-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FvFIu/spKXTZtaEMaavOK4tOfE66yHP6iupHjdPyWCceAWa0MkDhZXjEXR5Yws7R ojnv4aBLKG/To+EWWBeirA== /in/edgar/work/20000814/0000912057-00-037233/0000912057-00-037233.txt : 20000921 0000912057-00-037233.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037233 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UTILX CORP CENTRAL INDEX KEY: 0000821361 STANDARD INDUSTRIAL CLASSIFICATION: [1623 ] IRS NUMBER: 911171716 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16821 FILM NUMBER: 698549 BUSINESS ADDRESS: STREET 1: 22820 RUSSELL ROAD STREET 2: P O BOX 97009 CITY: KENT STATE: WA ZIP: 98064-9709 BUSINESS PHONE: 2533950200 MAIL ADDRESS: STREET 1: 22820 RUSSELL ROAD STREET 2: P O BOX 97009 CITY: KENT STATE: WA ZIP: 98064-9709 FORMER COMPANY: FORMER CONFORMED NAME: FLOWMOLE CORP DATE OF NAME CHANGE: 19910609 10-Q 1 a10-q.txt FORM 10-Q =============================================================================== 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 JUNE 30, 2000 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 June 30, 2000, 7,475,944 shares of Common Stock were outstanding. =============================================================================== TABLE OF CONTENTS
ITEM PAGE ---- ---- PART I FINANCIAL INFORMATION 1. Financial Statements Consolidated Balance Sheet June 30, 2000 and March 31, 2000............................................................ 3 Consolidated Statement of Operations for the Three Months Ended June 30, 2000 and 1999...................................................................... 4 Consolidated Statement of Cash Flows for the Three Months Ended June 30, 2000 and 1999...................................................................... 5 Notes to Consolidated Financial Statements.................................................. 6 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 9 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 13 PART II 1. Legal Proceedings........................................................................... 13 2. Changes in Securities and Use of Proceeds................................................... 13 3. Defaults Upon Senior Securities............................................................. 13 4. Submission of Matters to a Vote of Security Holders......................................... 13 5. Other Information........................................................................... 13 6. Exhibits and Reports on Form 8-K............................................................ 13 Signatures.................................................................................. 14
2 Part I - Financial Information ITEM 1. FINANCIAL STATEMENTS UTILX CORPORATION CONSOLIDATED BALANCE SHEET JUNE 30 AND MARCH 31, 2000 (IN THOUSANDS, EXCEPT SHARES)
June 30 March 31 ----------- -------- (Unaudited) Current assets: Cash and cash equivalents $ 561 $ 769 Accounts receivable, net 24,198 24,011 Materials, supplies and inventories, net of allowance of $1,330 and $1,450, respectively 5,063 4,755 Income taxes receivable 82 82 Prepaid expenses and other 930 902 ----------- -------- Total current assets 30,834 30,519 Equipment and improvements, net 10,999 11,573 Other assets, net 448 364 ----------- -------- Total assets $42,281 $42,456 ----------- -------- ----------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit facility $ 3,310 $ 3,897 Current portion of capital lease obligations 1,343 1,363 Accounts payable 8,573 7,711 Other current liabilities 6,068 6,563 ----------- -------- Total current liabilities 19,294 19,534 Capital lease obligations, net of current portion 1,425 1,747 Other long term liabilities 1,189 1,090 ----------- -------- Total liabilities 21,908 22,371 ----------- -------- Commitments and contingencies (Note 6): Stockholders' equity: Common stock, $0.01 par value (authorized 25,000,000 shares, 7,475,944 and 7,475,944 shares issued and outstanding, respectively) 75 75 Additional paid-in capital 18,665 18,665 Retained earnings 2,280 1,997 Accumulated other comprehensive loss (647) (652) ----------- -------- Total stockholders' equity 20,373 20,085 ----------- -------- Total liabilities and stockholders' equity $42,281 $42,456 ----------- -------- ----------- --------
(See Notes to Consolidated Financial Statements) 3 UTILX CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
2000 1999 -------- -------- Revenues $27,015 $23,375 Cost of revenues 24,322 20,380 -------- -------- Gross profit 2,693 2,995 Operating expenses: Selling, general and administrative 2,013 2,106 Research and engineering 227 188 -------- -------- Total operating expenses 2,240 2,294 -------- -------- Operating income (loss) 453 701 Other (income) expense, net 170 138 Income (loss) before income taxes 283 563 Income tax provision 0 0 -------- -------- Net income (loss) $ 283 $ 563 -------- -------- -------- -------- Earnings (loss) per share: (Note 2) Basic $ 0.04 $ 0.08 Diluted $ 0.04 $ 0.07 CALCULATION OF COMPREHENSIVE INCOME (LOSS): Net income (loss) $ 283 $ 563 Accumulated other comprehensive income (loss), net 5 (16) -------- -------- Comprehensive income (loss) $ 288 $ 547 -------- -------- -------- --------
(See Notes to Consolidated Financial Statements) 4 UTILX CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
