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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, 1996
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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, 1996, 7,180,075 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
---- ----
PART I
1. Financial Statements
Consolidated Balance Sheet
December 31, 1996 and March 31, 1996 . . . . . . . . . . . . . 3
Consolidated Statement of Operations
For the Three Months Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Operations
For the Nine Months Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows
For the Nine Months Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 9
PART II
1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 13
2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . 13
3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . 13
4. Submission of Matters to a Vote of Security Holders. . . . . . 13
5. Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Exhibits and Reports on Forms 8-K. . . . . . . . . . . . . . . 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, 1996
(IN THOUSANDS, EXCEPT SHARES)
(UNAUDITED)
ASSETS
DECEMBER 31 MARCH 31
----------- --------
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 2,273 $ 495
Accounts receivable, trade, net . . . . . . . 12,208 10,659
Materials, supplies and inventories . . . . . 6,248 8,128
Income taxes receivable . . . . . . . . . . . 337 1,019
Prepaid expenses and other. . . . . . . . . . 462 216
------- -------
Total current assets . . . . . . . . . . 21,528 20,517
Equipment and improvements, net. . . . . . . . . . 9,936 9,113
Other assets, net. . . . . . . . . . . . . . . . . 752 994
------- -------
Total assets . . . . . . . . . . . . . . $32,216 $30,624
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank. . . . . . . . . . . . . $ - $ 2,500
Accounts payable. . . . . . . . . . . . . . . 1,969 1,912
Accrued liabilities . . . . . . . . . . . . . 3,469 2,756
------- -------
Total current liabilities. . . . . . . . 5,438 7,168
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Stockholders' equity:
Common Stock, $0.01 par value
(authorized 25,000,000 shares). . . . . 72 72
Common Stock Warrants . . . . . . . . . . . . 936 936
Additional paid-in capital. . . . . . . . . . 17,414 17,399
Retained earnings . . . . . . . . . . . . . . 8,865 5,940
Unearned compensation . . . . . . . . . . . . (37) (76)
Cumulative foreign currency translation
adjustment. . . . . . . . . . . . . . . . . (472) (815)
------- -------
Total stockholders' equity . . . . . . . 26,778 23,436
------- -------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . $32,216 $30,624
------- -------
------- -------
Common Stock issued and outstanding . . . . . 7,180,075 7,184,116
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1996 1995
---- ----
Revenues . . . . . . . . . . . . . . . . . . . . . . $16,317 $13,155
Cost of revenues . . . . . . . . . . . . . . . . . . 13,604 10,798
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Gross profit . . . . . . . . . . . . . . . . . . 2,713 2,357
------- -------
Operating expenses:
Selling, general and administrative. . . . . . . 1,702 2,048
Research and engineering . . . . . . . . . . . . 172 168
------- -------
Total operating expenses . . . . . . . . . . 1,874 2,216
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Operating income (loss). . . . . . . . . . . . . . . 839 141
Other income (expense), net. . . . . . . . . . . . . (27) 22
------- -------
Income (loss) before income taxes. . . . . . . . . . 812 163
Income tax provision (benefit) . . . . . . . . . . . (944) 59
------- -------
Net income (loss). . . . . . . . . . . . . . . . . . $ 1,756 $ 104
------- -------
------- -------
Earnings (loss) per share (Note 2):
Primary. . . . . . . . . . . . . . . . . . . . . .24 .01
Fully diluted. . . . . . . . . . . . . . . . . . .24 .01
Weighted average number of shares (Note 2):
Primary. . . . . . . . . . . . . . . . . . . . . 7,330 7,192
Fully diluted. . . . . . . . . . . . . . . . . . 7,434 7,192
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1996 1995
---- ----
Revenues . . . . . . . . . . . . . . . . . . . . $46,990 $36,028
Cost of revenues from operations . . . . . . . . . . 38,877 30,905
------- -------
Gross profit . . . . . . . . . . . . . . . . . . 8,113 5,123
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Operating expenses:
Selling, general and administrative. . . . . . . 5,533 5,951
Research and engineering . . . . . . . . . . . . 544 489
------- -------
Total operating expenses . . . . . . . . . . 6,077 6,440
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Operating income (loss). . . . . . . . . . . . . . . 2,036 (1,317)
Other income (expense), net. . . . . . . . . . . . . (43) 154
------- -------
Income (loss) before income taxes. . . . . . . . . . 1,993 (1,163)
Income tax benefit . . . . . . . . . . . . . . . . . 932 314
------- -------
Net income (loss). . . . . . . . . . . . . . . . . . $ 2,925 $ (849)
------- -------
------- -------
