FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
--------------
Commission file number #0-10786
--------
Insituform Technologies, Inc.
(Exact name of registrant as specified
in its charter)
Delaware 13-3032158
--------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1770 Kirby Parkway, Suite 300
Memphis, Tennessee 38138
-----------------------------------
(Address of Principal Executive Offices)
(901) 759-7473
---------------------
(Registrant's telephone number
including area code)
(Former name, former address and
former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 1, 1996
- -------------------- --------------------------
Class A, Common Stock, 27,144,331 Shares
$.01 par value
<PAGE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Part II Other Information and Signatures:
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
Index to Exhibits 24
<PAGE>
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
June December
30, 1996 31, 1995
----------- ---------
(Unaudited)
(in thousands)
<S> <C> <C>
Assets
- ------
Current
- -------
Cash and cash equivalents, restricted
$853 and $842 $16,348 $11,416
Receivables (Note 4) 57,394 64,717
Costs and estimated earnings in excess
of billings 21,262 14,008
Inventories (Note 5) 16,277 16,572
Deferred income taxes 4,262 4,287
Prepaid expenses and miscellaneous 7,447 9,711
------- -------
Total current assets 122,990 120,711
------- -------
Property and equipment, less
accumulated depreciation and
amortization (Note 6) 58,103 59,773
------- -------
Other assets
- ------------
Cost in excess of net assets of
businesses acquired less
accumulated amortization of $8,397
and $6,960 (Notes 2 and 3) 57,979 58,431
Patents and patent applications, less
accumulated amortization of
$3,539 and $3,270 9,580 8,963
Investments in licensees and
affiliated companies (Note 2) 2,632 1,555
Deferred income taxes 1,842 1,862
Non-compete agreements, less
accumulated amortization of
$2,830 and $2,323 3,047 3,554
Miscellaneous 5,343 5,451
------- -------
Total other assets 80,423 79,816
------- -------
$261,516 $260,300
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June December
30, 1996 31, 1995
---------- ---------
(Unaudited)
(in thousands, except share amounts)
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
- -------------------
Notes payable to banks $608 $1,053
Accounts payable and accruals 33,404 35,644
Income taxes payable 2,599 1,768
Deferred income taxes 646 627
Current maturities of long-term
debt (Note 9) 6,993 12,081
-------- --------
Total current liabilities 44,250 51,173
Long-term debt, less current
maturities (Note 9)
- --------------------------- 84,331 82,813
Deferred income taxes 2,850 2,850
- ---------------------
Other liabilities 1,052 1,009
- ----------------- -------- --------
Total liabilities 132,483 137,845
-------- --------
Commitments and contingencies
(Notes 9 and 10)
- -----------------------------
Minority interests (Note 3)
- --------------------------- 5,906 5,645
-------- --------
Stockholders' equity
- --------------------
Preferred stock, $.10 par -
shares authorized 2,000,000;
none outstanding 0 0
Common stock, $.01 par - shares
authorized 40,000,000; shares
outstanding 27,144,331 and
27,104,940 (Note 3) 271 271
Additional paid-in capital 67,809 67,427
Retained earnings (Note 9) 60,637 54,557
-------- --------
128,717 122,255
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(continued)
Cumulative foreign currency
translation adjustments (1,966) (1,821)
Notes receivable from affiliates
(Note 7) (3,624) (3,624)
-------- --------
Total stockholders' equity 123,127 116,810
-------- --------
$261,516 $260,300
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Construction contracts $67,524 $63,648 $128,220 $118,392
Product sales 2,872 3,962 8,632 9,681
Royalties and license fees 1,373 2,014 3,027 3,814
------- ------- ------- -------
Total revenues 71,769 69,624 139,879 131,887
Operating costs and expenses:
Cost of construction contracts 45,527 42,043 87,801 78,593
Cost of product sales 2,218 2,869 5,923 6,913
Royalty expense 126 21 258 105
Selling, administrative and general 14,717 14,037 29,472 27,208
Strategic marketing and product
development 1,692 2,036 3,757 4,017
------- ------- ------- -------
Total operating costs and expenses 64,280 61,006 127,211 116,836
------- ------- ------- -------
Operating income 7,489 8,618 12,668 15,051
Other income (expense):
Litigation settlement (Note 10) 0 (3,598) 0 (3,598)
