially unchanged from the same period of
fiscal 1995.
OPERATING EXPENSES AND OTHER INCOME (EXPENSES)
Total operating expenses decreased 3% in the third quarter and the first nine
months of fiscal 1996 compared to the same periods of fiscal 1995. The
decrease is primarily attributable to lower levels of research and
engineering expenses caused by lower levels of outside consulting costs, and
lower consumption of materials in research activities. The Company has
developed a design and is building a prototype Series G Drill, which is
intended to be a versatile, lower-cost drill requiring fewer crew employees
to operate than the Company's "GDHP", D or F Drills.
The Company generated other net income of $22,000 in the third quarter of
fiscal 1996 compared to other net expense of $83,000 in the same period of
fiscal 1995. In the first nine months of fiscal 1996 other net income
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(expense) was income of $154,000 compared to an expense of $263,000 in the
same period of fiscal 1995. During fiscal 1995, the Company recorded a
substantial loss from its share of the startup operations of its joint
venture, FlowMole Environmental Services Corporation. The operations of the
joint venture were ceased in the third quarter of fiscal 1996. The Company
does not anticipate further material gains or losses in connection with the
cessation of the joint venture operations.
Lower research and engineering costs in the third quarter and the first nine
months of fiscal 1996 were partially offset by higher selling, general and
administrative costs, which increased primarily due to filling new staff
positions, including the replacement of certain sales personnel that had been
temporarily eliminated during the second quarter of fiscal 1995.
As a result of the foregoing, the Company recorded pretax income of $163,000
in the third quarter of fiscal 1996 compared to a pretax loss of $1,262,000
in the same period of fiscal 1995, and the Company recorded a pretax loss of
$1,163,000 in the first nine months of fiscal 1996 compared to a pretax loss
of $1,622,000 in the same period of fiscal 1995.
INCOME TAX EXPENSE (BENEFIT)
The Company's effective income tax rate in the first nine months of fiscal
1996 was 27%, compared to 26% in the same period of fiscal 1995.
NET INCOME (LOSS)
The Company recorded net income of $104,000 in the third quarter of fiscal
1996 compared to a net loss of $976,000 in the same period of fiscal 1995,
and the Company recorded a net loss of $849,000 in the first nine months of
fiscal 1996 compared to a net loss of $1,199,000 in the same period of fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had unused sources of liquidity consisting
of $513,000 in cash and cash equivalents and an unused balance on its
committed line of credit of $2,250,000. This compares to $840,000 in cash and
cash equivalents and an unused balance on its committed line of credit of
$5,000,000 at March 31, 1995. The decrease in cash and increase in usage of
the line of credit during the first nine months of fiscal 1996 were primarily
due to timing factors in carrying accounts receivable and inventory as well
as in the payment of expenses. The Company had anticipated the periodic usage
of its line of credit throughout fiscal 1996. The Company anticipates that
through cash generated by operations and the periodic use of its credit
facility, it will be able to meet its cash requirements through at least
fiscal 1996. The line of credit expires on November 30, 1996.
REVIEW AND OUTLOOK
The Company anticipates that competitive factors will continue to impact its
ability to maintain or increase crew levels in its FlowMole operations, and
to continue to place pressure on pricing. In addition, the trend of customers
requiring turnkey services is expected to continue, which can adversely
affect gross profit. The Company expects to be able to maintain crew counts
throughout calendar 1996 at levels higher than reported in calendar 1995. If
it is successful, this should produce higher levels of revenue and of gross
profit, both as a percentage of revenue and in total gross profit. However,
the impact of price competition and increasing customer requirements may
result in identical or even reduced gross profit levels.
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<PAGE>
The Company expects to continue to record revenues from its CableCure
operations at or above the level of $2.3 million per quarter during calendar
1996. This compares to total revenue during calendar 1995, from CableCure
operations, of approximately $5.3 million. The Company expects to obtain
additional FlowMole revenues from customers choosing treat or replace
contracts, which should provide added flexibility in the scheduling of such
work, aiding the Company's efforts to improve crew productivity.
The Company's prototype Series G Drill, which will begin field-testing this
quarter, is designed to be more versatile, cost less and require fewer crew
employees to operate than its Series C, D or F drills. The Series G Drill is
still, however, only in the prototype stage and will not be placed into
service or sold to customers until it has satisfactorily passed all of the
field-testing. In addition, it is possible that field-testing will result in
the need for corrections that that could delay the availability of the new
Series G Drill. Finally, although the Company hopes to realize operating
cost-savings from the new Series G Drill, there can be no assurance that it
will do so until field-testing is complete and the new drill is placed in use
and achieves market acceptance.