Earnings (loss) per share (Note 2):
Primary .. . . . . . . . . . . . . . . . . 40 (.12)
Fully diluted. . . . . . . . . . . . . . . . . . .40 (.12)
Weighted average number of shares (Note 2):
Primary . . . . . . . . . . . . . . . . . . . 7,285 7,185
Fully diluted. . . . . . . . . . . . . . . . . . 7,325 7,185
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
1996 1995
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OPERATING ACTIVITIES:
Net Income (Loss) . . . . . . . . . . . . . . . $ 2,925 $ (849)
Adjustments to reconcile to net cash provided by
(used by) operating activities:
Depreciation and amortization. . . . . . . . 2,775 2,744
Net book value of drilling systems sold. . . 115
Other non-cash (income) expenses, net. . . . 48 (136)
Changes in:
Accounts receivable, trade . . . . . . . . (1,428) 572
Materials, supplies and inventories. . . . 2,057 (884)
Prepaid expenses and other . . . . . . . . (83) (258)
Income taxes receivable. . . . . . . . . . 562 (319)
Accounts payable . . . . . . . . . . . . . 45 103
Accrued liabilities. . . . . . . . . . . . 713 (2,033)
------- -------
Total adjustments. . . . . . . . . . . . . . 4,689 (96)
------- -------
Net cash used provided by (used by)
operating activities. . . . . . . . . . 7,614 (945)
------- -------
INVESTING ACTIVITIES:
Cost of additions to equipment. . . . . . . . . (3,358) (2,287)
Proceeds from sale of equipment . . . . . . . . 12 178
------- -------
Net cash used by investing activities . (3,346) (2,109)
------- -------
FINANCING ACTIVITIES:
Net borrowings (payments) on note payable . . . (2,500) 2,750
Proceeds from exercise of stock options . . . . 16 2
Repurchase of common stock. . . . . . . . . . . (1) (1)
------- -------
Net cash provided by (used by)
financing activities . . . . . . . . . . (2,485) 2,751
------- -------
CUMULATIVE TRANSLATION ADJUSTMENT
OF FOREIGN CURRENCY TRANSACTIONS . . . . . . . . . (5) (24)
------- -------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . 1,778 (327)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . 495 840
------- -------
End of period . . . . . . . . . . . . . . . . . $ 2,273 $ 513
------- -------
------- -------
(See Notes to Consolidated Financial Statements)
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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, 1996 and 1995. The statements should be read in conjunction with the March
31, 1996 audited consolidated financial statements included in the fiscal 1996
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, 1996 and March 31, 1996
consists of the following:
(In thousands)
December 31, 1996 March 31, 1996
----------------- --------------
Materials and supplies $ 4,990 $ 5,233
Work in process 672 1,077
Finished goods 1,263 2,753
Less Allowance for potentially
obsolete or overstocked inventory (677) (935)
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6,248 $ 8,128
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4. NOTE PAYABLE TO BANK
The Company has obtained a renewal of its committed, uncollateralized credit
facility of $5,000,000. The credit agreement contains certain financial
covenants that require the company to maintain certain levels of tangible net
worth, working capital and debt ratio. This line of credit expires on June 30,
1998.
5. COMMITMENTS AND CONTINGENCIES
INTERNAL REVENUE SERVICE AUDIT. The Internal Revenue Service's examination of
the Company's federal income tax return for fiscal 1994 has been completed. The
Company has been notified that there will be no adjustment to the income tax
return. In the third quarter of fiscal 1997, the Company filed several amended
federal income tax returns and these will recover greater income tax refunds
from prior years than had been projected. The Company accordingly reported an
$850,000 income tax benefit in the third quarter of its current fiscal year.
The Company continues to provide a full valuation account for remaining net
deferred tax assets and to evaluate the account on a quarterly basis.
OTHER MATTERS.
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. In April 1996, an amended complaint was filed adding as
additional plaintiffs certain relatives of the injured person. The plaintiffs
have 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. A co-defendant has tendered its
defense in this litigation to the Company's insurer, which has accepted the
tender under reservation of rights. In December 1996, all plaintiffs and
defendants participated in mediation and reached a settlement agreement which is
pending final court approval. If the settlement is approved as agreed, the
Company's share of the cost of the settlement will be covered by existing
insurance reserves.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THIRD QUARTER
OF FISCAL YEAR 1997
COMPARED TO THIRD QUARTER
OF FISCAL YEAR 1996
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REVENUES
Consolidated revenues increased 24% in the third quarter of fiscal 1997, and 30%
in the first nine months of fiscal 1997, compared to the same periods in fiscal
1996.