Interest expense (1,583) (1,741) (3,152) (3,119)
Other income (expense) 395 382 835 861
------- ------- ------- -------
Total other income (expense) (1,188) (4,957) (2,317) (5,856)
------- ------- ------- -------
Income before taxes on income 6,301 3,661 10,351 9,195
Taxes on income (Note 8) 2,466 1,253 4,117 3,320
------- ------- ------- -------
Income before equity in earnings of
affiliated companies 3,835 2,408 6,234 5,875
Minority interests (49) (395) (223) (743)
Equity in earnings of affiliated
companies 44 130 69 431
------- ------- ------- -------
Net income $3,830 $2,143 $6,080 $5,563
======= ======= ======= =======
Earnings per share of common stock and
common stock equivalents (Note 2):
Net income $0.14 $0.08 $0.22 $0.20
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 27,244 27,231 27,241 27,210
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
1996 1995
---- ----
(Note 1)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
- ------------------------------------
Income from continuing operations $6,080 $5,563
Adjustments to reconcile net income to cash
used by operating activities:
Depreciation 6,803 4,974
Amortization 2,271 1,979
Miscellaneous 170 (50)
Equity in earnings of affiliated companies (69) (431)
Loss (gain) on disposals of property and
equipment 297 217
Minority interests 223 744
Deferred income taxes 65 48
Translation adjustments (145) 457
Restructuring costs (667) 0
Changes in operating assets and liabilities
(net of effect of businesses purchased):
Receivables 5,224 948
Costs and estimated earnings in excess
of billings (7,253) (3,064)
Inventories 295 (1,504)
Prepaid expenses and miscellaneous 2,252 (2,966)
Miscellaneous other assets (15) (1,493)
Accounts payable and accruals (589) (3,505)
Income taxes payable 3,229 (3,549)
----- ------
Net cash provided (used) by continuing
operations 18,171 (1,632)
------ ------
Net cash used by discontinued operations 0 (85)
------ ------
Net cash provided (used) by operations 18,171 (1,717)
------ ------
Cash flows from investing activities:
- ------------------------------------
Capital expenditures (8,091) (7,448)
Proceeds on disposal of property and equipment 0 519
Investments in licensees/affiliated companies (1,006) 244
Patents and patent applications (196) (438)
Purchase of business, net of cash acquired
(Note 3) 0 (16,131)
------ ------
See accompanying notes to consolidated financial statements.
(continued)
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six
Months Ended
June 30,
1996 1995
---- ----
(Note 1)
(in thousands)
Net cash used by investing activities (9,293) (23,254)
------ ------
Cash flows from financing activities:
- ------------------------------------
Proceeds from issuance of common stock 74 865
Increase in short-term borrowings (183) 5,635
Net repayments of long-term debt (3,599) 14,818
Minority interests (254) (155)
Dividends paid 0 (1,318)
------ -------
Net cash provided (used) by financing
activities (3,962) 19,845
------ -------
Effect of exchange rates changes on cash 16 175
------ -------
Net increase (decrease) in cash and cash
equivalents for the period 4,932 (4,951)
------ -------
Cash and cash equivalents, beginning of
period 11,416 18,670
------ -------
Cash and cash equivalents, end of period $16,348 $13,719
======= =======
Supplemental disclosures of cash flows For the Six Months
information: Ended June 30,
- -------------------------------------- 1996 1995
---- ----
(in thousands)
Cash paid during six months ended
June 30, for:
- -----------------------------------
Interest $3,072 $3,163
Income taxes $335 $6,035
Non-cash investing and financing activities:
- -------------------------------------------
Stock issued in connection with litigation
settlement (Note 10) $322 --
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
1. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly
the financial position as of June 30, 1996 (unaudited) and the
unaudited results of operations and cash flows for the three
and six months ended June 30, 1996 and 1995. The financial
statements have been prepared in accordance with the
requirements of Form 10-Q and consequently do not include all
the disclosures normally made in an Annual Report on Form
10-K. Accordingly, the consolidated financial statements
included herein should be reviewed in conjunction with the
financial statements and the footnotes thereto included in the
Company's 1995 Annual Report on Form 10-K.
