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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to_________________
Commission File Number 0-16821
UTILX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 91-1171716
(State of Incorporation) (I.R.S. Employer Identification Number)
22820 RUSSELL ROAD (98032)
P. O. BOX 97009
KENT, WASHINGTON 98064-9709 (253) 395-0200
(Address of Principal Executive Offices) (Registrant's Telephone Number)
Indicate by check mark whether the Registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of December 31, 1998, 7,425,560, shares of Common Stock were outstanding.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
FINANCIAL INFORMATION
1. Financial Statements
Consolidated Balance Sheet
December 31, 1998 and March 31, 1998........................................................ 3
Consolidated Statement of Operations
For the Three Months Ended
December 31, 1998 and 1997.................................................................. 4
Consolidated Statement of Operations
For the Nine Months Ended
December 31, 1998 and 1997.................................................................. 5
Consolidated Statement of Cash Flows
For the Nine Months Ended
December 31, 1998 and 1997.................................................................. 6
Notes to Consolidated Financial Statements.................................................. 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 10
3. Quantitative and Qualitative Disclosure About Market Risks.................................. 16
PART II
OTHER INFORMATION
1. Legal Proceedings........................................................................... 16
2. Changes in Securities and Use of Proceeds................................................... 16
3. Defaults Upon Senior Securities............................................................. 16
4. Submission of Matters to a Vote of Security Holders......................................... 16
5. Other Information........................................................................... 17
6. Exhibits and Reports on Form 8-K............................................................ 17
Signatures.................................................................................. 18
Exhibit Index
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UTILX CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31 AND MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARES)
ASSETS
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<CAPTION>
DECEMBER 31 MARCH 31
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<S> <C> <C>
Current assets: (UNAUDITED)
Cash and cash equivalents............................................. $ 670 $ 528
Accounts receivable, trade............................................ 13,436 19,720
Materials, supplies and inventories................................... 8,253 8,839
Income taxes receivable............................................... 456 433
Prepaid expenses and other............................................ 373 284
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Total current assets ............................................. 23,188 29,804
Equipment and improvements, net............................................ 13,456 13,091
Other assets, net.......................................................... 377 584
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Total assets ..................................................... $ 37,021 $ 43,479
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank.................................................. $ 5,280 $ 5,245
Current portion of capital lease obligations.......................... 1,061 839
Accounts payable...................................................... 2,072 3,993
Accrued liabilities................................................... 6,142 5,475
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Total current liabilities......................................... 14,555 15,552
Capital lease obligations, net of current portion.......................... 2,464 2,224
Other long-term liabilities................................................ 910 872
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Total liabilities.............................................. 17,929 18,648
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Commitments and Contingencies (Note 6):
Stockholders' equity:
Common Stock, $0.01 par value
(authorized 25,000,000 shares).................................... 74 74
Additional paid-in capital............................................ 18,521 18,469
Retained earnings..................................................... 1,038 6,790
Cumulative foreign currency translation adjustment.................... (541) (502)
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Total stockholders' equity........................................ 19,092 24,831
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Total liabilities and stockholders' equity................... $ 37,021 $ 43,479
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Common Stock issued and outstanding................................... 7,418,666 7,407,760
</TABLE>
(See Notes to Consolidated Financial Statements)
3
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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1998 1997
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Revenues...................................................................... $ 17,065 $ 22,577
Cost of revenues.............................................................. 17,822 19,354
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Gross profit............................................................. (757) 3,223
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Operating expenses:
Selling, general and administrative...................................... 2,697 2,167
Research and engineering 193 156
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Total operating expenses............................................. 2,890 2,323
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Operating income (loss) ...................................................... (3,647) 900
Other expense, net............................................................ (210) (145)
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Income (loss) before income taxes............................................. (3,857) 755
Income tax provision.......................................................... 0 0
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Net income (loss)............................................................. $ (3,857) $ 755
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Earnings( loss) per share (Note 2):
Basic.................................................................... $ (.52) $ .10
Diluted.................................................................. $ (.52) $ .10
CALCULATION OF COMPREHENSIVE INCOME (LOSS):
Net Income (loss)........................................................ $ (3,857) $ 755
Change in cumulative foreign currency
translation adjustment, net..................................... (95) 44
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Comprehensive Income (loss).............................................. $ (3,952) $ 799
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</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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1998 1997
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Revenues...................................................................... $ 57,974 $ 62,078
Cost of revenues.............................................................. 55,722 55,119
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Gross profit............................................................. 2,252 6,959
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Operating expenses:
Selling, general and administrative...................................... 6,977 6,022
Research and engineering................................................. 547 443
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Total operating expenses............................................. 7,524 6,465
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Operating income (loss) ...................................................... (5,272) 494
Other expense, net............................................................ (472) (326)
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Income (loss) before income taxes............................................. (5,744) 168
Income tax provision.......................................................... 0 1
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Net income (loss)............................................................. $ (5,744) $ 167
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Earnings( loss) per share (Note 2):
Basic.................................................................... $ (.77) $ .02
Diluted.................................................................. $ (.77) $ .02
CALCULATION OF COMPREHENSIVE INCOME (LOSS):
Net Income (loss)........................................................ $ (5,744) $ 167
Change in cumulative foreign currency
translation adjustment, net..................................... (39) 4
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Comprehensive Income (loss).............................................. $ (5,783) $ 171
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</TABLE>
(See Notes to Consolidated Financial Statements)
5
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
1998 1997
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OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (5,744) $ 167
Adjustments to reconcile to net cash provided by (used in) operating
activities:
Depreciation and amortization........................................ 3,454 3,017
Other non-cash expenses, net ........................................ 37 54
Changes in assets and liabilities.................................... 6,230 (3,704)
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Total adjustments.................................................... 9,721 (633)
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Net cash provided by (used in) operating activities............. 3,977 (466)
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INVESTING ACTIVITIES:
Cost of additions to equipment........................................... (2,504) (2,936)
Proceeds from sale of equipment.......................................... 42 0
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Net cash used in investing activities........................... (2,462) (2,936)
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FINANCING ACTIVITIES:
Net borrowings on note payable........................................... 35 2,475
Issuance of Common Stock................................................. 52 117
Net decrease in book overdraft........................................... (742) 0
Principal payments on capital leases..................................... (712) (148)
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Net cash provided by (used in) financing activities............. (1,367) 2,444
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EFFECT ON CASH FLOWS
OF CHANGES IN EXCHANGE RATES............................................... (6) 8
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Net increase (decrease) in cash and cash equivalents..................... 142 (950)
CASH AND CASH EQUIVALENTS:
Beginning of period...................................................... 528 1,490
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End of period............................................................ $ 670 $ 540
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</TABLE>
(See Notes to Consolidated Financial Statements)
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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 ending
December 31, 1998 and 1997. The statements should be read in conjunction
with the March 31, 1998 audited consolidated financial statements included in
the fiscal 1998 Annual Report on Form 10-K.
In June 1997 the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 establishes
standards for disclosures about operating segments in annual financial
statements and selected disclosures about operating segments in annual
financial statements and selected information in interim financial reports.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. FAS 131 supersedes FAS No.
14, "Financial Reporting for Segments of a Business Enterprise." FAS 131 is
effective for the year ending March 31, 1999 and requires restatement of
earlier periods presented. The impact on disclosures in the Company's
financial statements of adopting FAS 131 has not been determined.
2. EARNINGS PER SHARE
Basic earnings (loss) 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") outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net income (loss)
by the sum of the weighted average number of shares of Common Stock and, when
dilutive, common stock equivalents outstanding during the period. Common
stock equivalents include shares issuable upon exercise of the Company's
stock options and certain warrants, net of the number of shares repurchasable
on the open market with proceeds from the exercise of such options and
warrants.