NORTH AMERICAN OPERATIONS. Revenues from FlowMole drilling operations in North
America ("FlowMole operations") increased to $11 million in the third quarter of
fiscal 1997 compared to $8.8 million in the same period of fiscal 1996.
Revenues from CableCure services in North America ("CableCure operations")
increased to $4 million in the third quarter of fiscal 1997 compared to $2.3
million in the same period of fiscal 1996.
Revenues from FlowMole operations increased to $30.2 million in the first nine
months of fiscal 1997, compared to $26.1 million in the same period in fiscal
1996. Revenues from CableCure operations increased to $11.2 million in the first
nine months of fiscal 1997, compared to $4.5 million in the same period in
fiscal 1996.
The increased revenues in FlowMole operations were attributed to increased
demand for FlowMole services and the Company's ability to maintain a higher
level of drilling crews than in the prior year. In fiscal 1996, under a
previously commenced program to consolidate crews and improve training in order
to improve average crew performance, the Company reduced its crew levels during
the first and second quarters. When demand for services increased in subsequent
quarters, revenue growth was partially constrained by the need to add and train
new crew members. The time required to add and train new FlowMole crews could
also constrain revenue growth if demand should exceed capacity in future
periods. In addition, the Company has expanded its capacity for non-drilling
services such as trenching, which has also increased demand. Continued strong
demand for CableCure services, primarily under "Test, Treat or Replace"
contracts, contributed to the increased CableCure revenue levels. Customers
choosing Test, Treat or Replace contracts also contributed to the increased
demand for FlowMole services.
INTERNATIONAL OPERATIONS. Revenues from international operations decreased to
$1.2 million in the third quarter of fiscal 1997, compared to $2.0 million in
the same period of fiscal 1996. This decrease was primarily attributed to an
anticipated reduction in sales of FlowMole drilling equipment due to depleted
inventory while transitioning manufacturing to outside vendors. Revenues from
international operations remained at $5.5 million for the first nine months of
fiscal 1997 and also for the same period of fiscal 1996.
Equipment sales revenue decreased to $341,000 in the third quarter of fiscal
1997 compared to $799,000 in the same period of fiscal 1996. Equipment sales
revenue increased to $2.5 million during the first nine months of fiscal 1997
compared to $2.4 million in the same period of fiscal 1996. As discussed under
"Review and Outlook", the Company has sold substantially all of its inventory of
new equipment. The Company has not yet placed an order with an outside
manufacturer for additional equipment to be held for sale. Although the Company
expects to place such an order in the next few months, due to existing inventory
levels and manufacturing lead times, the Company expects a continued low level
of revenue from equipment sales at least through the remainder of fiscal 1997.
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GROSS PROFIT
Gross profit increased 15% in the third quarter of fiscal 1997 compared to the
same period in fiscal 1996, and increased 58% in the first nine months of fiscal
1997 compared to the same period of fiscal 1996.
NORTH AMERICAN OPERATIONS. Gross profit from FlowMole operations and CableCure
operations increased in the third quarter of fiscal 1997 compared to the same
period of fiscal 1996 as a result of increased demand for FlowMole services and
the Company's expanded capability to support non-drilling services. From July
1st to December 31st of fiscal 1997, worldwide employment increased from 515 to
669, as drilling crews and new types of crews for the provision of broader
ranges of services to customers were added. Additional hiring and training
expenses and equipment purchases resulting from the increase in head count
contributed to a reduction in gross profit as a percentage of revenue in the
third quarter of fiscal 1997.
INTERNATIONAL OPERATIONS. Overall gross profit from international operations
decreased in the third quarter of fiscal 1997 compared to the same period of
fiscal 1996. The decrease was due to lower revenue levels. For the first nine
months of fiscal 1997, gross profit from international operations was
essentially unchanged from the same period of fiscal 1996.