As discussed in Note 3 below, the consolidated financial
statements give retroactive effect to the Company's
acquisition of Insituform Mid-America, Inc. ("IMA") in October
1995, which has been accounted for as a pooling-of-interests.
Reclassifications of prior period amounts have been made to
conform with current period presentation.
The results of operations for the three and six months ended
June 30, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
2. The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries, including a
51% owned United Kingdom subsidiary, Insituform Linings, Plc.,
a 60% owned Chilean subsidiary, United Sistema de Tuberias,
Ltda., a 66% owned French subsidiary, Insituform France, S.A.,
a 55% owned Mexican subsidiary, United Pipeline de Mexico S.A.
de C.V., and a 57.5% owned domestic partnership, Midsouth
Partners (see Note 3). All material intercompany balances,
transactions and stockholdings are eliminated.
The net assets of businesses purchased are recorded at their
fair value at the acquisition date and the financial
statements include their operations only from that date. Any
excess of acquisition costs over the fair value of net assets
acquired is included in the balance sheet as "Costs in excess
of net assets of businesses acquired."
Corporate investments are carried at cost if ownership is less
than 20% and on the equity method if the Company's ownership
interest is 20% and greater, but not exceeding 50%.
Investments in partnerships for which the Company's ownership
interest is no greater than 50% are accounted for on the
equity method. Intercompany profits and losses are eliminated
for those investments carried on the equity method.
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
Construction and installation revenues are recognized using
the percentage-of-completion method. Contract costs include
all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor,
supplies, tools and equipment costs. Changes in estimated
total contract costs are recognized in the period they are
determined. Where a contract loss is forecast, the full amount
of the anticipated loss is recognized in the period the loss
is determined.
Earnings per share have been computed based upon the weighted
average number of common shares and common equivalent shares
outstanding during the respective periods. Common equivalent
shares include shares from the assumed exercise of common
stock options.
3. On October 25, 1995, the Company completed the acquisition
(the "IMA Merger") of IMA through the merger into IMA of the
Company's wholly-owned subsidiary, ITI Acquisition Corp., as
a result of which IMA became a wholly-owned subsidiary of the
Company. The Company issued an aggregate of 12,450,896 shares
of its class A common stock, $.01 par value ("Common Stock")
to all prior holders of IMA's Class A common stock, subsequent
to the conversion, in accordance with its terms, of all shares
of IMA Class B common stock into IMA Class A common stock.
The IMA Merger has been accounted for using the
pooling-of-interests method of accounting, and accordingly,
the accompanying consolidated financial statements give
retroactive effect to the acquisition, as if the companies had
always operated as a single entity.
On April 18, 1995, the Company acquired the pipeline
rehabilitation business of Enviroq Corporation ("Enviroq"),
including Enviroq's Insituform(R) process business conducted
by its Insituform Southeast, Inc. subsidiary in Alabama,
Florida, Georgia, North Carolina and South Carolina, through
the merger into Enviroq of a wholly-owned subsidiary of the
Company.
The base purchase price of $18,250,000 (including $3,000,000
in payment of a five-year covenant not to compete) was paid
$15,250,000 in cash and $3,000,000 in a five-year subordinated
promissory note. As a result of demands for payment of such
note and ensuing litigation, in March 1996 the Company dis-
charged its obligation under such note and under arrangements
to pay $1 million in consulting fees, and settled such
litigation, for the aggregate amount of $3.4 million and the
release of other claims.
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
Prior to April 18, 1995, a 15% general partnership interest in
Midsouth Partners, an Insituform licensee in Tennessee,
Kentucky and northern Mississippi, was held by Insituform
California, Inc. ("ICI"), a subsidiary of the Company, and a
42.5% interest therein was held by E-Midsouth, Inc.
("E-Midsouth"), a subsidiary of Enviroq. As a result of the
Enviroq acquisition, the Company holds a majority ownership
(57.5%) in Midsouth Partners and has accordingly consolidated
the accounts of Midsouth Partners since April 18, 1995. In
June 1996, the arbitration panel in previously reported
proceedings commenced by the remaining partner, Insitu, Inc.
