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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1999
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
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As of December 31, 1999, 7,456,360 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, 1999 and March 31, 1999........................................................ 3
Consolidated Statement of Operations
for the Three Months Ended
December 31, 1999 and 1998.................................................................. 4
Consolidated Statement of Operations
for the Nine Months Ended
December 31, 1999 and 1998.................................................................. 5
Consolidated Statement of Cash Flows
for the Nine Months Ended
December 31, 1999 and 1998.................................................................. 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 Disclosures about Market Risk.................................. 14
PART II
1. Legal Proceedings........................................................................... 14
2. Changes in Securities and Use of Proceeds................................................... 14
3. Defaults Upon Senior Securities............................................................. 14
4. Submission of Matters to a Vote of Security Holders......................................... 14
5. Other Information........................................................................... 14
6. Exhibits and Reports on Form 8-K............................................................ 15
Signatures.................................................................................. 16
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Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
UTILX CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31 AND MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARES)
ASSETS
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DECEMBER 31 MARCH 31
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(UNAUDITED)
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Current assets:
Cash and cash equivalents............................................. $ 2,154 $ 1,580
Accounts receivable, net.............................................. 24,120 16,301
Materials, supplies and inventories................................... 5,590 6,941
Prepaid expenses and other............................................ 586 724
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Total current assets ............................................. 32,450 25,546
Equipment and improvements, net............................................ 10,761 12,678
Other assets, net.......................................................... 392 351
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Total assets ..................................................... $ 43,603 $ 38,575
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--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank.................................................. $ 5,626 $ 5,538
Current portion of capital lease obligations.......................... 1,138 1,135
Accounts payable...................................................... 3,884 5,038
Accrued liabilities................................................... 10,539 5,573
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Total current liabilities......................................... 21,187 17,284
Capital lease obligations, net of current portion.......................... 1,359 2,210
Other long term liabilities................................................ 1,096 972
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Total liabilities................................................. 23,642 20,466
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Commitments and contingencies (Note 7):
Stockholders' equity:
Common stock, $0.01 par value
(authorized 25,000,000 shares, 7,456,360 and 7,426,000
shares issued and outstanding, respectively).......................... 74 74
Additional paid-in capital............................................ 18,603 18,521
Retained earnings..................................................... 1,893 112
Cumulative foreign currency translation adjustment.................... (609) (598)
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Total stockholders' equity........................................ 19,961 18,109
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Total liabilities and stockholders' equity................... $ 43,603 $ 38,575
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</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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1999 1998
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Revenues...................................................................... $ 28,609 $ 17,065
Cost of revenues.............................................................. 24,783 17,822
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Gross profit (loss)...................................................... 3,826 (757)
Operating expenses:
Selling, general and administrative...................................... 2,421 2,697
Research and engineering................................................. 247 193
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Total operating expenses............................................ 2,668 2,890
Operating income (loss) ...................................................... 1,158 (3,647)
Other (income) expense, net................................................... 246 210
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Income (loss) before income taxes............................................. 912 (3,857)
Income tax provision.......................................................... 0 0
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Net income (loss)............................................................. $ 912 $ (3,857)
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Earnings (loss) per share (Note 2):
Basic.................................................................... $ .12 $ (.52)
Diluted.................................................................. $ .12 $ (.52)
CALCULATION OF COMPREHENSIVE INCOME (LOSS):
Net income (loss)........................................................ $ 912 $ (3,857)
Change in cumulative foreign currency
translation adjustment, net............................................ 35 (95)
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Comprehensive income (loss).............................................. $ 947 $ (3,952)
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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, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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1999 1998
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Revenues...................................................................... $ 76,919 $ 57,974
Cost of revenues.............................................................. 66,579 55,722
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Gross profit............................................................. 10,340 2,252
Operating expenses:
Selling, general and administrative...................................... 7,215 6,977
Research and engineering................................................. 772 547
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Total operating expenses.................................................... 7,987 7,524
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Operating income (loss) ...................................................... 2,353 (5,272)
Other (income) expense, net................................................... 572 472