OPERATING EXPENSES AND OTHER INCOME (EXPENSES)
Total operating expenses decreased 15% in the third quarter of fiscal 1997
compared to the same period of fiscal 1996. In the first nine months of fiscal
1997 operating expenses decreased by 6% compared to the same period of fiscal
1996. Provisions for royalty payments under the Company's exclusive CableCure
license have increased to over $200,000 per quarter in fiscal 1997, compared to
none in the same periods of fiscal 1996. The Company's restructuring, as
announced on April 2, 1996, has contributed to reduced corporate overhead,
resulting in lower expenses for both third quarter and year to date to more than
offset the increased CableCure royalty expenses.
Research and engineering costs in the third quarter of fiscal 1997 include
increases in CableCure research expenditures. The Company expects a continued
investment in CableCure research through the next fiscal year. Increased
research and engineering costs for the first nine months of fiscal 1997 include
expenses for the continued Series G-Drill prototype testing.
Other income (expense), net was an expense of $27,000 in the third quarter of
fiscal 1997 compared to income of $22,000 in the same period of fiscal 1996. In
the first nine months of fiscal 1997 other income (expense), net was an expense
of $43,000 compared to income of $154,000 in the same period of fiscal 1996.
During the third quarter of fiscal year 1997, foreign exchange losses account
for the increased expenses. The Company recorded a gain from its share of the
start-up operations of a joint venture in the first nine months of fiscal 1996.
This joint venture ceased operations in the third quarter of fiscal 1996.
INCOME (LOSS) BEFORE INCOME TAXES
As a result of the foregoing, the Company recorded pretax income of $812,000 in
the third quarter of fiscal 1997 compared to pretax income of $163,000 in the
same period of fiscal 1996. The Company recorded pretax income of $2,037,000
in the first nine months of fiscal 1997 compared to a pretax loss of $1,163,000
in the same period of fiscal 1996.
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INCOME TAX EXPENSE (BENEFIT)
The Company would normally expect an effective income tax rate of approximately
40% on positive pretax income. This exceeds the federal statutory rate of 34%
due to the impact of state income taxes and nondeductible expenses. The Company
continues to provide a 100% valuation allowance for net deferred tax assets
(originally established in the fourth quarter of fiscal 1996). As a result, due
to utilization of net operating loss carryforwards and other deferred tax
benefits in fiscal 1997, the Company has eliminated substantially all of the
Company's income tax provision in the first, second and third quarters of fiscal
1997. In the third quarter of fiscal 1997, the Company filed several amended
Federal income tax returns and will recover greater income tax refunds from
prior years than had been projected. The amendments resulted from the
conclusion of an Internal Revenue Service examination of the Company's fiscal
1994 return, allowing the immediate deductibility of certain royalty payments
made in that year. The Company accordingly reported an $850,000 income tax
benefit in the third quarter of fiscal 1997. Additional income tax benefits
reflect the projected recovery of foreign income taxes paid in prior years. The
Company's effective income tax rate in the third quarter of fiscal 1996 was 36%.
NET INCOME (LOSS)
As a result of the foregoing, the Company recorded net income of $1,756,000 in
the third quarter of fiscal 1997 compared to net income of $104,000 in the same
period of fiscal 1996. The Company recorded net income of $2,925,000 in the
first nine months of fiscal 1997 compared to a net loss of $849,000 in the same
period of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had unused sources of liquidity consisting of
$2.3 million in cash and cash equivalents and an unused balance on its committed
line of credit of $5,000,000. The line of credit expires on June 30, 1998.
This compares to $495,000 in cash and cash equivalents and an unused balance on
its committed line of credit of $2,500,000 at March 31, 1996. Capital
expenditures of $3.4 million for equipment to expand the Company's capabilities
to perform additional auxiliary services, such as trenching and fusion of gas
pipes, represents the primary use of cash during the first nine months of fiscal
1997. The net increases in cash during the first, second and third quarters of
fiscal 1997 were primarily due to the impact of positive cash flow from
operations, including the collection of federal income tax refunds. The Company
has anticipated the periodic usage of its line of credit throughout fiscal 1997.
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 1997.
REVIEW AND OUTLOOK
The Company is experiencing strong demand for its FlowMole and CableCure
services in North America. The Company's revenue levels and the weighted
average number of FlowMole systems in operation on any given day are affected by
factors which include weather, pricing, competition, customer work release
practices, soil and other work difficulty determinants, and permitting. The
Company may choose to increase or decrease its capacity; however, management
currently plans to add crews or equipment when it has a high degree of
confidence in the Company's ability to keep the added crews busy. In addition,
the Company's contracts typically allow for cancellation by the customers on
relatively short notice. Therefore, sudden changes in demand may have an
immediate adverse impact on the Company's revenue levels. A small number of
customers generate the majority of the Company's North American CableCure
revenues, increasing the exposure of the Company to such short term fluctuations
in revenues. See also the discussion under "Risk Factors", below.