("Insitu"), a wholly-owned subsidiary of Insituform East,
Incorporated, determined that E-Midsouth but not ICI was in
default of its obligations under the Midsouth Partners
partnership agreement and that, as a consequence thereof,
Insitu had the right unilaterally to appoint a representative
to the seven-member management committee of the partnership,
in place of a representative appointed by E-Midsouth and in
addition to the three members previously appointed by Insitu.
The following table presents summarized consolidated unaudited
pro forma results of operations for the first six months of
1995, as if the Enviroq acquisition had occurred at the
beginning of 1995. These pro forma results are provided for
comparative purposes only and do not purport to be indicative
of the results which would have been obtained if these
acquisitions had been effected on the dates indicated or which
may be obtained in the future (in thousands except per share
amounts).
Total revenues $138,945
Income from continuing operations $4,819
Income from continuing operations
per common and common equivalent
share $0.18
On February 16, 1995, the Company acquired two-thirds of the
common stock of Insituform France S.A., a newly-formed
subsidiary of its former French licensee, for FF7,400,000
(U.S.$1,431,000). The purchase price was funded by the
Company's debt facility with SunTrust Bank, Nashville, N.A.
("SunTrust") (see Note 9).
In April 1996, the Company entered into arrangements whereby,
in exchange for payments in the approximate amount of $1
million funded by the Company's SunTrust facility, the Company
increased its share of the equity of its German licensee from
one-third to one-half, effective January 1, 1996.
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
4. Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Trade, less allowance for
possible losses of
$905 and $974 $47,278 $51,049
Retainage under construction
contracts 10,116 11,395
Refundable income taxes -- 2,273
------- -------
$57,394 $64,717
======= =======
</TABLE>
5. Inventories are valued at the lower of cost or market.
Maintenance and office supplies are not inventoried.
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Finished goods $1,212 $822
Work-in-process 2,559 1,053
Construction materials 8,241 9,608
Raw materials 4,265 5,089
------ -----
$16,277 $16,572
======= =======
</TABLE>
6. Property and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Land and land improvements $2,378 $3,474
Buildings and improvements 15,184 15,264
Machinery and equipment 69,710 64,980
Furniture and fixtures 8,122 7,967
Autos and trucks 3,832 3,685
/TABLE
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Construction in progress 5,274 5,168
------ ------
104,500 100,538
Less: accumulated depreciation (46,397) (40,765)
------- -------
$58,103 $59,773
======= =======
</TABLE>
7. On July 3, 1992, Ringwood Limited ("Ringwood") and Douglas K.
Chick and Brian Chandler, both directors of the Company,
entered into an agreement with the Company whereby Ringwood
executed to the Company its secured, non-recourse promissory
note (the "Note") in the amount of $3,624,000, which bore
interest at Citibank's prime rate plus 2-1/2%, originally was
due July 3, 1995, and was secured by a pledge (the "Pledge")
to the Company by Ringwood and Messrs. Chick and Chandler of
255,801 shares (the "Shares") of the Company's stock
beneficially owned by them. On May 21, 1995, the Company
extended the maturity date of the Note to July 3, 1996 (the
"Maturity Date"), and in December 1995 the interest payment
otherwise due in January 1996 was postponed to be due on a
date (the "Extension Date") no later than 30 days after the
date of first publication of the Company's operating results
covering at least a 30-day period after the consummation of
the IMA Merger. At the Extension Date, Ringwood had defaulted
in the payment to the Company of its interest payment
postponed as aforesaid, and on the Maturity Date had defaulted
in payment of the principal amount of the Note. Effective in
August 1996, the Company foreclosed on the Shares in full
satisfaction of the obligation of Ringwood and Messrs.
Chandler and Chick under the Note and the Pledge.