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Income (loss) before income taxes............................................. 1,781 (5,744)
Income tax provision.......................................................... 0 0
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Net income (loss) ............................................................ $ 1,781 $ (5,744)
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Earnings (loss) per share (Note 2):
Basic....................................................................... $ .24 $ (.77)
Diluted..................................................................... $ .23 $ (.77)
CALCULATION OF COMPREHENSIVE INCOME (LOSS):
Net income (loss) ............................................................ $ 1,781 $ (5,744)
Change in cumulative foreign currency
translation adjustment, net.............................................. (12) (39)
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Comprehensive income (loss)................................................... $ 1,769 $ (5,783)
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</TABLE>
(See Notes to Consolidated Financial Statements)
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UTILX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
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1999 1998
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OPERATING ACTIVITIES:
Net income (loss) .................................................. $ 1,781 $ (5,744)
Adjustments to reconcile to net cash provided by (used in) operating
activities:
Depreciation ................................................... 3,147 3,454
Gain on sale equipment ......................................... 31 37
Changes in assets and liabilities .............................. (5,538) 6,230
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Total adjustments .............................................. (2,360) 9,721
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Net cash provided by (used in) operating activities ....... (579) 3,977
INVESTING ACTIVITIES:
Cost of additions to equipment ..................................... (1,297) (2,504)
Proceeds from sale of equipment .................................... 36 42
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Net cash used in investing activities ..................... (1,261) (2,462)
FINANCING ACTIVITIES:
Net borrowings (repayments) on note payable ........................ 88 (35)
Issuance of common stock ........................................... 82 52
Book overdraft ..................................................... 3,103 (742)
Principal payments on capital leases ............................... (847) (712)
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Net cash provided by (used in) financing activities ....... 2,426 (1,367)
EFFECT ON CASH FLOWS
OF CHANGES IN EXCHANGE RATES: ........................................ (12) (6)
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Net increase (decrease) in cash and cash equivalents ............... 574 142
CASH AND CASH EQUIVALENTS:
Beginning of period ................................................ 1,580 528
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End of period ...................................................... $ 2,154 $ 670
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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 the management of UTILX Corporation (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 periods and nine month periods ended December 31, 1999 and 1998. The
statements should be read in conjunction with the March 31, 1999 audited
consolidated financial statements included in the fiscal 1999 Annual Report
on Form 10-K.
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, net of the number of shares repurchasable on the open market
with proceeds from the exercise of such options.
Earnings (loss) per share is calculated as follows:
Basic earnings (loss) per common share:
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THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1999 1998 1999 1998
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Net income (loss) .......................................... $ 912 $ (3,857) $ 1,781 $ (5,744)
Divided by weighted average common
shares outstanding ....................................... 7,451 7,426 7,441 7,419
---------- ---------- ---------- ----------
Basic earnings (loss) per common share ..................... $ .12 $ (.52) $ .24 $ (.77)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Diluted earnings (loss) per common share:
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THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net income (loss) .......................................... $ 912 $ (3,857) $ 1,781 $ (5,744)
Weighted average common shares outstanding ................. 7,451 7,426 7,441 7,419
Stock options and warrants assumed
exercised - net, if dilutive ............................. 324 0 261 0
---------- ---------- ---------- ----------
Total diluted shares outstanding ........................... 7,775 7,426 7,702 7,419
---------- ---------- ---------- ----------
Diluted earnings (loss) per common share ................... $ .12 $ (.52) $ .23 $ (.77)
---------- ---------- ---------- ----------
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3. ACCOUNTS RECEIVABLE
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(In thousands)
DECEMBER 31, 1999 MARCH 31, 1999
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North American customers:
Work completed but not billed....................... $ 8,651 $ 5,825
Billed but uncollected.............................. 15,331 9,332
International customers................................ 835 1,705
Less allowance for doubtful accounts................... (697) (561)
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Total............................................... $24,120 $16,301
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4. MATERIALS, SUPPLIES AND INVENTORIES
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(In thousands)
DECEMBER 31, 1999 MARCH 31, 1999
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<S> <C> <C>
Raw materials and spare parts........................ $ 6,920 $ 8,377
Work in process...................................... 113 26
Less allowance for obsolete or overstocked
inventory........................................... (1,443) (1,462)
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Total............................................. $ 5,590 $ 6,941
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</TABLE>
5. ACCRUED LIABILITIES
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(In thousands)
DECEMBER 31, 1999 MARCH 31, 1999
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Accrued payroll and related costs.................... $ 2,410 $1,858
Book overdraft....................................... 3,103 0
Accrued sales tax.................................... 282 223
Accrued insurance.................................... 2,259 1,988
Other................................................ 2,485 1,504
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Total............................................. $10,539 $5,573
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6. NOTE PAYABLE TO BANK
In April 1999, the Company entered into a $10,000,000, two year, revolving
credit facility from FINOVA Capital Corporation ("FINOVA"). On December 20,
1999, FINOVA increased the credit facility to $12,000,000. Outstanding
borrowings under the facility are not to exceed the lesser of $12,000,000 or
the sum of a) 85% of eligible accounts receivable, plus, b) an amount not to
exceed the lesser of 50% of the auction value of the Company's equipment or
$4,000,000, less, c) any loan reserves. The FINOVA facility is secured by the
Company's assets.