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The Company has announced the termination of its in-house assembly of new
FlowMole drilling equipment. No decision has yet been made as to the vendor or
vendors who will perform such assembly services for the Company in the future.
The Company has sold substantially all its inventory of new drilling equipment.
The nature and timing of the decision regarding future equipment purchasing may
have an impact on the continuation of revenue from equipment sales in the long
term and limited inventory levels will adversely impact equipment sales revenues
in the near future. Also, although the Company expects to maintain or increase
its revenues from spare parts sales to international customers, such customers
may in fact respond to the Company's decision by turning to other suppliers for
equipment and spare parts.
This Form 10-Q contains forward looking statements, in addition to those under
the caption "Review and Outlook". Such statements are subject to substantial
risk. Actual results may vary materially due to risks and uncertainties
inherent in the Company's business, including those described under "Review and
Outlook," those described under "Risk Factors" below, and additional
descriptions included in Item 7 of the Company's fiscal 1996 Form 10-K filed
with the Securities and Exchange Commission.
RISK FACTORS
COMPETITION. The Company has experienced a long-term trend of declining prices
for guided boring services, particularly for smaller diameter utility
installations, due to competitive pressures and changes in utility bidding
practices. This trend has also caused the Company to lower its prices for
CableCure injection services, which are priced at a discount to replacement
costs, including replacement via guided boring. In addition, the Company's
utility customers are increasing their requests for "turnkey" installation,
replacement and restoration services, requiring their drilling contractors to
take responsibility for switching circuits, terminating circuits, and other
non-incidental tasks. These tasks require additional equipment and labor, and
the cost increases can offset any price increase the Company is able to
negotiate for the expansion of its services. The trend of falling prices for
guided boring services is expected to continue into the future, as more
customers award work based on competitive bidding, more customers require their
drilling contractors to perform additional tasks as part of the drilling
contract, and more conventional contractors acquire drilling capabilities in
order to enter into this segment of the construction industry. This trend will
continue to put downward pressure on the market price for CableCure services.
The Company cannot predict the ultimate duration or the magnitude of these
decreases.
SEASONAL FACTORS. Weather and other seasonal factors may decrease the Company's
revenues and profits in any given period. Adverse weather may preclude the
Company from operating its FlowMole drilling systems or providing its CableCure
services at certain times of the year. In addition, the Company believes that
the regular budgetary cycles of certain of its North American utility customers
tend to concentrate demand for the Company's services during the third quarter
of its fiscal year (the fourth quarter of the calendar year), although other
budgetary factors described below may override this trend in any given quarter.
As a result of these factors, results of operation in any given fiscal quarter
are not necessarily indicative of results in any other fiscal quarter.
UTILITIES' BUDGETARY CONSIDERATIONS. Budgetary considerations arising from
unfavorable regulatory determinations on matters such as rate-setting,
capitalization of services performed by the Company, or siting of power
production facilities, or from reductions in new housing starts, reductions in
electric utility revenues due to mild weather, and general economic downturns,
have affected the ability of some of the Company's utility customers to sustain
their cable replacement or other maintenance programs and, accordingly,
adversely impact the Company's revenues and profits. Although the Company has
broadened its customer base, one customer, Virginia Electric and Power Company,
continues to generate a significant portion of the Company's FlowMole revenues,
and a small number of customers generate more than half of its CableCure
revenues. Because cable replacement, restoration and other maintenance programs
are, to a substantial extent, deferrable and the Company's contracts with its
utility customers permit termination of orders on relatively short notice,
postponement or cancellation of such programs by customers can interject
substantial volatility into the Company's revenues and profits.