2000 1999 ------- ------- OPERATING ACTIVITIES: Net income (loss) $ 283 $ 563 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 953 1,088 Gain on sale equipment (12) (6) Changes in assets and liabilities (1,448) (3,196) ------- ------- Total adjustments (507) (2,114) ------- ------- Net cash provided by (used in) operating activities (224) (1,551) ------- ------- INVESTING ACTIVITIES: Cost of additions to equipment (353) (248) Proceeds from sale of equipment 26 23 ------- ------- Net cash used in investing activities (327) (225) FINANCING ACTIVITIES: Net borrowings (repayments) on note payable (587) 112 Issuance of common stock 0 15 Net increase (decrease) in book overdraft 1,267 1,494 Principal payments on capital leases (342) (294) ------- ------- Net cash provided by (used in) financing activities 338 1,327 EFFECT ON CASH FLOWS OF FOREIGN CURRENCY TRANSACTIONS 5 (5) ------- ------- Net increase (decrease) in cash and cash equivalents (208) (454) CASH AND CASH EQUIVALENTS Beginning of period 769 1,580 ------- ------- End of period $ 561 $ 1,126 ------- ------- ------- -------
(See Notes to Consolidated Financial Statements) 5 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 necessary to present fairly the financial position and operating results for the three month periods ended June 30, 2000 and 1999. The statements should be read in conjunction with the March 31, 2000 audited consolidated financial statements included in the fiscal 2000 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the fiscal 2001 presentation, with no effect on previously reported net income (loss) or retained earnings. 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:
Three Months Ended June 30, ------------------------------------ 2000 1999 ----------- ------------ Net income (loss) $ 283 $ 563 Divided by weighted average common shares outstanding 7,476 7,428 ----------- ------------ Basic earnings (loss) per common share $ 0.04 $ 0.08 ----------- ------------ ----------- ------------
Diluted earnings (loss) per common share:
Three Months Ended June 30, ------------------------------------ 2000 1999 ----------- ------------ Net income (loss) $ 283 $ 563 Weighted average share outstanding 7,476 7,428 Stock options and warrants assumed exercised - net, dilutive 439 108 ----------- ------------ Total diluted shares outstanding 7,915 7,536 ----------- ------------ Diluted earnings (loss) per common share $ 0.04 $ 0.07 ----------- ------------ ----------- ------------
6 3. ACCOUNTS RECEIVABLE
(In thousands) June 30, 2000 March 31, 2000 --------------------------------------- (unaudited) North American customers: Completed work not yet billed $11,128 $ 8,923 Billed but uncollected 12,759 14,702 International customers 841 1,084 Less allowance for doubtful accounts (530) (698) ----------- ------------ Total $24,198 $24,011 ----------- ------------ ----------- ------------
4. ACCRUED LIABILITIES
(In thousands) June 30, 2000 March 31, 2000 --------------------------------------- (unaudited) Accured payroll and related costs $2,062 $2,464 Accrued taxes 389 453 Accrued insurance 2,894 2,540 Other 723 1,106 ----------- ------------ Total $6,068 $6,563 ----------- ------------ ----------- ------------
7 5. REVOLVING CREDIT FACILITY The Company has a $12,000,000 revolving credit facility from FINOVA Capital Corporation ("FINOVA") which expires April 20, 2002. 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 collateralized 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 (9.50% at June 30, 2000) plus .5%. 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 term. At June 30, 2000, the Company had an outstanding balance of $3,310,000 under this facility, compared to $3,897,000 at March 31, 2000. For the first quarter of fiscal 2001 and fiscal 2000, the weighted average borrowing rate was 9.79% and 8.96%, respectively. 6. 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. 7. SALE OF COMPANY On June 29, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with InfrastruX Group, Inc. ("InfrastruX Group") and InfrastruX Acquisition Inc., a wholly owned subsidiary of InfrastruX Group, which provided for the acquisition of the Company. Pursuant to the Merger Agreement, InfrastruX Acquisition, Inc. commenced a tender offer for all of the outstanding shares of the Company's common stock (the "Shares") at $6.125 per Share, net to the sellers in cash (the "Offer"). InfrastruX Group is a wholly owned subsidiary of Puget Sound Energy, Inc. The Offer was successfully completed on July 28, 2000. As a result, InfrastruX Acquisition Inc. will merge into the Company (the "Merger"), and all of the Shares not purchased in the Offer (other than Shares held by InfrastruX Group or its subsidiaries or any Shares as to which appraisal rights have been properly exercised under applicable law) will be converted into the right to receive $6.125 per share. As a result of the Merger, the Company will become a wholly owned subsidiary of InfrastruX Group. The Company's acquisition costs will be expensed as incurred during the second quarter. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REVENUES Consolidated revenues increased 15.6% in the first quarter of fiscal year 2001 compared to the same period of fiscal 2000. NORTH AMERICAN OPERATIONS. Revenues from domestic operations increased 18% or $3.9 million in the first quarter of fiscal year 2001 compared to the same period in fiscal 2000. Revenues increased 46% from $4.9 million in the first quarter of fiscal 2000 to $7.2 million in the same period of fiscal 2001 and to 10% from $16.9 million in the first quarter of fiscal 2000 to $18.5 million in the same period of fiscal 2000 for CableCURE services and FlowMOLE services, respectively. These increases are due to additional sales to both new and existing customers. INTERNATIONAL OPERATIONS. Revenues decreased 19.1% or $301,000 in the first quarter of fiscal 2001 respectively, compared with the same period in fiscal 2000. This decrease in revenue was primarily due to a decrease in revenue from an Asian licensee. GROSS PROFIT Gross profit decreased $607,000 in the first quarter fiscal 2001 compared to the same period in fiscal 2000. NORTH AMERICAN OPERATIONS. Gross profit from domestic operations decreased 13.1% or $330,000 for the first quarter of fiscal 2001 compared to the same period of fiscal 2000. This decrease in gross profit was primarily due to a decrease in the utilization of a large diameter drilling system, as well as a decrease in the profitability of certain contracts for FlowMOLE services. INTERNATIONAL OPERATIONS. Gross profit from international operations decreased 35.5% or $276,000 for the first quarter of fiscal 2001 compared to the same period in fiscal 2000. This decrease was due to the decrease in gross profit from an Asian licensee. OPERATING EXPENSES AND OTHER EXPENSES Operating expense in the first quarter of fiscal 2001 decreased $359,000 or 13.8%, compared to the same periods in fiscal 2000. Operating expense decreased primarily as a result of a decrease in general and administrative costs. Other expense increased $32,000 in the first quarter of fiscal 2001 over the same period in the prior year. The increase is a result of a decrease in the amount of gain from the disposal of assets, which offsets other total expense, compared with the same period in the prior year. INCOME TAX PROVISION The Company would normally expect an effective income tax rate of approximately 37.0% on positive pretax income. This exceeds the federal statutory rate due to the impact of state income taxes and nondeductible expenses. In order to realize the aggregate carrying value of its net deferred tax assets, the Company will be required to generate certain amounts of taxable income in future years. Management of the Company has made certain operational and marketing improvements to achieve such levels of future income; however, the continuing success of such efforts is uncertain. The Company has incurred losses in two of its past three fiscal years. Management has also evaluated its current normalized performance which takes into account certain short term contracts with customers, the operating capacity of its drilling fleet as well as the risks and uncertainties associated with the business. (See "Important Risk Factors Regarding Forward Looking Statements.") Accordingly, under the provisions of Statement of Financial 9 Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes", management is currently unable to conclude that the full realization of the net deferred tax assets is more likely than not. Therefore the Company maintains a valuation against the majority of its net deferred tax asset. An income tax provision was not recorded against operating profits generated in fiscal 2000, due to the reversal of a portion of the valuation allowance. NET INCOME As a result of the foregoing, the Company recorded net income of $283,000 in the first quarter of fiscal 2001, compared to a net income of $563,000 in the first quarter of fiscal 2000. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA) "EBITDA" is defined as net income plus interest expense, plus the provision for income taxes, plus depreciation and amortization. Management believes that EBITDA is a relevant and helpful measurement of the Company's operating performance, liquidity and its ability to service its debt and other fixed obligations and that EBITDA is commonly reported and widely used by analysts, investors and other interested parties because it eliminates many differences in financial, capitalization, and tax structures. EBITDA should be used as a supplement to net income, operating income and cash flow from operations and other measures of financial performance and liquidity reported in accordance with generally accepted accounting principles (GAAP), and not as a substitute for such measurements. EBITDA as used in this report may not be comparable to similarly titled measures reported by other companies due to differences in accounting policies. Cash flows from operating, investing and financing activities in accordance with GAAP were $(224,000), $(327,000) and $338,000 for the first quarter of fiscal 2001, respectively, compared to $(1,551,000) $(225,000) and $1,327,000 compared to same period of fiscal 2000. The Company had consolidated EBITDA of $1.4 million for the first quarter of fiscal 2001, as compared to $1.8 million for the same period of fiscal 2000. At June 30, 2000 interest expense was $181,000, compared to $184,000, for the same period of fiscal 2000. Depreciation and amortization expense decreased to $953,000 for the first quarter of 2001, from $1.088 million for the same period in fiscal 2000. Included in total interest expense is interest on capital leases. For the