The credit agreement requires that the Company maintain certain financial
covenants, including requirements to maintain certain levels of net worth and
debt service coverage. The agreement also places certain restrictions on
capital expenditures, other indebtedness and executive compensation.
Borrowings bear interest at prime (8.50% at December 31, 1999) plus 1%. The
Company pays annual fees of $60,000, monthly fees of $2,000 and may be
required to pay certain termination fees if the Company terminates the
facility prior to the expiration of the two year term.
At December 31, 1999, the Company had an outstanding balance of $5,626,000
under this facility, compared to $5,538,000 at March 31, 1999 under a prior
facility. For the third quarter of fiscal 2000 and fiscal 1999, the weighted
average borrowing rate was 9.37% and 7.75%, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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
REVENUES
Consolidated revenues increased 68% and 33% in the third quarter of fiscal
year 2000 and for the nine month period ending December 31, 1999 of fiscal
year 2000, respectively, compared to the same periods of fiscal 1999.
Revenues from CableCURE-Registered Trademark- services increased 3% from $7.3
million in the third quarter of fiscal 1999 to $7.5 million in the same
period of fiscal 2000. Revenues from CableCURE-Registered Trademark- services
increased 20% in the nine months ending December 31, 1999 of fiscal 2000,
from $18.0 million to $21.6 million over the same period of fiscal 1999.
Revenues from FlowMOLE-Registered Trademark- services increased 115% from
$9.8 million in the third quarter of fiscal 1999 to $21.1 million in the same
period of fiscal 2000. Revenues from FlowMOLE-Registered Trademark- services
increased 38% in the nine months ending December 31, 1999 of fiscal 2000,
from $40.0 million to $55.3 million over the same period of fiscal 1999.
In the third quarter of fiscal 2000, revenues from the power and
telecommunications industry were $23.0 million and $4.6 million respectively,
compared to $15.5 million and $1.0 million in the same period of the prior
fiscal year. For the first nine months of fiscal 2000, revenues from the
power and telecommunications industry were $62.1 million and $11.8 million
respectively, compared to $51.1 million and $3.4 million in the same period
of the prior fiscal year.
NORTH AMERICAN OPERATIONS. Revenues from domestic operations increased 78% or
$12.1 million and 38% or $20.0 million in the third quarter of fiscal year
2000 and for the nine months ending December 31, 1999, respectively, compared
to the same periods in fiscal 1999.
The increase in the third quarter is primarily due to continued strong revenue
from the Company's largest customer, Florida Power & Light ("FPL"). In the
third quarter of the prior year, revenues from FPL decreased significantly
from historical levels. Revenues from FPL in the third quarter of fiscal 2000
were $8.4 million compared to $2.8 million in the same period of fiscal 1999.
Revenues for the third quarter also increased as a result of the installation
of telecommunications fiber for a new customer, Gilbert Western, the prime
contractor for Level Three Communications. The Company realized revenues of
$2.6 million from this new customer.
Revenues for the first nine months of fiscal 2000 increased over the same
period in fiscal 1999 due to increases in revenue from FPL ($6.6 million),
U S West Communications ($4.7 million) and Commonwealth Edison ($5.7 million).
INTERNATIONAL OPERATIONS. Revenues decreased 36% or $563,000 and 32% or $1.5
million in the third quarter and the nine month period ending December 31,
1999 respectively, compared with the same period in fiscal 1999.