Earnings (loss) Per Share is calculated as follows:
Basic earnings (loss) per common share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net income (loss) (3,857) 755 (5,744) 167
Divided by weighted average common
shares outstanding 7,426 7,208 7,419 7,194
Basic earnings (loss) per common share (.52) .10 (.77) .02
</TABLE>
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Diluted earnings (loss) per common share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net income (loss).................. (3,857) 755 (5,744) 167
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Weighted average common shares
outstanding................ 7,426 7,208 7,419 7,194
Stock options and warrants assumed
exercised - net,
if dilutive 0 350 0 350
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Total diluted shares outstanding... 7,426 7,558 7,419 7,544
------ ------ ------ ------
------ ------ ------ ------
Diluted earnings (loss) per
common share............... (.52) .10 (.77) .02
------ ------ ------ ------
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</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable, trade, net consist of the following:
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(In thousands)
December 31, 1998 March 31, 1998
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North American customers:
Completed work not yet billed........... $ 5,708 $ 7,299
Billed but uncollected.................. 6,574 11,527
International customers.................... 1,641 1,349
Less allowance for doubtful accounts....... (487) (455)
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$ 13,436 $ 19,720
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</TABLE>
4. MATERIALS, SUPPLIES AND INVENTORIES
Materials, supplies and inventories consist of the following:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1998 March 31, 1998
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<S> <C> <C>
Raw Materials and Spare Part.............. $ 8,544 $ 8,810
Work in Process........................... 278 684
Finished Goods............................ 27 116
Less allowance for potentially
obsolete or overstocked
inventory.......................... (596) (771)
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$ 8,253 $ 8,839
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5. NOTE PAYABLE TO BANK
The Company has a committed credit facility of $7,500,000 from Seafirst
National Bank of Washington ("Seafirst"), which initially expired on January
4, 1999 but was extended to April 4, 1999. At December 31, 1998, the Company
was not in compliance with certain financial covenants under this facility
including tangible net worth, working capital and debt ratio. However,
subsequent to December 31, 1998, the Company negotiated an extension of the
line of credit to April 4, 1999 and a modification of terms and covenants.
The agreement is collateralized by the Company's inventory and accounts
receivable. The credit agreement requires that the Company maintain certain
financial covenants, including requirements to maintain certain levels of
tangible net worth, working capital and debt ratio. Borrowings bear interest
at the Seafirst reference rate plus 2%. The Company pays a commitment fee of
up to 0.25% on the unused portion of the facility. At December 31, 1998 and
March 31, 1998, the Company had an outstanding balance of $5,280,000 and
$5,245,000, respectively, under this facility at a weighted average borrowing
rate of 7.75% and 7.69%, respectively.
In addition, at December 31, 1998 the Company had an outstanding $500,000
letter of credit under this facility, expiring April 15, 1999, to secure
payments under an insurance policy. No amounts have been drawn on this
letter of credit.
The Company has been informed by Seafirst that the existing credit facility
will not be renewed. The Company has accepted a proposal from NationsCredit
Commercial Corporation for a replacement line of credit for up to
$12,000,000. The lender is completing its due diligence and the Company
expects to have the replacement credit facility in place prior to April 4,
1999.
6. COMMITMENTS AND CONTINGENCIES
FLORIDA SUBCONTRACT SETTLEMENTS. In December 1998, the Company executed a
settlement agreement with a subcontractor. The Company will pay the
subcontractor $1,000,000 in four equal installments over two years. The
subcontractor has agreed to dismiss an ongoing dispute over the amount to be
paid to the contractor for injection services performed subsequent to April
1, 1997, and to desist from competing against the Company for seven years.
The Company had previously accrued $443,000 for this dispute and realized
expense of $292,000 in the quarter ended December 31, 1998.
INTERNAL REVENUE SERVICE EXAMINATION. Pursuant to the completion of an
Internal Revenue Service examination of the Company's Federal Income Tax
return for fiscal 1994, the Company filed amended income tax returns for
fiscal years 1991 through 1995 in December 1996, claiming additional income
tax refunds. The Internal Revenue Service completed its examination of these
amended returns in December 1998. As a result, income tax refunds of
$180,000, including a refund related to loss carry-backs from fiscal 1996 are
expected in February 1999. The Company has agreed to the final examiner's
report.
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.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REVENUES
Consolidated revenues decreased 24% in the third quarter of fiscal 1999,
compared to the same period in fiscal 1998. Consolidated revenues decreased
7% in the first nine months of fiscal 1999, compared to the same period in
fiscal 1998.
NORTH AMERICAN OPERATIONS. Revenue from North American operations decreased
to $15.5 million in the third quarter of fiscal 1999, compared to $21.1
million in the same period of the prior year
During the third quarter of fiscal 1999, the Company completed the work
allocated for the calendar year by its largest customer, Florida Power &
Light ("FPL"). The Company maintained certain levels of overhead in
anticipation of additional work from FPL in 1999 and the Company incurred
losses as a result. Revenue from Florida operations was $2.8 million in the
third quarter of fiscal 1999, compared to $6.9 million in the same period of
the prior year. Revenue from Florida operations was $17.0 million in the
first nine months of fiscal 1999 compared to $13.6 million in the same period
of the prior year. The March 1998 cancellation of contracts with Washington
Gas Company also adversely affected revenues contributing to a decrease in
installation and replacement revenues in the third quarter and first nine
months of fiscal 1999 of $2.3 million and $6.8 million, respectively,
compared to the same periods of the prior year.
In December 1998, FPL informed the Company that they would be awarded all of
FPL's statewide underground cable injection and replacement work for a three
year period, beginning January 1, 1999. The scope of the work is similar to
the scope of work performed by the Company in 1997 and 1998 although the
current contract does not include guaranteed volumes and issued work orders
are cancelable without notice. Work commenced on January 4, 1999.
INTERNATIONAL OPERATIONS. Revenues from international operations increased
to $1.6 million in the third quarter of fiscal 1999, compared to $1.5 million
in the same period of fiscal 1998.
Revenues from international operations decreased to $4.8 million in the first
nine months of fiscal 1998 compared to $5.1 million in the same period of the
prior year, due primarily to decreased revenue from international sales of
equipment.
GROSS PROFIT
Gross profit decreased $4.0 million or 123.7% in the third quarter of fiscal
1999, compared to the same period in fiscal 1998. Gross profit decreased $4.7
million or 67.5% in the first nine months of fiscal 1999, compared to the
same period in fiscal 1998.
NORTH AMERICAN OPERATIONS. Gross profit from installation and replacement
services decreased in the third quarter of fiscal 1999 compared to the same
period of fiscal 1998.
The Company was not able to reduce the costs of Florida operations in line
with the reduction in revenues, in part due to focusing crews and
administrative staff in Florida on job completion, invoicing and collections.
In addition, the Company incurred extra costs to temporarily relocate
several Florida crews to other regions. Furthermore, the Company chose to
maintain a level of overhead costs in Florida consistent with the expectation
of increased levels of business in the future. This produced a severe
adverse effect on gross profit from North American operations.
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INTERNATIONAL OPERATIONS. Gross profit from international operations in the
third quarter of fiscal 1999 decreased slightly compared to the same period
of the prior year primarily due to decreased revenue from sales of equipment.
Gross profit from international operations increased slightly for the first
nine months of fiscal 1999 due to the increased gross profit from European
service operations, which more than offset the impact of having less revenue
from equipment sales.
OPERATING EXPENSES AND OTHER INCOME (EXPENSES)
Total operating expenses increased 24.4% in the third quarter of fiscal 1999,
compared to the same period of fiscal 1998. Total operating expenses
increased 16.4% in the first nine months of fiscal 1999 compared to the same
period of fiscal 1998. The increase in selling, general and administrative
expenses in fiscal 1999 was primarily generated by increased spending on
corporate projects designed to support the Company's planned growth,
including costs associated with the selection of a new management information
system, as well as some non-recurring charges associated with certain
severance benefits and the settlement of a lawsuit. The higher level of
research and engineering expense in fiscal 1999, while not a significant
increase in total dollars spent, reflected increased spending on new
electronic guidance devices for the Company's FlowMole equipment.
Other expense net, was $210,000 and $472,000 in the third quarter and the
first nine months of fiscal 1999, respectively, compared to expense of
$145,000 and $326,000 in the same periods of the prior year. This change was
a result of increased interest expense due primarily to new capital leases
related to the financing of a portion of the Company's new drilling systems.
INCOME (LOSS) BEFORE INCOME TAXES
As a result of the foregoing, the Company recorded a pretax loss of $3.9
million in the third quarter of fiscal 1999, compared to a pretax income of
$755,000 in the same period of fiscal 1998. The Company recorded pretax loss
of $5.7 million in the first nine months of fiscal 1999 compared to a pretax
income of $168,000 in the same period of fiscal 1998.
INCOME TAX PROVISION
The Company would normally expect an effective income tax rate of
approximately 39% on positive pretax income. This exceeds the federal
statutory rate due to the impact of state income taxes and nondeductible
expenses. The Company has provided a valuation allowance against the full
amount of the Company's net deferred tax assets. Accordingly, no tax
benefits were recorded against operating losses generated in fiscal 1998 and
in the first nine months of fiscal 1999.