8. Provision for federal and state income taxes in the
consolidated statements of income are made up of the following
components (in thousands) for the six months ended June 30,
1996 and 1995, respectively:
<TABLE>
<CAPTION>
June 30,
1996 1995
---- ----
<S> <C> <C> <C>
Current:
Federal $2,645 $1,689
Foreign 1,083 1,390
State 214 193
----- -----
3,942 3,272
----- -----
</TABLE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
<TABLE>
<CAPTION>
June 30,
1996 1995
---- ----
<S> <C> <C> <C>
Deferred:
Federal $70 $232
Foreign 105 184
State -- --
----- -----
175 48
----- -----
Total taxes on income $4,117 $3,320
===== =====
</TABLE>
The effective tax rate on income before taxes for the six
months ended June 30, 1996 and 1995 was different than the
United States ("U.S.") federal statutory tax rate. The
following summary reconciles taxes at the U.S. federal
statutory tax rate with the actual taxes (in thousands) and the
effective rate:
<TABLE>
<CAPTION>
1996 1995
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Taxes on income at U.S.
federal statutory rate $3,520 34.0% $3,126 34.0%
Increase (decrease) in
taxes resulting from:
State income taxes, net of
federal income tax benefit 141 1.4 124 1.3
Effect of foreign income
taxed at foreign rates 183 1.8 (170) (1.8)
Tax amortization of
intangibles (266) (2.6) (257) (2.8)
Tax benefit not currently
recognizable on losses of
subsidiaries 136 1.3 201 2.2
Utilization of net operating
losses and other
carryforwards (28) (0.3) 0 0
Amortization of goodwill, not
allowed for tax purposes 354 3.4 370 4.0
Other items 77 (0.8) (74) (0.8)
----- ----- ----- -----
Total taxes on income $4,117 39.8% $3,320 36.1%
===== ===== ===== =====
</TABLE>
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
9. At June 30, 1996, the Company had outstanding borrowings of
$72.6 million under its credit agreement with SunTrust entered
into in October 1995, which provides for advances through 1997
on a revolving basis aggregating up to $105 million (including
a $5.0 million standby letter of credit facility). Of such
amount, approximately $66.4 million was applied to refinance
existing debt under the Company's prior arrangements with
SunTrust (approximately $35.9 million), IMA's term loans with
Boatmen's National Bank and Mark Twain Bank ($14.5 million),
and short-term debt under IMA's line of credit facility ($16.0
million). Additional advances are available for the expansion
of the Company's business and for general corporate purposes.
The current SunTrust facility matures in October 2000, with
installments based on a five-year amortization schedule,
commencing December 31, 1997. Interest on indebtedness under
the facility is payable at either (i) SunTrust's prime rate
(8.25% at June 30, 1996), plus a margin of up to .25% in the
event certain financial ratios are not maintained, or (ii) an
adjusted LIBOR rate (5.4% at June 30, 1996), plus a margin
ranging from 1.00% to 1.75%, depending on the maintenance of
certain financial ratios. Up to $5 million under the credit
facility may be borrowed from SunTrust pursuant to a "swing
line facility," which accrues interest at a rate per annum
equal to 0.5% below SunTrust's prime rate. The SunTrust
facility obligates the Company to comply with certain financial
ratios and restrictive covenants that, among other things,
limit the ability of the Company and its subsidiaries to incur
further indebtedness, pay dividends, make loans and encumber
any properties, and requires guarantees of certain domestic
subsidiaries. Essentially all of the Company's retained
earnings at June 30, 1996 are restricted under such covenants.
In July 1993, in order to complete the financing for the
acquisition of Insituform Midwest, the Company also issued an
8.5% senior subordinated note, subordinated in right to the
Company's bank and other institutional financing and to
deferred consideration incurred in connection with business
acquisitions. Warrants to purchase 350,877 unregistered shares
of Common Stock were also issued to the lender. The note is
prepayable at the Company's option, at premiums until July 1998
ranging from 3% to 1% of the amount prepaid. The subordinated
note also restricts the Company's ability to pay dividends and
repurchase outstanding Common Stock.
The Company's subsidiaries, Insituform Canada Limited,
Insituform Technologies Limited (formerly Insituform Permaline
Limited), Insituform France S.A., and Insituform Japan KK, also
maintain certain revolving line of credit facilities. The
aggregate amount outstanding under these facilities was
$608,000 at June 30, 1996.