The decrease is a result of the sale of the Company's United Kingdom drilling
service business on March 31, 1999. Drilling service revenue accounted for
$371,000 in the third quarter and $1.3 million for the nine months ending
December 31, 1998. Additionally, FlowMOLE-Registered Trademark- spare parts
sales in the third quarter decreased significantly from $322,000 in fiscal
1999 to $177,000 in fiscal 2000. Part sales for the nine months ending
December 31, were $852,000 in fiscal 1999 and $545,000 in fiscal 2000. These
decreases were mitigated by the continued growth of CableCURE-Registered
Trademark- services in Germany.
GROSS PROFIT
Gross profit increased $4.6 million and $8.0 million for the third quarter
and the nine months ending December 31, 1999 compared to the same periods in
fiscal 1999.
NORTH AMERICAN OPERATIONS. Gross profit from domestic operations increased by
$4.7 million and $8.4 million for the third quarter of fiscal 2000 and nine
months ending December 31, 1999, respectively, compared to the same period of
fiscal 1999.
The increase in the third quarter of fiscal 2000 and nine months ending
December 31, 1999 is a result of higher revenue volumes and a change in the
operating structure of the Company's Florida operations.
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Additionally, due to a larger volume of CableCURE-Registered Trademark-
services and an increase of telecommunication installations in the mix of
services, the Company was able to realize higher margins for the nine months
ending December 31, 1999 compared to the same period in the prior fiscal year.
INTERNATIONAL OPERATIONS. Gross profit from international operations
decreased 30% or $142,000 and 17% or $310,000 for the third quarter and nine
months ending December 31, 1999 compared to the same periods in fiscal 1999.
The decrease is a result of the Company's sale of its United Kingdom drilling
service business on March 31, 1999. This decrease was mitigated by higher
margins earned on CableCURE-Registered Trademark- services in Germany.
OPERATING EXPENSES AND OTHER (INCOME) EXPENSES
Operating expense in the third quarter of fiscal 2000 decreased $222,000, but
increased $463,000 in the nine months ending December 31, 1999 compared to
the same periods in fiscal 1999.
Operating expense decreased primarily as a result of charges incurred in the
third quarter of fiscal 1999 relating to severance benefits and a non-compete
agreement with a former subcontractor.
The increase in operating expenses in the first nine months of fiscal 2000 as
compared to the same period a year ago is primarily due to the increase in
CableCURE-Registered Trademark- warranty expense of $300,000 associated with
increases in CableCURE-Registered Trademark- revenues.
Other expense increased $36,000 and $100,000 in the third quarter of fiscal
2000 and nine months ending December 31, 1999 over the same periods in the
prior year. The increase is a result of higher borrowing costs.
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 asset. A tax expense was not
recorded against operating profits generated in fiscal 2000, due to the
reversal of a portion of the valuation allowance.
NET INCOME (LOSS)
As a result of the foregoing, the Company recorded net income of $912,000 in
the third quarter of fiscal 2000, compared to a net loss of $3.9 million in
the same period of fiscal 1999. The Company recorded net income of $1.8
million in the first nine months of fiscal 2000, compared to a net loss of
$5.7 million in the same period of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a revolving credit facility with FINOVA Capital Corporation
for $12.0 million which expires April 22, 2001. The facility is secured
primarily by the assets of the Company. See Note 6 of Notes to Consolidated
Financial Statements.
At December 31, 1999, the Company had unused sources of liquidity consisting
of $2,154,000 in cash and cash equivalents and an available balance on its
committed line of credit from FINOVA of $6,374,000. This compares to
$1,580,000 in cash and cash equivalents and an available balance on its
committed line of credit of $4,462,000 at March 31, 1999. Uses of cash during
the first nine months of fiscal 2000 primarily related to capital
expenditures of $1,298,000 and changes in working capital.
Capital expenditures in the nine months ended December 31, 1999, primarily
included costs associated with the Company's management information system
and purchase of equipment for field operations.
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
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availability of such facilities. If these facilities 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.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)
Management believes that EBITDA is a relevant and helpful measurement of the
Company's performance and its ability to service its debt and other fixed
obligations. EBITDA should be used as a supplement to operating income and
cash flow from operations, as determined by Generally Accepted Accounting
Principles (GAAP), and not as a substitute for such measurements.
The Company had consolidated EBITDA of $5.6 million for the nine months
ending December 31, 1999, as compared to a loss of $1.7 million before
interest, taxes, depreciation and amortization for the same period one year
ago.