NET INCOME (LOSS)
As a result of the foregoing, the Company recorded a net loss of $3.9 million
in the third quarter of fiscal 1999, compared to a net income of $755,000 in
the same period of fiscal 1998. The Company recorded a net loss of $5.7
million in the first nine months of fiscal 1999 compared to net income of
$167,000 in the same period of fiscal 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 establishes
standards for disclosures about operating segments in annual financial
statements and selected disclosures about operating segments in annual
financial statements and selected information in interim financial reports.
It also establishes standards for related disclosures about products and
11
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services, geographic areas and major customers. FAS 131 supersedes FAS No.
14, "Financial Reporting for Segments of a Business Enterprise." FAS 131 is
effective for the year ending March 31, 1999 and requires restatement of
earlier periods presented. The impact of adopting FAS 131 has not been
determined.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had unused sources of liquidity consisting
of $670,000 in cash and cash equivalents and an available balance on its
committed line of credit of $1,715,000. This compares to $528,000 in cash
and cash equivalents and an available balance on its committed line of credit
of $4,755,000 at March 31, 1998. Uses of cash during the third quarter of
fiscal 1999 primarily related to capital expenditures of $561,000 and funding
of operating losses. During the nine months ended December 31, 1998, the
Company substantially reduced its level of outstanding receivables to
generate cash from operations. However, further reductions of that magnitude
are not expected.
Capital expenditures in the nine months ended December 31, 1998 primarily
included costs associated with the Company's plan to replace virtually all of
its management information systems with new enterprise-wide software. The
Company had determined that some of its management information systems did
not accurately adjust for the Year 2000, and commenced a project to replace
its management information systems in its entirety. The software selected is
certified by the vendor to be Year 2000 compliant. The implementation of the
new system was substantially completed in November 1998.
The Company relies on cash flow from operations and lease financing, in
addition to its line of credit, to fund operations and capital expenditures.
There can be no assurance that these facilities or similar replacement
facilities will continue to be available on terms acceptable to the Company
or at all. The Company's financial performance will be a key factor in
determining the availability of such facilities. If either facility became
unavailable to the Company, or if the Company is required to seek additional
capital to fund anticipated growth, the Company would be required to seek
other sources of public or private capital. There can be no assurance that
adequate funds will be available to the Company through such sources when
needed or will be available on terms favorable to the Company. If at any
time the Company is unable to obtain sufficient funds, the Company will be
required to restrict or eliminate plans for expansion and other aspects of
its operations or may be unable to meet its financial obligations on a timely
basis.
The Company's $7,500,000 bank credit facility will expire on April 4, 1999.
The Company has been informed by Seafirst that such existing credit facility
will not be renewed. The Company has accepted a proposal for a replacement
credit facility and expects such lender to complete its due diligence and
approve the new credit facility in March 1999. There can be no assurance
that negotiations for this new credit facility will be successfully
completed.
REVIEW AND OUTLOOK
INSTALLATION AND REPLACEMENT SERVICES. The Company anticipates that
opportunities to add installation and replacement services for existing
customers will be the primary source of growth in the near future, especially
from existing customers who utilize CableCure services. In mid December
1998, FPL informed the Company that they would award to the Company all of
FPL's statewide underground cable injection and replacement work for a three
year period, beginning January 1999. The Company expects FPL to continue to
be a significant customer in calendar 1999 and future years. However, there
can be no assurances that competition, budgetary factors or other matters,
including cancellation of previously issued work orders, will not reduce the
level of work performed for FPL. Also, the Company's revenue levels and the
weighted average number of crews in operation on any given day, will be
affected by a number of factors, including weather, pricing, competition,
customer work release practices, soil and other work difficulty determinants,
and permitting. See also the discussion under COMPETITION, SEASONAL FACTORS
AND UTILITIES' BUDGETARY CONSIDERATIONS included under "Important Risk
Factors Regarding Forward-Looking Statements," below.
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REPAIR AND RESTORATION SERVICES. The Company expects a continuation of
the trend towards increased customer acceptance of the CableCure process,
including an increased level of work under "Test, Treat or Replace"
contracts. The Company anticipates that the trend towards lower pricing for
cable replacement will continue to place downward pressure on the price for
CableCure services. The Company's ten largest CableCure customers account
for the majority of the Company's CableCure revenues. CableCure revenues in
Florida will be a key factor in determining growth in consolidated CableCure
revenues in calendar 1999. The Company expects to see increased volumes from
new customers in calendar 1999, and some increased volumes from existing
customers, but expects to continue to be dependent upon a small number of
customers. The Company's goal is to reduce this dependency through growth.
Because the Company's customers can typically cancel their work on short
notice, a certain degree of uncertainty always exists in the Company's future
revenue levels. See also the discussion under COMPETITION, SEASONAL FACTORS,
UTILITIES' BUDGETARY CONSIDERATIONS and DOW CORNING CORPORATION included
under "Important Risk Factors Regarding Forward-Looking Statements", below.
INTERNATIONAL OPERATIONS. Due to adverse developments affecting the
general economy in many Asian countries, the Company cannot predict the level
of equipment sales in the foreseeable future. However, the Company does
expect equipment sales to continue at some modest level. Company management
expects most of its international growth to come from CableCure services in
Europe.
IMPORTANT RISK FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in
reports to stockholders. The Private Securities Litigation Reform Act of
1995 contains a safe harbor for forward-looking statements on which the
Company relies in making such disclosures. In connection with this safe
harbor provision, the Company is hereby identifying important factors that
could cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of the Company. Any such
statement is qualified by reference to the following cautionary statements:
UTILITIES' BUDGETARY CONSIDERATIONS. Budgetary considerations, arising
from unfavorable regulatory determinations on matters such as rate-setting,
capitalization of services performed by the Company, approval of mergers and
acquisitions 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, or overall utility profitability
relative to its objectives 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 is
expected to generate over 40% of the Company's consolidated revenues, and a
small number of customers generate over 60% 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.
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 overall 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
13
<PAGE>
for CableCure Services. The Company cannot predict the ultimate duration or
the magnitude of such decreases, which could result in a material adverse
effect on the Company's financial condition, results of operations and cash
flows.
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. Such factors
severely impacted the Company's operations in the fourth quarter of fiscal
1998. 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 and have
overridden these factors in calendar 1998. As a result of these factors,
results of operations in any given fiscal quarter are not necessarily
indicative of results in any other fiscal quarter.
MANAGEMENT OF GROWTH. There can be no assurance that the Company's
systems, procedures and controls will be adequate to support the Company's
operations as they expand. Any future growth will impose significant
additional responsibilities on members of senior management, including the
need to identify, recruit and integrate new senior level managers and
executives. To the extent that the Company is unable to manage its growth
efficiently and effectively, or is unable to attract and retain additional
qualified management, there could be a material adverse effect on the
Company's financial condition, results of operations and cash flows.
AVAILABILITY OF QUALIFIED EMPLOYEES. The Company's ability to provide
high-quality services on a timely basis requires an adequate supply of
skilled laborers, equipment operators, journeymen linemen and project
managers. Accordingly, the Company's ability to increase its productivity and
profitability will be limited by its ability to employ, train and retain
skilled personnel necessary to meet the Company's requirements. Many
companies in the Company's industry are currently experiencing shortages of
qualified personnel, and there can be no assurance that the Company will be
able to maintain an adequate skilled labor force necessary to operate
efficiently, that the Company's labor expenses will not increase as a result
of a shortage in the supply of skilled personnel or that the Company will not
have to curtail its planned internal growth as a result of labor shortages.
DOW CORNING CORPORATION. The Company purchases its CableCure fluid
exclusively from Dow Corning. In May 1995, Dow Corning filed for protection
under Chapter 11. While the Company has been informed by Dow Corning that it
intends to continue the CableCure business, there can be no assurance that
Dow Corning or the bankruptcy court will not take action to amend or
terminate the CableCure license agreement.
FOREIGN CURRENCY FLUCTUATIONS. The Company's financial results are
affected by fluctuations in certain foreign currencies, particularly the
exchange rate between the British Pound Sterling and the German Deutschmark.
Such fluctuations could result in material adverse adjustments to the
carrying values of accounts receivable or other assets measured in foreign
currencies, or on the reported results of operations of the Company's
European operations.
YEAR 2000 RISK FACTORS. Significant uncertainty exists concerning the
potential costs and effects associated with Year 2000 compliance. Any Year
2000 compliance problem of either the Company or its major vendors and
customers could have a material adverse effect on the Company's financial
condition, results of operations and cash flows.