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
10. On May 23, 1995, the Company, notwithstanding its belief that
it had defenses to plaintiff's claim that were well grounded in
fact and law, entered into a memorandum of understanding to
settle the previously disclosed stockholder class action
against the Company in the United States District Court for the
Western District of Tennessee alleging various misstatements
and omissions, relating to, among other things, acquisition and
restructuring costs arising from the acquisition of Insituform
Group Limited in December 1992, in public disclosures by the
Company during the period from October 28, 1992 to May 12, 1993
in violation, among other things, of Rule 10b-5 under the
Securities Exchange Act of 1934. Under the settlement, the
Company has made a cash payment to class members in the amount
of $3.2 million and (in January 1996) issued to class members
30,000 shares of Common Stock.
The Company is involved in certain additional litigation
incidental to the conduct of its business. In the Company's
opinion, none of these proceedings will have a material adverse
effect on the Company's financial position, results of
operations and liquidity. The financial statements include the
estimated amounts of liabilities that are likely to be incurred
from these and various other pending litigation and claims.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included in
the accompanying consolidated financial statements.
General
- -------
The Company's revenues include construction revenues from direct
installation and other contracting activities, product sales of
materials and equipment to licensees and royalty income and initial
license fees received from licensees for the use of the Company's
trenchless rehabilitation processes. Product sales consist
primarily of sales of Insitutubes(R) and NuPipe(R) to licensees.
Construction contract revenue is generated primarily by the
Company's subsidiaries operating in the United States, Canada,
France, the United Kingdom and Chile. Royalties and license fees
are paid by the Company's 34 unaffiliated Insituform(R) licensees
and sublicensees and its ten unaffiliated NuPipe(R) licensees.
Product sales and royalties are primarily a function of the
contracts performed by the Company's licensees. However, changes in
product sales may vary from changes in royalties because of several
factors, including differences between the timing of Insitutube
sales and contract performance by licensees and the accrual by the
Company of minimum royalties in excess of royalties otherwise due
for work performed. The Company's consolidated subsidiaries obtain
supplies of Insitutubes and related materials from the Company.
The Company was incorporated in Delaware in 1980 in order to act as
the exclusive licensee of the Insituform Process in most of the
United States. In October 1995, the Company consummated the IMA
Merger, which has been accounted for as a pooling-of-interests.
Under the pooling-of-interests method of accounting, the historical
financial statements of the combining companies are retroactively
combined (after adjustments to eliminate intercompany balances and
transactions, and to conform accounting methods) as if the
companies had operated as a single entity.
Fluctuations in the exchange rates between the United States dollar
and the currencies of other countries in which the Company operates
or has licensees may have an impact on the Company's consolidated
results during the relevant reporting period. See "Results of
Operations" below. The Company intends to manage any such foreign
currency exposure, in the context of discrete commercial
transactions and, when appropriate, to offset such exposure in
whole or in part by entering into foreign currency forward
contracts, in order to reduce the impact of such fluctuations on
results of operations. The Company does not anticipate that the
circumstances in which such hedging activity would be appropriate
will have a material effect on the Company's liquidity.
<PAGE>
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At June 30, 1996, the Company had $16.3 million in cash, U.S.
treasury bills, and short-term investments, as compared to $11.4
million at December 31, 1995. Cash and cash equivalents increased
$4.9 million reflecting cash provided by operations of $18.2
million offset by cash used for capital expenditures of $8.1
million and net repayments of long-term debt of $3.6 million The
Company's working capital ratio was 2.8-to-1.0 at June 30, 1996
representing an increase from 2.4-to-1.0 at December 31, 1995.
Operations provided cash of $18.2 million during the six months
ended June 30, 1996, as compared to cash used of $1.7 million
during the same period in 1995. Unlike the first half of 1995, in
which increases in inventories were in the amount of $1.5 million,
prepaid expenses and miscellaneous in the amount of $3.0 million,
and reductions in accrued income taxes in the amount of $3.5
million, the first half of 1996 resulted in a decrease in
inventories of $0.3 million, a decrease in prepaid expenses and
miscellaneous of $2.3 million, and an increase in accrued income
taxes of $3.2 million. In addition, depreciation and amortization
increased by approximately $2.1 million, primarily as a result of
the acquisition of the pipeline business of Enviroq, and as well as
from continuing capital expenditures.