Interest expense for the nine months ending December 31, 1999 was $676,000,
compared to $638,000, for the same period of fiscal 1999. Depreciation and
amortization expense decreased to $3.1 million for the nine months ending
December 31, 1999 from $3.4 million for the same period in fiscal 1999.
Included in total interest expense is interest on capital leases. For the nine
month period, capital lease expense was $131,000 for fiscal 2000 and $165,000
for fiscal 1999. Lease expense is included in cost of sales in the
accompanying financial statements.
REVIEW AND OUTLOOK
INSTALLATION AND REPLACEMENT SERVICES. The Company anticipates that
opportunities for its installation and replacement services in the
telecommunications industry will be a source of growth in the near future. In
the first nine months of fiscal 2000, revenues from the telecommunications
industry made up 14% of revenues, compared to 5% in the same period last year.
In December 1998, FPL informed the Company they would award all of FPL's
statewide underground cable replacement and injection work to the Company for
a three year period, beginning January 1999. The Company expects FPL to
continue to be a significant customer in fiscal 2001 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 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, permitting, soil and other working
conditions. See also the discussion under, UTILITIES' BUDGETARY
CONSIDERATIONS, COMPETITION AND SEASONAL FACTORS included under "Important
Risk Factors Regarding Forward-Looking Statements," below.
REPAIR AND RESTORATION SERVICES. The Company expects the trend towards
increased customer acceptance of the CableCURE-Registered Trademark- process
to continue, especially with the January 2000 ruling from the Federal Energy
Regulatory Commission ("FERC") that public utilities may capitalize the cost
of CableCURE-Registered Trademark- services. The Company also expects growth
of its CableCURE-Registered Trademark- services in Europe and Asia. To
improve customer acceptance of CableCURE-Registered Trademark-, the Company
now offers a twenty year warranty on CableCURE-Registered Trademark-
services. Management does not believe that this will have a material impact
on the financial position or operating results of the Company based on
historical results and laboratory tests. The Company anticipates that the
trend towards lower pricing for cable replacement will continue to place
downward pressure on the price for CableCURE-Registered Trademark- services.
The Company expects to see increased volumes from new customers in fiscal
2001 due to the FERC ruling, 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 UTILITIES' BUDGETARY
CONSIDERATIONS, COMPETITION, SEASONAL FACTORS and DOW CORNING CORPORATION
included under "Important Risk Factors Regarding Forward-Looking Statements",
below.
INTERNATIONAL OPERATIONS. In fiscal 2000, the Company ceased selling its
drilling systems in the international market. However, the Company does
continue to support the drilling systems in place with the continued sale of
spare parts. Management expects most of its international growth to come from
CableCURE-Registered Trademark-services in Europe and Asia.
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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, siting of power production facilities, reductions in new
housing starts, reductions in electric utility revenues due to mild weather,
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, can adversely impact the Company's revenues and profits.
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 cause
substantial volatility to the Company's revenues and profits. Although the
Company has broadened its customer base, in the first nine months of fiscal
2000 one customer generated over 31% of the Company's consolidated revenues,
and 10 customers generated approximately 70% of its CableCURE-Registered
Trademark- revenues.
COMPETITION. The Company has experienced a long term trend of declining
prices for trenchless drilling services provided to electric utilities,
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-Registered Trademark-
injection services, which are priced at a discount to replacement costs,
including replacement by trenchless drilling. 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 may offset any price increase the Company is able to
negotiate for the expansion of its services. The overall trend of falling
prices for trenchless drilling services provided to electric utilities is
expected to continue into the future which will continue to put downward
pressure on the market price for CableCURE-Registered Trademark- Services.
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-Registered Trademark-
drilling systems or providing its CableCURE-Registered Trademark- 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 above may override this trend in any given
quarter. 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 growth as a result of labor shortages.
DOW CORNING CORPORATION. The Company purchases its CableCURE-Registered
Trademark- 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
13
<PAGE>
continue the CableCURE-Registered Trademark- business, there can be no
assurance that Dow Corning or the bankruptcy court will not take action to
amend or terminate the CableCURE-Registered Trademark- license agreement.