YEAR 2000 DATA CONVERSION. The year 2000 issue is the result of computer
programs having been written using two digits, rather than four, to define
the applicable year. Any of the Company's computers, computer programs,
manufacturing and administration equipment or construction equipment used by
its crews that have date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. If any of the Company's systems
or equipment that have date-sensitive software use only two digits, system
failures or miscalculations may result causing disruptions of operations,
including, among other things, a temporary inability to process transactions
with third parties or engage in similar normal business activities.
14
<PAGE>
During 1997, the Company initiated a project to address the Year 2000 issue
that encompasses operating and administrative areas of the Company. In
addition, executive management regularly monitors the status of the Company's
Year 2000 remediation plans. The process includes an assessment of issues
and development of remediation plans, where necessary, as they relate to
internally used software, computer hardware and use of computer applications
in the Company's processes and products. In addition, the Company is engaged
in assessing the Year 2000 issue with significant customers and suppliers.
INTERNAL INFRASTRUCTURE. The Company has determined that its propriety
equipment used by FlowMole and CableCure crews does not rely on date
sensitive software. The Company believes that it has identified
substantially all of the major computers, software applications, and related
equipment used in connection with is internal operations that must be
modified, upgraded, or replaced to minimize the possibility of a material
disruption to its business. The Company has completed the process of
replacing systems that have been identified as adversely affected. On
November 2, 1998, the Company converted its enterprise wide information
systems to newly installed software certified by the vendor to be Year 2000
compliant.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers
and related systems, the operation of office and facilities equipment, such
as fax machines, photocopiers, telephone switches, security systems,
elevators, and other common devices may be affected by the Year 2000 problem.
The Company is currently assessing the potential effect of, and costs of
remediating, the Year 2000 problem on its office and facilities equipment.
The Company estimates the total cost to the Company of completing any
required modifications, upgrades, or replacements of these other internal
systems will not have a material adverse effect on the Company's business or
results of operations. This estimate is being monitored and will be revised
as additional information becomes available.
CUSTOMERS. The Company is preparing to implement a communications plan with
its customers to attempt to identify and resolve, if possible, issues
associated with the Year 2000. If the Company's customers are unable to
resolve Year 2000 issues, those customers could have difficulty preparing new
work packages for issuance to the Company or approving and paying invoices
for the Company's services. The Company's revenues and cash flows from
operations could be severely affected as a result. The Company's customers
primarily consist of large utility companies who are expending substantial
resources to solve Year 2000 problems. However, there can be no assurance
that the Company will be able to identify if its customers have Year 2000
problems that will affect the Company. Also, even if such problems are
identified, the Company may not be able to influence its customers to
prioritize a timely solution to Year 2000 problems that are identified. Any
failure of customers to resolve Year 2000 issues in a timely manner could
have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
SUPPLIERS. The Company has initiated communications with third party
suppliers of the products and financial services used, operated, or
maintained by the Company to identify and, to the extent possible, to resolve
issues involving the Year 2000 problem. The Company believes that its major
suppliers are adequately addressing their Year 2000 exposure. However, the
Company has limited or no control over the actions of these third party
suppliers. Thus, while the Company expects that it will be able to resolve
any significant Year 2000 problems with these systems before the occurrence
of a material disruption to the business of the Company or any of its
customers, any failure of these third parties to resolve Year 2000 problems
with their systems in a timely manner could have a material adverse effect on
the Company's business, financial condition, cash flows and results of
operations.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. The Company expects to
identify and resolve all Year 2000 problems that could materially adversely
affect its business operations. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 problems
affecting the Company have been identified or corrected. The number of
devices that could be affected and the interactions among theses devices are
simply too numerous. In addition, one cannot accurately predict how many
Year 2000 problem related failures will occur or the severity, duration, or
financial consequences of these perhaps inevitable failures. As a result,
management expects that the Company could likely suffer the following
consequences:
15
<PAGE>
1. a significant number of operational inconveniences and
inefficiencies for the Company and its clients that may divert
management's time and attention and financial and human resources
from its ordinary business activities; and
2. a lesser number of serious system failures that may require
significant efforts by the Company's customers to prevent or
alleviate material business disruptions.
CONTINGENCY PLANS. The Company is currently developing contingency plans to
be implemented as part of its efforts to identify and correct Year 2000
problems affecting its customers or major vendors. The Company expects to
complete its contingency plans by June 30, 1999. These plans could include
increased work hours for Company personnel or use of contract personnel to
provide manual workaround for customer work release systems or invoice
approval processes, and similar approaches. If the Company is required to
implement any of these contingency plans, it could have a material adverse
effect on the Company's financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
UTILX CORPORATION VS. POWER CABLE RESTORATION, INC. AND RONALD E.
ALESHIRE. On December 17, 1998, the Company settled a lawsuit it filed in
Federal District Court in Florida on October 31, 1997 against Power Cable
Restoration, Inc. ("PCR"), a contractor in Florida with whom the Company had
a contract for certain cable injection services for FPL through January 2000,
and Ronald E. Aleshire, a principal shareholder in PCR. The complaint
alleged, among other things, certain breaches of contractual obligations and
requested declaratory relief and a determination that the Company had
sufficient grounds to terminate its contract with PCR.
The settlement provides for the immediate termination of the contract
between the Company and PCR and the payment by the Company to PCR of
$1,000,000 in four equal installments in December 1998, August 1999, April
2000 and December 2000. In addition, the principal shareholders of PCR
agreed not to compete with the Company for a seven-year period. The Company
was paid approximately $45,000 in proceeds that had been held in escrow
pending resolution of the pricing dispute between the parties.
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 other 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 AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
16
<PAGE>
ITEM 5. OTHER INFORMATION
In accordance with the Company's Bylaws, a shareholder proposing to
transact business at the Company's annual meeting must provide written
notice of such proposal, in the manner provided by the Company's Bylaws,
not fewer than 60 nor more than 90 days prior to the date of such annual
meeting (or, if the Company provides less than 60 days notice of such
meeting, no later than 10 days after the date of the Company's notice). In
addition, if the Company receives notice of a shareholder proposal less
than 45 days prior to the date of mailing the notice of such annual
meeting, the persons named as proxies in such proxy statement and proxy
will have discretionary authority to vote on such shareholder proposal.
The expected mailing date of the notice of the Company's 1999 annual
meeting is June 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule. Filed herewith.
10.40 Loan Modification Agreement between Registrant and Bank of
America NW, N.A., doing business as Seafirst Bank,
successor by name change to Seattle-First National bank,
dated February 4, 1999. Filed herewith.
10.41 Settlement Agreement and Mutual Release of Claims between
UTILX Corporation, Power Cable Restoration, Inc. and
Ronald E. Aleshire, signed on December 30, 1998 and
January 12, 1999. Filed herewith.
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated November 9, 1998 was filed
with the Securities and Exchange Commission reporting that the
Company's Board of Directors had adopted a Stockholder Rights Plan.
A Current Report on Form 8-K, dated November 10, 1998 was filed
with the Securities and Exchange Commission reporting that Craig
E. Davies, President and Chief Executive Officer, had left the
Company to pursue other opportunities and resigned from the
Company's Board of Directors.
A Current Report on Form 8-K, dated December 4, 1998 was filed
with the Securities and Exchange Commission reporting that the
Company's Board of Directors had elected its Chairman, William
M. Weisfield, to the permanent position of President and Chief
Executive Officer.
17
<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 4, 1999 By:/s/ William M. Weisfield
-----------------------------------------
William M. Weisfield, Chairman, President
and Chief Executive Officer
Date: February 4, 1999 By:/s/ Darla Vivit Norris
-----------------------------------------
Darla Vivit Norris, Senior Vice President
and Chief Financial Officer
18
<PAGE>
UTILX CORPORATION
As Filed with the Securities and Exchange Commission on February 16, 1999
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, 1998
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
----------------------
UTILX CORPORATION
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule. Filed herewith.
10.40 Loan Modification Agreement between Registrant and Bank of America
NW, N.A., doing business as Seafirst Bank, successor by name change
to Seattle-First National bank, dated February 4, 1999. Filed
herewith.
10.41 Settlement Agreement and Mutual Release of Claims between UTILX
Corporation, Power Cable Restoration, Inc. and Ronald E. Aleshire,
signed on December 30, 1998 and January 12, 1999. Filed herewith.