first quarter of fiscal 2001, interest on capital leases was $41,000 and $48,000 for same period of fiscal 2000. Interest expense on capital leases is included in cost of sales in the accompanying financial statements. LIQUIDITY AND CAPITAL RESOURCES The Company has a revolving credit facility with FINOVA Capital Corporation for $12.0 million which expires April 22, 2002. The facility is secured primarily by the assets of the Company. See Note 5 of Notes to Consolidated Financial Statements. At June 30, 2000, the Company had unused sources of liquidity consisting of $561,000 in cash and cash equivalents and an available balance on its committed line of credit from FINOVA of $8,690,000. This compares to $769,000 in cash and cash equivalents and an available balance on its committed line of credit of $8,103,000 at March 31, 2000. Uses of cash during the first three months of fiscal 2001 primarily related to capital expenditures of $353,000 and changes in working capital. Capital expenditures in the three months ended June 30, 2000, primarily included the 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 availability of such facilities. If these facilities became unavailable to the Company, or 10 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. REVIEW AND OUTLOOK As electric power and telephone utility companies enter a more competitive era, they are finding that their customers are placing increasing emphasis on reliability. In fact, end user reliability expectations have been heightened by the marketing campaigns of these utility companies. At the same time, these utility companies are attempting to reduce their operating and maintenance expenditures to generate more profits in efforts to make themselves more attractive investments for their own shareholders. The Company is in an excellent position to take advantage of this fundamental dilemma of its customers. In addition, the increased reliance on outsourcing by these utility companies has further positioned the Company for growth. The Company believes it has treated or replaced only a small fraction of the cable that will need treatment or replacement over the coming years and that the opportunity this represents is an ongoing and significant issue for its customers. The Company is accelerating its efforts to focus on its CableCURE business in the electric power and telephone markets because of its cost-effectiveness for the customer. CABLECURE AND RELATED SERVICES. The Company expects the trend towards increased customer acceptance of the CableCURE-Registered Trademark- process to continue, especially with rulings in 2000 from the Federal Energy Regulatory Commission ("FERC") and the Rural Utilities Service ("RUS") 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 and RUS rulings, 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. 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 11 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 quarter of fiscal 2001 one customer generated approximately 25% of the Company's consolidated revenues, and five 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 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. 12 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 and certain operating and capital leases, which bear interest at variable rates. The Company uses the U.S. Dollar as its functional currency, except for its European operations. 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. The Company is party to short-term forward contracts in the management of its foreign currency exposure. Gains and losses on forward contracts qualifying as hedges are deferred and included in the measurement of the related foreign currency transaction. At June 20, 2000 the Company had outstanding forward exchange contracts of $205,000. At June 30, 1999, the Company had no outstanding foreign exchange contracts. 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 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27.1 Financial Data Schedule. Filed herewith. (b) Reports on Form 8-K: A Current Report on Form 8-K, dated June 29, 2000 was filed with the Securities and Exchange Commission reporting that the Company and InfrastruX Group, Inc., had entered into an Agreement and Plan of Merger. 13 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: August 11, 2000 By: /s/ WILLIAM M. WEISFIELD ---------------------------------- William M. Weisfield, President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) Date: August 11, 2000 By: /s/ DARLA VIVIT NORRIS ---------------------------------- Darla Vivit Norris, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) 14 UTILX CORPORATION As Filed with the Securities and Exchange Commission on August 14, 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 JUNE 30, 2000 UNDER THE SECURITIES EXCHANGE ACT OF 1934 --------------------- UTILX CORPORATION INDEX TO EXHIBITS
Exhibit Number Description ------- ----------- 27.1 Financial Data Schedule. Filed herewith.
EX-27.1 2 ex-27_1.txt EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF UTILX CORPORATION FOR JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-2000 APR-01-2000 JUN-30-2000 561 0 24,728 530 5,063 30,834 41,034 30,035 42,281 19,294 0 0 0 75 20,298 42,281 27,015 27,015 24,322 26,562 170 0 181 283 0 283 0 0 0 283 .04 .04
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