FOREIGN CURRENCY FLUCTUATIONS. The Company's financial results are affected
by fluctuations in certain foreign currencies, particularly the exchange rate
between the U.S. Dollar, the British Pound Sterling, German Deutschmark and
the Euro. 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 UPDATE. Subsequent to January 1, 2000, the Company has not
encountered any material Year 2000 problems either internally, with major
customers or major vendors and so far considers the transition to calendar
year 2000 to be smooth. The Company is continuing to closely monitor both its
internal systems and transactions with customers and suppliers for any
indication of Year 2000 related problems. The Company has contingency plans
in the event any such problems materialize at a later date.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its revolving credit
facility which bears interest at variable rates.
The Company uses the U.S. Dollar as its functional currency, except for its
European operation which uses the local currency as the functional currency.
The assets and liabilities of the Company's European operations are
translated into U.S. Dollars at exchange rates in effect at the balance sheet
date. Income and expense items are translated at the average exchange rates
prevailing during the period. Aggregate translation gains and losses included
in the determination of net income have not been material.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various 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 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.
ITEM 5. OTHER INFORMATION
Not Applicable
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule. Filed herewith.
10.41 Amendment No. 1 to Loan and Security Agreement
between Registrant and FINOVA Capital Corporation
dated December 20, 1999. Filed herewith.
(b) Reports on Form 8-K:
None
15
<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 10, 2000 By: /s/ William M. Weisfield
------------------------------------------
William M. Weisfield, President,
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: February 10, 2000 By: /s/ Darla Vivit Norris
------------------------------------------
Darla Vivit Norris, Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
16
<PAGE>
UTILX CORPORATION
As Filed with the Securities and Exchange Commission on February 11, 2000
File No. 0-16821
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
UTILX CORPORATION
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
10.41 Amendment No. 1 to Loan and Security Agreement between
Registrant and FINOVA Capital Corporation dated December 20,
1999. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
<PAGE>
EXHIBIT 10.41
AMENDMENT NO. 1 TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this "AMENDMENT")
dated as of December 20, 1999, is by and between UTILX CORPORATION, a
Delaware corporation ("BORROWER"), and FINOVA CAPITAL CORPORATION, a Delaware
corporation ("FINOVA"). Unless otherwise specified herein, capitalized terms
used in this Amendment shall have the meanings ascribed to them by the Loan
Agreement (as hereinafter defined).
RECITALS
WHEREAS, FINOVA and Borrower are parties to that certain Loan and
Security Agreement, dated as of April 20, 1999 (the "EXISTING LOAN AGREEMENT"
and supplemented, restated or otherwise modified from time to time, the "LOAN
AGREEMENT");
WHEREAS, Borrower and FINOVA desire to amend the Loan Agreement to INTER
ALIA: amend certain provisions of the Schedule to the Loan Agreement.
NOW THEREFORE, in consideration of the mutual execution hereof and other
good and valuable consideration, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO THE LOAN AGREEMENT.
Subject to the satisfaction of the conditions precedent set forth in Section
8 hereof, the parties hereto hereby agree to amend the Loan Agreement as
follows:
(a) The subparagraph (a) at the beginning of page 2 of the
Schedule is amended and restated in its entirety to read as
follows:
"(a) Twelve Million Dollars ($12,000,000) (the "REVOLVING
CREDIT LIMIT"), LESS any Loan Reserves, or"
(b) The paragraph entitled "Compensation" in Section 6.2
of the Schedule continuing from the last line of page
7 is to include the following: "Also, the Borrower
may pay incremental bonuses in the aggregate amount
listed below contingent on Borrower having Minimum
Excess Availability of at least $1,000,000 after
giving effect to such incremental bonuses and
complying with all Financial Covenants required of
Borrower:
<TABLE>
<CAPTION>
Incremental
Bonus/
Pre Bonus Net Bonus/Net Incremental
Profit Bonus Income Income Net Income
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,933,333 $333,333 $1,600,000 21% 33%
$2,066,667 $366,667 $1,700,000 22% 33%
$2,200,000 $400,000 $1,800,000 22% 33%
$2,333,333 $433,333 $1,900,000 23% 33%
$2,466,667 $466,667 $2,000,000 23% 33%
$2,600,000 $500,000 $2,100,000 24% 33%
$2,733,333 $533,333 $2,200,000 24% 33%
$2,866,667 $566,667 $2,300,000 25% 33%
$3,000,000 $600,000 $2,400,000 25% 33%
$3,133,333 $633,333 $2,500,000 25% 33%
</TABLE>
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF BORROWER.