</TABLE>
<PAGE>
EXHIBIT 27.1
UTILX CORPORATION
FINANCIAL DATA SCHEDULE
<PAGE>
EXHIBIT 10.40
SEAFIRST BANK MEMBER FDIC
LOAN MODIFICATION
AGREEMENT
This Loan Modification Agreement ("Agreement") is made between UTILX
CORPORATION, a Delaware Corporation ("Borrower") and BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION doing business as SEAFIRST BANK, successor by
merger to Seattle-First National Bank ("Bank").
RECITALS:
A. The parties hereto entered into that certain Credit Agreement
dated December 2, 1994, as amended by those certain Loan
Modification Agreements dated October 24, 1995, May 16, 1996,
November 27, 1996, September 30, 1997, November 10, 1997, June 2,
1998, June 12, 1997, June 16, 1998 and January 4, 1999 (as the
same has been and may hereafter be amended from time to time, the
"Credit Agreement"). Subject to the terms and conditions set
forth in the Credit Agreement, Bank has agreed to make a
revolving loans ("Revolving Loans") to Borrower in the maximum
aggregate principal amount of $7,500,000 and to issue letters of
credit ("Letters of Credit") on Borrower's behalf. The aggregate
face amount of all outstanding Letters of Credit is $505,000.
C. Pursuant to the terms of the Loan agreement, the aggregate
principal amount of the Revolving Loans plus the aggregate face
amount of the Letters of Credit ("Credit Utilization") may not
exceed the "Borrowing Base" as defined in the Credit Agreement.
D. Based on Borrower's operating experience it is anticipated that
the Credit Utilization has exceeded and will in the future
continue to exceed the Borrowing Base. Borrower has requested
that Bank amend the definition of Borrowing Base in the Credit
Agreement, which Bank is prepared to do on the following terms
and conditions:
AGREEMENT:
1. DEFINITIONS. Capitalized terms not otherwise defined herein shall
have the meanings given in the Credit Agreement.
2. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is amended as
follows:
2.1 In Article 1, amendments are made to the definitions, as follows:
(a) The definition of "Borrowing Base" is amended and restated
to read as follows:
BORROWING BASE shall mean the sum of (i) the accounts
receivable borrowing base calculated in accordance with the
Customer Borrowing Plan, PLUS (ii) $500,000 for the period
commencing February 4, 1999 and ending February 28, 1999.
(b) The definition of "Customer Borrowing Plan" is added to
read as follows:
CUSTOMER BORROWING PLAN shall mean that certain Seafirst
Bank Customer Borrowing Plan Assigned Accounts Receivable dated
January
Page 1
<PAGE>
4, 1999 between Borrower and Bank, as the same has may be am
restated or replaced from time.
(c) The definition of "Reference Rate" is added to read as follows:
REFERENCE RATE shall mean, on any day, the rate of interest
publicly announced from time to time by Bank of America National
Trust and Savings Association (or any successor, "Bank of
America") in San Francisco, California, as its "Reference Rate."
The Reference Rate is set based on various factors, including
Bank of America's costs and desired return, general economic
conditions, and other factors, and is used as a reference point
for pricing some loans. Bank of America may price loans to its
customers at, above, or below the Reference Rate. Any change in
the Reference Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in
the Reference Rate.
(d) The definition of "Prime Rate" shall mean "Reference Rate" and
the definition of "Prime-Related Rate" shall mean
"Reference-Related Rate."
(e) The definition of "Reference-Related Rate" is added to read as
follows:
REFERENCE- RELATED RATE shall mean a per annum rate two
percent (2%) above the Reference Rate, as the Reference Rate
may vary from time to time.
(f) The definition of "Termination Date" is amended and restated
to read as follows:
TERMINATION Date shall mean April 4, 1999, or such earlier
date upon which Bank's commitment to lend is terminated pursuant
to Subsection 9.2(a).
(g) The definition of "Unfunded Capital Expenditures" is added to
read as follows:
UNFUNDED CAPITAL EXPENDITURES shall mean for any period,
the sum of all expenditures by Borrower during such period for
equipment, fixed assets, real property or improvements, or for
replacements or substitutions therefor or additions thereto,
that have a useful life of more than one year less the aggregate
principal amount of all indebtedness (other than the Revolving
Loans) assumed or incurred by Borrower during such period for
the purpose of financing such capital expenditures.
2.2 AMENDMENTS TO ARTICLE 3. Sections 3.1 and 3.2 are hereby amended and
restated as follows:
3.1 REIMBURSEMENT. If there is a draw under a standby letter
of credit issued by Bank on Borrower's behalf ("Letter of
Credit"), Borrower shall on demand immediately reimburse Bank
for the amount of the draw. Bank may on that date make an
Advance in the amount of the draw, whether or not a Default
exists or Borrower has requested an Advance, and apply the
Advance to reimburse the amount of the draw. Bank shall in
addition have all rights provided in the Application and
Agreement for Standby Credit ("L/C Agreement") executed by
Borrower in connection
Page 2
<PAGE>
with the issuance of such Letter of Credit. Any default under
an L/C Agreement shall be a Default.
3.2 TRANSACTION FEES. Borrower shall on demand pay all
transaction fees according to Bank's then-outstanding standard
fee schedule on all drafts, transfers, extensions and other
transactions in regard to the Letters of Credit, and reimburse
Bank for all out-of-pocket costs, legal fees, and expenses.
2.3 AMENDMENTS TO ARTICLE 4. Section 4.1 is hereby amended and restated
as follows and Sections 4.2 through 4.8 are hereby deleted:
4.1 INTEREST RATES AND PAYMENT DATE. The Revolving Note
shall bear interest from the date of Advance on the unpaid
principal balance outstanding from time to time at the
Reference-Related Rate and all accrued interest shall be
payable in arrears on each Interest Payment Date.
2.4 AMENDMENTS TO ARTICLE 4A. Section 4A.1 is hereby amended and restated
as follows:
4A.1 COLLATERAL. As security for the prompt payment and
performance of all Obligations, Borrower has granted or will
grant to Bank a first lien security interest in all of Borrower's
inventory, accounts, chattel paper, equipment and general
intangibles, and all proceeds thereof, including those
constituting documents, instruments or deposit accounts (the
"Collateral"). All terms used in the preceding sentence shall
have the meaning given to such terms under the UCC.
2.5 AMENDMENTS TO SECTION 7.12. Section 7.12 is hereby amended and
restated as follows:
7.12 BORROWING BASE. The sum of (a) outstanding principal
balance of the Revolving Note PLUS (b) the face amount of all
Letters of Credit outstanding shall at all times not exceed the
Borrowing Base. Borrower shall with each request for borrowing or
issuance of a Letter of Credit hereunder, and in any event not
less often than weekly, provide Bank a certificate of Borrower's
chief financial officer certifying compliance with this Section
7.12.
2.6 ADDITION OF SECTION 7.13. Section 7.13 is hereby added as follows:
7.13 COMPLIANCE WITH BORROWING PLAN. Borrower shall fully
and timely perform all terms of the Customer Borrowing Plan, the
terms of which are hereby incorporated into this Agreement.
2.7 ADDITION OF SECTION 8.11. Section 8.11 is hereby added as follows:
8.11 CAPITAL EXPENDITURES. Make any Unfunded Capital
Expenditures, except during the period commencing January 4, 1999
and ending April 4, 1999 Borrower shall be permitted to make
Unfunded Capital Expenditures not to exceed $200,000 in the
aggregate.
2.8 AMENDMENTS TO SECTION 10.2. The notice address for Bank set forth in
Section 10.2 is hereby amended and restated read as follows:
Page 3
<PAGE>
BANK:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
800 Fifth Ave, 29th Floor
Seattle, WA 98104
Attn: Raymond R. Anderson
2.9 AMENDMENTS TO EXHIBIT A. Exhibit A is hereby amended and restated
as set forth in Exhibit A attached hereto.
3. CONDITIONS TO EFFECTIVENESS. Notwithstanding anything contained herein
to the contrary, this Agreement shall not become effective until each
of the following conditions is fully and simultaneously satisfied:
3.1 DELIVERY OF AGREEMENT. Borrower and Bank shall have executed and
delivered to each other counterparts of this Agreement;
3.2 DELIVERY OF NOTE. Borrower shall have executed and delivered to Bank a
promissory note substantially in the form of Exhibit A attached hereto
(the "Note");
3.3 DELIVERY OF AMENDMENT. Borrower and Bank shall have executed and
delivered to each other counterparts of the Amendment to Security
Agreement substantially in the form of Exhibit B attached hereto (the
"Amendment");
3.4 DELIVERY OF LOCKBOX AGREEMENT. Borrower shall have executed and
delivered to Bank that certain Lockbox Agreement dated as of January
5, 1999 among Borrower, Bank and NationsBank Corporation;
3.5 DELIVERY OF FINANCING STATEMENTS. Borrower shall have executed and
delivered to Bank such UCC Financing Statements and UCC Financing
Statement Amendments as Bank may request.