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DOW CORNING CORPORATION. In May 1995, Dow Corning Corporation ("Dow Corning")
filed for protection under Chapter 11 of the United States Bankruptcy Code and
began to operate as a debtor in possession. To date, Dow Corning has not filed
any motion to assume or reject the exclusive license agreement with the Company,
and the Company is unaware of any orders in the bankruptcy court to date which
pertain to the exclusive license agreement. Management of Dow Corning has
repeatedly indicated to the Company that its intends to continue conducting the
business with the Company, and the Company is currently unaware of any facts
which would lead it to believe that Dow Corning intends to discontinue the
relationship. However, there can be no guarantee that the CableCure license
agreement will not be amended or rejected during the course of the bankruptcy
proceeding.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EMERSON, ET AL. V. UTILX CORPORATION, A. B. CHANCE CO., THE CITY OF BRYAN
AND PAUWELS TRANSFORMERS, INC. 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. In April
1996, an amended complaint was filed adding as additional plaintiffs certain
relatives of the injured person. The plaintiffs have 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 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. In December 1996, all plaintiffs and defendants
participated in mediation and reached a settlement agreement which is pending
final court approval. If the settlement is approved as agreed, the Company's
share of the cost of the settlement will be covered by existing insurance
reserves.
OTHER. 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 AND REPORTS ON FORM 8-K
(a) 11.1 Statement Regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) Report on Form 8-K. None.
-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 11, 1997 By: /s/ Craig E. Davies
--------------------------------------
Craig E. Davies, President and Chief
Executive Officer
Date: February 11, 1997 By: /s/ Larry D. Pihl
--------------------------------------
Larry D. Pihl, Vice President /
Chief Financial Officer
-14-
<PAGE>
As Filed with the Securities and Exchange Commission on February 13, 1997
File No. 0-16821
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
EXHIBITS
TO
QUARTERLY REPORT FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
-------------------------
UTILX CORPORATION
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
11.1 Statements Regarding Computation of Per Share Earnings. Filed
herewith.
27.1 Financial Data Schedule. Filed herewith.
<PAGE>
EXHIBIT 11.1
UTILX CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended December 31
-------------------------------------
1996 1995
Earnings Shares Earnings Shares
-------- ------ -------- ------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Primary earnings per common share:
Net earnings available for common stock and
weighted average common shares
outstanding $1,756 7,178 $ 104 7,185
Stock options and warrants assumed
exercised - net 152 7
------ ------ ------ ------
Total net earnings and primary common
shares $1,756 7,330 $ 104 7,192
------ ------ ------ ------
------ ------ ------ ------
Primary earnings per common share $ .24 $ .01
------ ------
------ ------
Fully diluted earnings per common share:
Net earnings available for common stock and
weighted average common shares
outstanding $1,756 7,178 $ 104 7,185
Stock options and warrants assumed
exercised - net 256 7
------ ------ ------ ------
Total net earnings and fully diluted common
shares $1,756 7,434 $ 104 7,192
------ ------ ------ ------
------ ------ ------ ------
Fully diluted earnings per common share $ .24 $ .01
------ ------
------ ------
</TABLE>
<PAGE>
EXHIBIT 11.1
UTILX CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended December 31,
-----------------------------------
1996 1995
Earnings
Earnings Shares (Loss) Shares
-------- ------- ------ ------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Primary earnings (loss) per common share:
Net earnings (loss) available for common
stock and weighted average common
shares outstanding $2,925 7,182 $ (849) 7,185
Stock options and warrants assumed
exercised - net 103
------ ------ ------ ------
Total net earnings (loss) and primary
common shares $2,925 7,285 $ (849) 7,185
------ ------ ------ ------
------ ------ ------ ------
Primary earnings (loss) per common share $ .40 $ (.12)
------ ------
------ ------
Fully diluted earnings (loss) per common
share:
Net earnings (loss) available for common
stock and weighted average common
shares outstanding $2,925 7,182 $ (849) 7,185
Stock options and warrants assumed
exercised - net 143
------ ------ ------ ------
Total net earnings (loss) and fully diluted
common shares $2,925 7,325 $ (849) 7,185
------ ------ ------ ------
------ ------ ------ ------
Fully diluted earnings (loss) per common
share $ .40 $ (.12)
------ ------
------ ------
</TABLE>
<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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,273
<SECURITIES> 0
<RECEIVABLES> 12,484
<ALLOWANCES> 276
<INVENTORY> 6,248
<CURRENT-ASSETS> 21,528
<PP&E> 31,693
<DEPRECIATION> 21,757
<TOTAL-ASSETS> 32,216
<CURRENT-LIABILITIES> 5,438
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 26,706
<TOTAL-LIABILITY-AND-EQUITY> 32,216
<SALES> 46,990
<TOTAL-REVENUES> 46,990
<CGS> 38,877
<TOTAL-COSTS> 44,954
<OTHER-EXPENSES> 33
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 1,993
<INCOME-TAX> (932)
<INCOME-CONTINUING> 2,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,925
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