The Company cannot guarantee the success of its prototype Series G Drill or
of any other new equipment that it may develop. International customers in
general all have alternative equipment available to them from other competing
equipment manufacturers who may, in 1996 or subsequent years, develop and
bring to the market equipment which is superior, combining cost and
performance factors, to the Company's own equipment designs. The Company
cannot therefore, at any point in time, count on the long term continuation
of revenue from sales of new equipment, and the volatility of such sales also
may increase in the short term. The Company's current inventory levels and
manufacturing activities will support the continuation of international
equipment sales for the next two fiscal quarters. The Company is currently
evaluating its plan for future equipment manufacturing. The assessment of
the plans for the Series G Drill will be a factor in reaching any decision.
The Company provides CableCure services under an exclusive license with Dow
Corning Corporation ("Dow Corning"), and purchases all of its CableCure fluid
from Dow Corning. Dow Corning filed for protection under Chapter 11 of the
Federal Bankruptcy Code in May 1995. The Company has been informed by Dow
Corning that it intends to continue the CableCure business; however, there
can be no assurance that it will continue to do so. To date, Dow Corning has
not filed any motion to assume or reject its exclusive license agreement with
the Company. The Company's rights under the exclusive license agreement will
eventually be determined by the bankruptcy court.
The Company enters into purchase orders and work orders with its customers to
perform FlowMole or CableCure operations, which typically provide for
termination by the customer upon short notice. Consequently, the Company is
not able to provide a record of firm backlog that would be a meaningful
indicator of future revenues. The Company's expectations for the future,
described above under "Review and Outlook" might not be realized if
significant amounts of such purchase orders and work orders should be
canceled.
These statements under "Review and Outlook" and any other statements which
are not historical facts contained in this Item 2 are forward looking
statements that involve risks and uncertainties, including those identified
under "Review and Outlook". This section is not intended to be a complete
discussion of the risk factors that affect the Company's results from
operations. For a more complete discussion of the risks and uncertainties
that affect this Company's business, please refer to the Company's Annual
Report and Form 10-K for its fiscal year ended March 1, 1995.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EUROPEAN PATENT MATTERS. In May 1989, the Company was granted European
Patent No. 0 195 559 by the European Patent Office covering subject matter
related to the Company's drilling technology similar to two patents
-12-
<PAGE>
previously granted to the Company in the United States in June 1987 and
November 1988. In October 1991, an Opposition Board of the European Patent
Office revoked the patent. The Company disagreed with the decision and
appealed the ruling. On October 8, 1993, the Technical Board of Appeal
issued a provisional opinion favorable to the Company, but not final. The
Company and opposers both filed statements in response to the provisional
opinion and an oral hearing before the Technical Board of Appeal was
scheduled to take place on October 25, 1995. Prior to the oral hearing, the
oppositions were withdrawn. As a result, the Appeal hearing was canceled and
the Patent was subsequently upheld in an amended form by the European Patent
Office.
EMERSON V. UTILX CORPORATION, A. B. CHANCE CO. AND THE CITY OF BRYAN.
In August 1995, the Company was named a defendant in litigation filed in the
United States District Court for the Southern District of Texas on behalf of
a person alleging serious personal injury in June 1994 while performing work
at a Company work site. The plaintiff has alleged negligence, gross
negligence and breach of contract by the Company. The complaint requests an
unspecified amount of damages in excess of $50,000 and punitive damages, plus
interest and costs. The Company has received a settlement offer near the
limits of the Company's insurance policy. The Company is defending this
matter. The City of Bryan, a co-defendant, has tendered its defense in this
litigation to the Company's insurer, which has accepted the tender under
reservation of rights.
The Company is involved in other litigation matters, both as a plaintiff
and as a defendant, arising in the ordinary course of its business.
Management expects that these matters will not have a materially adverse
effect on the consolidated financial position, results of operations or
liquidity of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER
None.
ITEM 6. EXHIBITS
27. Financial Data Schedule.
-13-
<PAGE>
UTILX CORPORATION
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.
UTILX CORPORATION
---------------------------------
(Registrant)
Date: February ___, 1996 By: /s/ Craig E. Davies
------------------------------
Craig E. Davies, President and
Chief Executive Officer
Date: February ___, 1995 By: /s/ Larry D. Pihl
------------------------------
Larry D. Pihl, Vice President/
Chief Financial Officer
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF UTILX CORPORATION FOR THE NINE
MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 513
<SECURITIES> 0
<RECEIVABLES> 11,514
<ALLOWANCES> 608
<INVENTORY> 9,300
<CURRENT-ASSETS> 25,071
<PP&E> 27,833
<DEPRECIATION> 18,728
<TOTAL-ASSETS> 35,221
<CURRENT-LIABILITIES> 7,381
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 27,060
<TOTAL-LIABILITY-AND-EQUITY> 35,221
<SALES> 36,028
<TOTAL-REVENUES> 36,028
<CGS> 30,905
<TOTAL-COSTS> 37,345
<OTHER-EXPENSES> (154)
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> (1,163)
<INCOME-TAX> (314)
<INCOME-CONTINUING> (849)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (849)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