3.6 CORPORATE AUTHORITY. Bank shall have received such evidence of
corporate authority and action as Bank shall request demonstrating
that the execution, delivery and performance of this Agreement, the
Note and the Amendment has been duly authorized by Borrower;
3.7 LOAN FEE. Bank shall have received a loan fee in the amount of $28,125
in respect of Bank's commitment to make Revolving Loans, of which
$18,750 has been received by Bank, and all of which shall be deemed
fully earned and non-refundable when paid;
3.8 INVESTMENT BANKING FIRM. Bank shall have received such evidence that
the Board of Directors of Borrower has adopted a resolution
authorizing Borrower to retain an investment banking firm to
investigate (a) a sale of Borrower or its assets and (b) alternate
sources of financing for Borrower.
3.9 REPRESENTATIONS TRUE. Except as disclosed in Borrower's December 31,
1998 financial statements, the representations of Borrower as set
forth in Article 6 of the Credit Agreement shall be true on and as
of the date of this Agreement with the same force and
effect as if made on and as of this date; and
3.10 OTHER DOCUMENTS. Bank shall have received such other documents,
instruments and undertakings as Bank may reasonably request.
Page 4
<PAGE>
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to
Bank that (a) except as disclosed in Borrower's December 31, 1998 financial
statements, each of the representations and warranties set forth in Article
6 of the Credit Agreement and (b) each of the representations and
warranties set forth in that certain Authorization for Loans and Related
Activities (Corporation) dated December 30, 1998 executed by Ronald M.
Dohr, Vice President-Human Resources, are true and correct in each case as
if made on and as of the date of this Agreement and Borrower expressly
agrees that it shall be an additional Event of Default under the Credit
Agreement if any representation or warranty made hereunder shall prove to
have been incorrect in any material respect when made.
5. NO FURTHER AMENDMENT. Except as expressly modified by this Agreement, the
Note or the Amendment or any other prior amendments, all other terms,
conditions and definition of the Credit Agreement, and all other notes,
security agreements, guaranties, deeds of trust, mortgages, and other
instruments or agreements entered into in connection with the Credit
Agreement, shall remain unmodified and in full force and effect and the
parties hereby ratify their respective obligations thereunder. Without
limiting the foregoing, Borrower expressly reaffirms and ratifies its
obligation to pay or reimburse Bank on request for all reasonable expenses,
including legal fees, actually incurred by Bank in connection with the
preparation of this Agreement, the Note and the Amendment, and the closing
of the transactions contemplated hereby and thereby.
6. MISCELLANEOUS.
6.1 ENTIRE AGREEMENT. This Agreement, the Note and the Amendment comprise
the entire agreement of the parties with respect to the subject matter
hereof and supersedes all prior oral or written agreements,
representations or commitments.
6.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and
all of which taken together shall constitute one and the same
Agreement.
6.3 GOVERNING LAW. This Agreement and the other agreements provided for
herein and the rights and obligations of the parties hereto and
thereto shall be construed and interpreted in accordance with the laws
of the State of Washington, excluding its conflict of laws rules.
6.4 ORAL AGREEMENTS NOT ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
This Agreement is dated as of February 4, 1999. Borrower acknowledges,
having read all of the provisions of this Agreement and Borrower agrees to
its terms.
Bank: Borrower:
BANK OF AMERICA NATIONAL TRUST AND UTILX CORPORATION
SAVINGS ASSOCIATION doing business as
SEAFIRST BANK
By /s/ Raymond R. Anderson By /s/ William M. Weisfield
----------------------- ------------------------
Raymond R. Anderson, William M. Weisfield,
Vice President Chief Executive Officer
Page 5
<PAGE>
EXHIBIT 10.41
SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF CLAIMS
By this Settlement Agreement and Mutual Release of Claims ("Agreement")
between UTILX CORPORATION ("UTILX") POWER CABLE RESTORATION, INC. ("PCR") and
RONALD E. ALESHIRE ("ALESHIRE"), the parties agree as follows:
RECITALS
A. UTILX (as assignee/successor to Dow Corning Corp.), PCR and
ALESHIRE are parties to an agreement dated January 12, 1990, which since that
date has been amended, (hereinafter Amended Dow Contract) which agreement
provided for PCR to perform cable restoration injection work as the exclusive
subcontractor to UTILX in the State of Florida. The parties further entered
into a Subcontractor Agreement dated March 22, 1996,("Subcontract") for
specific work for Florida Power & Light. The Subcontractor Agreement has
terminated on its own. The Amended Dow Contract will expire and terminate on
January 12, 2000.
B. Certain disputes have arisen between the parties hereto arising out
of the work performed pursuant to the Amended Dow Contract as well as
pursuant to the Subcontract, and otherwise. These disputes concern, among
other things, pricing, performance of work, quality of work, assignment of
work, management of work, selection of work, etc.
C. The parties hereto have asserted various claims against each other
and are involved in litigation and arbitration as follows: United States
District Court for the Southern District of Florida - Case No.
98-0272-CIV-ATKINS, and American Arbitration Association proceeding - No. 75
E 110 00206 98.
<PAGE>
D. The parties hereto desire, through this Agreement, to completely
and fully compromise, resolve and settle all disputes between them and as
asserted (or that could have been asserted) in the litigation and/or
arbitration forums, and all matters related thereto.
WITNESSETH
That in consideration of the mutual covenants and promises herein
contained, the parties agree as follows:
1. RECITALS. The foregoing recitals are true and correct and are
adopted as a part of this Agreement.
2. TERMINATION OF AMENDED DOW CONTRACT AND MUTUAL RELEASE. The Amended
Dow Contract is hereby immediately terminated. UTILX, PCR and ALESHIRE,
hereby release each other of and from any and all claims (asserted or which
could have been asserted) liabilities, lawsuits or other causes of actions,
arising out of, in connection with, and/or relating to the Amended Dow
Contract, the Subcontract, the United States District Court proceeding
pending between them in the Southern District of Florida, Case No.
98-0272-CIV-ATKINS, the American Arbitration Association proceeding, No. 75 E
110 00206 98, and from any and all claims or demands whatsoever, in law or in
equity, relating thereto, EXCEPT, this Mutual Release shall not apply to the
rights, duties and obligations of the parties created and/or called for
pursuant to this Agreement.
3. NO ADMISSION OF LIABILITY. It is expressly agreed and understood
that the said consideration and release and discharge of claims are not, and
are not to be construed as, an admission on the part of any party to this
agreement of any liability whatsoever, but said
<PAGE>
consideration and releases are in compromise and settlement and in full
satisfaction of any claims between the parties.
4. UTILX PAYMENT TO PCR. UTILX shall pay to PCR the sum of One
Million Dollars ($1,000,000.00) ("Settlement Funds"). This obligation on the
part of UTILX shall be evidenced by this Agreement and also by a separate
Promissory Note to be executed and delivered by UTILX to PCR simultaneously
with the execution of this agreement. The Settlement Funds shall be paid to
PCR by wire transfer as follows (stated due dates):
a. $250,000 (which amount shall include the price for PCR's
equipment as contemplated in paragraph 6) on or before December
31, 1998;
b. $250,000 on or before August 31, 1999;
c. $250,000 on or before May 1, 2000;
d. $250,000 on or before December 29, 2000.
Time is of the essence in connection with the payment of the Settlement
Funds. The parties agree that no interest shall accrue on the Settlement
Funds provided that as to each installment, the wire transfer of that
installment is initiated by UTILX's bank on or before the stated due date,
and each installment is received in full, in cleared funds within ten (10)
days of its stated due date. If, the wire transfer of any installment is not
initiated by UTILX's bank on or before the stated due date, or, if for any
reason, any installment is not received in full and in clear funds, within
ten (10) days of its stated due date, then in that event, the amount of the
Settlement Funds in default shall accrue interest at the rate of 10% per
annum.
For purposes of determining a default in payment, UTILX shall be in
default of its payment obligations if, as to the first installment, PCR does
not receive the first installment in clear funds on or before December 31,
1998. As to each subsequent installment, UTILX shall be in default if PCR
has not received the installment due, in cleared funds, within ten (10) days
after the stated due date.