Borrower represents and warrants that:
(a) The execution, delivery and performance by Borrower of
this Amendment have been duly authorized by all necessary corporate action and
this Amendment is a legal, valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms, except as the
enforcement thereof may be subject to (i) the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforcement is sought in a proceeding in equity or at law);
(b) Each of the representations and warranties contained in
the Loan Agreement is true and correct in all respects on and as of the date
hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date; and
(c) Neither the execution, delivery and performance of this
Amendment nor the consummation of the transactions contemplated hereby does or
shall contravene, result in a breach of, or violate (i) any provision of
Borrower's certificate or articles of organization or by-laws, (ii) any law or
regulation, or any order or decree of any court or government instrumentality,
or (iii) any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which Borrower is a party or by which Borrower or any of its
property is bound, except in any such case to the extent such conflict or
breach has been waived by a written waiver document, a copy of which has been
delivered to FINOVA on or before the date hereof.
SECTION 3. ACKNOWLEDGMENTS REGARDING LOAN AGREEMENT.
(a) Except as specifically amended above, the Loan Agreement
and the other Loan Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of
FINOVA under the Loan Agreement or any Loan Document, nor constitute a waiver
of any provision of the Loan Agreement or any Loan Document, except as
specifically set forth herein. Upon the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof',
"herein" or words of similar import shall mean and be a reference to the Loan
Agreement as amended hereby.
(c) Borrower hereby acknowledges and agrees that there is no
defense, setoff or counterclaim of any kind, nature or description to the
Obligations or the payment thereof when due and hereby releases FINOVA and its
directors, officers, employees, agents, attorneys and other persons affiliated
with FINOVA from any claims, causes of action, or damages arising from or
relating to any breach of contract, tort or other wrong relating to this
Amendment, the Loan Agreement or the Obligations or the establishment,
administration, or collection thereof.
SECTION 4. COST AND EXPENSES. As provided in SECTION 8.1 of
the Loan Agreement, Borrower agrees to pay FINOVA a $15,000 fee for this
Amendment and to reimburse FINOVA for all fees, costs and expenses, including
the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment (and any
other documents to be delivered in connection herewith).
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS
OF LAWS PROVISIONS) OF THE STATE OF ARIZONA.
<PAGE>
SECTION 6. HEADING. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purposes.
SECTION 7. COUNTERPARTS. This Amendment may be executed in
any number of counterpart, each of which when so executed shall be deemed an
original, but all such counterparts shall constitute one and the same
instrument.
SECTION 8. EFFECTIVENESS. This Amendment shall become
effective as of the date first written above when each of the following
conditions precedent have been met to the satisfaction of FINOVA.
(a) AMENDMENT. Executed signature pages for this Amendment
signed by FINOVA and Borrower shall have been delivered to FINOVA; and
(b) REPRESENTATIONS. The representations and warranties
contained herein shall be true and in all respects.
IN WITNESS WHEREOF, the parties hereto hereupon set their
hands as of the date first written above.
UTILX CORPORATION
a Delaware corporation
By: /s/ WILLIAM M. WEISFIELD
---------------------------------
William M. Weisfield, President
FINOVA CAPITAL CORPORATION
By: /s/ Peter Martinez
---------------------------------
Its: VICE PRESIDENT
<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
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,154
<SECURITIES> 0
<RECEIVABLES> 24,817
<ALLOWANCES> 697
<INVENTORY> 5,590
<CURRENT-ASSETS> 32,450
<PP&E> 39,011
<DEPRECIATION> 28,250
<TOTAL-ASSETS> 43,603
<CURRENT-LIABILITIES> 21,187
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 19,887
<TOTAL-LIABILITY-AND-EQUITY> 43,603
<SALES> 0
<TOTAL-REVENUES> 28,609
<CGS> 24,783
<TOTAL-COSTS> 27,451
<OTHER-EXPENSES> 246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205
<INCOME-PRETAX> 912
<INCOME-TAX> 0
<INCOME-CONTINUING> 912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 912
<EPS-BASIC> .12
<EPS-DILUTED> .12
</TABLE>