<PAGE>
5. RIGGS BANK ESCROW ACCOUNT. The parties acknowledge that they
have previously established, at Riggs Bank, an escrow account bearing account
number 14-783-010. PCR and ALESHIRE, conditioned upon timely payment of the
installment referred to in paragraph 4a above, hereby release and/or waive
any and all claims to any and all funds held in the escrow account. Said
funds shall be released to UTILX simultaneously upon UTILX making the payment
referred to in paragraph 4a. PCR and ALESHIRE shall execute any documents
necessary to effect this release.
6. PCR EQUIPMENT. As part of this settlement, UTILX is purchasing
certain equipment from PCR. The equipment contemplated by this paragraph is
the equipment (not including injection caps) which PCR has acquired from
UTILX since January 1, 1998 and which PCR still has on hand. The purchase
price for the equipment is included in the payment referred to in paragraph
4 a. UTILX, shall arrange to pick up the equipment at PCR's place of business
at a mutually convenient time agreed upon by the parties. PCR shall not
however, be required to make the equipment available for pick up unless and
until the payment referred to in paragraph 4 a. is received.
7. INJECTION CAPS. PCR and ALESHIRE agree to surrender and return
to UTILX or FPL, as may be appropriate, any and all injection caps in PCR's
possession. Injection caps previously provided by UTILX will be returned to
UTILX. Injection caps previously provided by FPL shall be returned to FPL.
The UTILX injection caps shall be returned to UTILX upon receipt by PCR of
the payment referred to in paragraph 4 a. The receipt in full of that
payment shall be a condition precedent to the return of these caps. The FPL
injection caps shall be returned to FPL upon the payment in full by UTILX of
the total Settlement Funds referred to paragraph 4 a-d or when FPL requests,
whichever is sooner. Until the respective caps are returned, the caps shall
not be used and PCR shall store them in a secure location.
<PAGE>
8. PENDING INVOICES. All outstanding invoices, billings,
receivables, payables, etc. between the parties hereto are hereby resolved
and subsumed within this Agreement. The only payments to be made between the
parties shall be those as expressly specified in this Agreement.
9. NON-COMPETITION AGREEMENT. PCR and ALESHIRE (on behalf of
himself and his spouse) do hereby agree not to engage in, carry on,
participate in, assist in or have any involvement whatsoever in any business,
venture, utility, or other activity which in any way competes with UTILX's
(or its successors or assigns) CableCure cable restoration system, business
and work, including but not limited to the introduction of any gas and/or any
liquid to the strands, annulus, or surrounding conduit of any cable for the
purpose of extending its life or improving dielectric performance. PCR's
mere completion of currently on-going air drying jobs shall not be a
violation of this provision. This non-compete agreement shall be effective
for a period of seven years from the date hereof. In addition thereto, PCR
and ALESHIRE hereby agree to complete confidentiality and nondisclosure with
respect to any and all aspects of UTILX's CableCure and/or cable restoration
system work. PCR and ALESHIRE agree these provisions are reasonable given
the highly proprietary, confidential nature of the cable restoration system
and the trade secrets involved.
UTILX acknowledges that a material consideration for ALESHIRE, PCR and
Daniel F. Meyer (by separate instrument) agreeing to the terms of this
non-competition provision is the timely receipt in full of the payments
referred to in paragraph 4 a-d. Accordingly, in the event UTILX, for any
reason (including but not limited to the failure of PCR to receive timely
payment in full as a distribution in any bankruptcy proceeding instituted by
or against UTILX) defaults in its payment obligations as discussed in
paragraph 4, and fails to cure the default within the time frame described in
paragraph 10, (or, if PCR is required by final Order of a Court of competent
jurisdiction to
<PAGE>
disgorge or refund all or any portion of previously paid Settlement Funds,
and PCR in fact returns any previously paid Settlement Funds in compliance
with such an Order) this non-competition provision shall become immediately
null and void and PCR and ALESHIRE shall be released from the operation of
the provision as well as any non-competition and confidentiality provisions
which survive the termination of the Amended Dow Contract. Likewise, in that
event, the separate Non-Competition Agreement entered into by Meyer shall
become immediately null and void and Meyer shall be released from the
operation of that Non-Competition Agreement. PCR and ALESHIRE acknowledge
that their entry into this Non-Competition Agreement constituted a material
consideration for UTILX agreeing to make the payments referred to in
paragraph 4 a-d. Accordingly, in the event PCR, ALESHIRE or MEYER default in
their obligations under their respective Non-Competition Agreements and they
fail to cure the default within the time frame described in paragraph 10,
then UTILX's obligation to pay the unpaid balance of the Settlement Funds
shall be excused
10. REMEDIES FOR BREACH OF PAYMENT OR NON-COMPETE PROVISIONS TO BE
CUMULATIVE, NOTICE AND CURE. Because of the materiality to the parties
respectively of UTILX's obligation to make timely and complete payment and
PCR, ALESHIRE and MEYER'S obligation to not compete, the parties have agreed
to significant penalties in the event of a default on those obligations.
Given the severity of the potential consequences of a default however, the
parties feel it is appropriate to have a reciprocal Notice and Cure provision
which must be complied with in the event of a default.
In the event PCR, ALESHIRE or MEYER have defaulted under their
respective Non-Competition Agreements, UTILX shall give notice to PCR,
ALESHIRE and MEYER as provided herein. PCR, ALESHIRE and MEYER, shall have a
period of fifteen (15) days to cure the default (cure period). If PCR,
ALESHIRE or MEYER fail to fully and completely cure the default within
<PAGE>
the cure period, UTILX shall be excused from paying the balance of the
Settlement Funds and shall be entitled to pursue other remedies including but
not limited to injunctive relief and damages. By agreeing to provide for a
cure period under the foregoing circumstances, UTILX does not agree and it
shall not be construed as an acknowledgement by UTILX that defaults under the
Non-Competition Agreements can be cured.
In the event UTILX defaults in its payment obligations, PCR shall give
notice of the default to UTILX as provided herein. UTILX shall have a period
of fifteen (15) days to cure the default (cure period). If UTILX fails to
cure the default within the cure period, PCR, ALESHIRE and MEYER shall be
released from their Non-Competition Agreements as well as any non-competition
and confidentiality provisions which survive the termination of the Amended
Dow Contract and PCR and ALESHIRE shall be entitled to pursue other remedies
including but not limited to collection of any unpaid Settlement Funds and
other damages, if any.
11. DISMISSAL OF ARBITRATION AND LITIGATION. The parties hereto each
authorize and direct their respective legal counsel of record to promptly
arrange for dismissal with prejudice of the litigation pending in the United
States District Court for the Southern District of Florida and the
arbitration pending before the American Arbitration Association. The parties
agree that each will bear their own attorneys fees, expert fees and costs
incurred in connection with the litigation and arbitration.
12. ENFORCEMENT OF AGREEMENT. Any party which substantially prevails
in an effort to enforce any provision of this Agreement shall be entitled to
an award of attorneys fees and costs incurred therein. The parties submit
to the jurisdiction of the Federal District Court for the Southern District
of Florida for any enforcement proceeding concerning this Agreement or the
Promissory Note called for herein.
<PAGE>
13. ASSIGNMENT OF IMPROVEMENTS AND INVENTIONS. The parties acknowledge
that paragraph 14 of the Amended Dow Contract calls for the assignment to
UTILX of any improvements in processes, materials or equipment for cable
restoration devised by PCR or ALESHIRE during the term of the Amended Dow
Contract. UTILX, PCR and ALESHIRE are unaware of any such improvements and
processes, materials or equipment for cable restoration as contemplated by
the Amended Dow Contract. To the extent such improvements, processes,
materials or equipment do exist, they are hereby assigned to UTILX.
14. NON-DISPARAGEMENT. From the date of this Agreement forward,
neither party shall say, do or publish anything disparaging concerning and
that could cause material damage to the other party's work, business or
system. The parties acknowledge that it is difficult if not impossible to
control completely everything any employee and/or company representative
might say or do. Accordingly, the parties recognize that it is the intent of
this paragraph to prohibit ALESHIRE and Daniel Meyer from directly; or via a
third-party acting at their instruction, from engaging in the conduct
described above. Further, the parties recognize that it is the intent of
this paragraph to prohibit UTILX senior or management personnel from
directly; or via a third-party (including more junior UTILX personnel) acting
at their instruction, from engaging in the conduct described above.
In the event that UTILX defaults in its obligations under this
non-disparagement provision, PCR, ALESHIRE and MEYER shall give notice of the
default to UTILX as provided herein. UTILX shall have a period of fifteen
(15) days to cure the default (cure period). If UTILX fails to fully and
completely cure the default within the cure period, PCR, ALESHIRE and MEYER
may bring an action for injunctive relief and/or damages but shall remain
bound by their non-competition agreements (unless they have been released
pursuant to other provisions of this Agreement).
<PAGE>
In the event PCR, ALESHIRE and/or MEYER default under their respective
non-disparagement agreements, UTILX shall give notice to PCR, ALESHIRE and/or
MEYER as provided herein. PCR, ALESHIRE and MEYER shall have a period of
fifteen (15) days to cure the default (cure period). If PCR, ALESHIRE or
MEYER fail to fully and completely cure the default within the cure period,
then UTILX's payment obligations in connection with any unpaid Settlement
Funds shall be modified as follows:
A. The parties, without prejudice to their positions regarding
the alleged disparagement, shall establish an interest bearing
escrow account (at a mutually agreed upon bank) which shall be
titled in the names of PCR and UTILX (escrow account). If
possible, the parties will use the escrow account previously
established at Riggs Bank. The waiver in paragraph 5 shall
not apply to funds escrowed under this paragraph 14.
B. UTILX shall pay any remaining installments of the Settlement
Funds into this escrow account. Except for making the
payments into the escrow account rather than to PCR, UTILX
shall otherwise be required to comply with the obligations of
paragraph 4 regarding timely payment. The terms of paragraph
4 regarding accrual of interest and default in payment
(including the notice and cure provisions regarding default in
payment) shall apply with equal force to payments into the
escrow account as they apply to payments to PCR. So long as
UTILX complies with those terms in connection with payments
into the escrow account, UTILX shall not be considered in
default of its payment obligations and the Non-Competition
Agreements shall remain in force (unless they have been
released pursuant to other provisions of this Agreement).
C. Under the circumstances contemplated by this paragraph, UTILX
shall be entitled to institute an action for injunctive relief
and damages against the party(ies) in violation of the
Non-Disparagement Agreement(s). In the event a final
determination is made that PCR, ALESHIRE and/or MEYER did in
fact violate their non-disparagement agreements, then UTILX
shall be entitled to be paid from the escrow account (and to
set off against any unpaid installments of Settlement Funds)
liquidated damages in the amount of $50,000.00 plus any actual
damages, including attorneys fees and costs, which UTILX may
be awarded as a result of the disparagement. If a final
determination is made that PCR, ALESHIRE and MEYER did not
violate their non-disparagement agreements, then all of the
escrowed funds together with accrued interest (and any unpaid
installments of the Settlement Funds as they become due) shall
be paid to PCR. In addition, PCR, ALESHIRE and/or MEYER, as
may be appropriate, shall be entitled to recover any attorneys
fees and costs awarded to them from UTILX.
<PAGE>
D. In the event UTILX'S damages exceed the balance of the
escrowed funds together with the remaining unpaid installments
of the Settlement Funds, then in that event, UTILX shall be
entitled to seek recovery of those excess damages from the
party(ies) in breach of the non-disparagement agreement(s).
By agreeing to provide for a cure period under the foregoing
circumstances, UTILX does not agree and it shall not be construed as an
acknowledgement by UTILX that defaults under the Non-Disparagement Agreements
can be cured.
15. AGREEMENT SUPERSEDES MEMORANDUM OF UNDERSTANDING. The parties
acknowledge and agree that this Agreement is the document referred to in
paragraph 12 of the Memorandum of Understanding executed on behalf of the
parties by their respective counsel on December 17, 1998. This Agreement is
intended to formalize and finalize the settlement agreed to in principle as
reflected in the Memorandum of Understanding. This Agreement supersedes the
Memorandum of Understanding and shall be the controlling document between the
parties as to the settlement.
16. HEADINGS. Subject headings to the paragraphs of this Agreement are
included for purposes of convenience only and should not affect the
construction or interpretation of any of those provisions.
17. CONSTRUCTION OF AGREEMENT. No provision or term of this Agreement
shall be construed against any party by reason of that party having drafted
such term or provision.
18. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one in the same Agreement.
19. BINDING AFFECT. This Agreement shall be binding on and shall
enure to the benefit of the parties to it and their respective heirs, legal
representatives and successors.
<PAGE>
20. AUTHORITY. PCR and UTILX hereby represent and warrant to each
other that the officer/representative signing on behalf of PCR and UTILX
respectively has been duly authorized by their respective Board of Directors
and, if necessary under the respective Articles and By-Laws, have been
authorized pursuant to a Corporate Resolution, to execute on behalf of PCR
and UTILX respectively and deliver this Agreement to the other party. PCR,
ALESHIRE and UTILX acknowledge that they are mutually relying upon the
representation and warranty in entering into this Agreement.
21. NOTICE. Any notice to be given under this Agreement by any party
to the other party shall be in writing and may be effected by personal
delivery, registered or certified mail, return receipt requested, or
facsimile (but in the case of facsimile, a hard copy shall also be provided
by registered or certified mail, return receipt requested). Notice shall be
effective upon receipt.
Notice shall be made to UTILX at:
(for hand delivery)
Utilx Corporation
22820 Russell Road
Kent, Washington 98032
Telephone: 253-395-4602
Facsimile: 253-395-1040
(for certified or registered mail)
Utilx Corporation
P.O. Box 97009
Kent, Washington 98064-9709
Telephone: 253-395-4602
Facsimile: 253-395-1040
<PAGE>
with a copy to Bradley Powell, Esq at:
OLES, MORRISON, RINKER, LLP
3300 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Telephone: 206-623-3427
Facsimile: 206-682-6234
Notice to PCR and ALESHIRE shall be made to:
Ronald E. Aleshire
8450 S. W. 96th Street
Miami, FL 33156
Facsimile: 305-279-5545
With a copy to Perry M. Adair, Esq. at:
BECKER & POLIAKOFF, P.A.
5201 Blue Lagoon Drive, Suite 100
Miami, FL 33126
Telephone: 305-260-1016
Facsimile: 305-262-4504
Notice to MEYER shall be made to:
Daniel F. Meyer
11011 N.W. 28th Street
Coral Springs, FL 33065
954-341-8962
With a copy to Perry M. Adair, Esq. at:
BECKER & POLIAKOFF, P.A.
5201 Blue Lagoon Drive, Suite 100
Miami, FL 33126
Telephone: 305-260-1016
Facsimile: 305-262-4504
<PAGE>
Any party may change his/its address for purposes of this paragraph by
giving notice of the change in accordance with the provision of this
paragraph. Absent such change, notice provided to the addresses set forth
above shall be effective.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the date appearing beneath each party's name.
POWER CABLE RESTORATION, INC.
By: /s/Ronald E. Aleshire
-----------------------------------
RONALD E. ALESHIRE, PRES.
Date: 12/30/98
---------------------------------
/s/ Ronald E. Aleshire
---------------------------------------
RONALD E. ALESHIRE
Date: 12/30/98
---------------------------------
UTILX CORPORATION
By: /s/ William M. Weisfield
-----------------------------------
As: Chief Executive Officer
-----------------------------------
Date: 1/12/99
---------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UTILX CORPORATION FOR THE THREE MONTHS
ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> OCT-01-1998 APR-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 670 670
<SECURITIES> 0 0
<RECEIVABLES> 13,923 13,923
<ALLOWANCES> 487 487
<INVENTORY> 8,253 8,253
<CURRENT-ASSETS> 23,188 23,188
<PP&E> 39,468 39,468
<DEPRECIATION> 26,013 26,012
<TOTAL-ASSETS> 37,021 37,021
<CURRENT-LIABILITIES> 14,555 14,555
<BONDS> 3,374 3,374
0 0
0 0
<COMMON> 74 74
<OTHER-SE> 19,018 19,018
<TOTAL-LIABILITY-AND-EQUITY> 37,021 37,021
<SALES> 17,065 57,974
<TOTAL-REVENUES> 17,065 57,974
<CGS> 17,822 55,722
<TOTAL-COSTS> 20,712 63,246
<OTHER-EXPENSES> 210 47
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 130 473
<INCOME-PRETAX> (3,857) (5,744)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,857) (5,744)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,857) (5,744)
<EPS-PRIMARY> (0.52) (0.77)
<EPS-DILUTED> (0.52) (0.77)
</TABLE>