Receivables, together with costs and estimated earnings in excess
of billings, used $2.0 million of cash during 1996, compared to
using $2.1 million in 1995. Receivables, including costs and
estimated earnings in excess of billings, remained virtually the
same at $78.7 million compared to December 31, 1995, reflecting a
$3.8 million decrease in trade receivables, a $1.3 million decrease
in retainage receivables, offset by an increase of $7.3 million in
costs and estimated earnings in excess of billings on construction
contracts. The collection cycle for construction receivables is
generally longer than for the Company's other operations due to
provisions for retainage, often 5% to 10% of the contract amount,
as well as the slow internal review processes often employed by the
construction subsidiaries' municipal customers. Retainage
receivables are generally received within 60 to 90 days after the
completion of a contract.
During 1996, decreases in accounts payable and accruals used $0.6
million in cash as compared to 1995, in which $3.5 million was used
due primarily to lower payments for employee bonuses made in 1996.
Additional accruals of income taxes added $3.2 million to cash in
1996, as compared to a reduction in accruals of $3.5 million in
1995.
Capital expenditures were $8.1 million in the first six months of
1996, as compared to $7.4 million in the same period in 1995.
Capital expenditures generally reflect replacement equipment
required by the Company's contracting subsidiaries. In connection
with the expansion of its activities with respect to the
commercialization of products under license from Ashimori Industry
Co. Ltd., the Company will consider establishment of an additional
manufacturing facility adjacent to its Batesville, Mississippi
<PAGE>
plant, and whether to dispose of approximately 5.4 acres in
Chesterfield, Missouri, on which IMA had commenced construction of
a manufacturing facility. In August, the Company approved plans to
pursue construction of a new, expanded research and development
center in Memphis.
In April 1996, the Company entered into arrangements whereby, in
exchange for payments in the approximate amount of $1 million, the
Company increased its share of the equity of its German licensee
from one-third to one-half, effective January 1, 1996.
Financing activities used $4.0 million in cash during the first
half of 1996 as compared to cash provided of $19.8 million in the
comparable period in 1995. During 1996, the Company made principal
payments of $5.1 million relating to the Company's credit facility
with SunTrust and repaid the subordinated note issued in connection
with the Enviroq acquisition. In March 1996, as a result of demands
for payment of the Company's $3 million five-year subordinated note
issued in April 1995 as part of the $18.3 million purchase price in
the Enviroq acquisition, and ensuing litigation, the Company
discharged its obligation under such note and under arrangements to
pay $1 million in consulting fees over five years, and settled such
litigation, for the aggregate amount of $3.1 million and the
release of other claims. In April 1995, the Company utilized
proceeds from issuance of additional term debt in the amount of
$15.3 million to complete the Enviroq acquisition.
In October 1995, the Company entered into a credit agreement dated
such date (the "Credit Agreement") with SunTrust, as agent, and a
group of participating lenders (the "Lenders"), which provides for
advances by the Lenders through October 1997 on a revolving basis
aggregating up to $105 million (including a $5 million standby
letter of credit facility). Of such amount, approximately $35.9
million was applied to refinance the prior existing debt of the
Company to SunTrust and approximately $14.5 million to IMA's prior
existing term loan and approximately $15.9 million to short-term
debt of IMA under credit lines replaced with the new facility.
Additional advances may be used for the expansion of the Company's
business and for general corporate purposes.
Indebtedness pursuant to the Credit Agreement matures five years
after closing, with installments based on a five-year amortization
schedule, commencing December 31, 1997. Interest on indebtedness
under the Credit Agreement is payable at a rate per annum selected
by the Company as either SunTrust's prime rate, plus a margin up to
0.25% in the event certain financial ratios are not maintained, or
an adjusted LIBOR rate, plus a margin ranging from 1.00% to 1.75%,
depending on the maintenance of certain financial ratios. Up to $5
million under the Credit Agreement may be borrowed from SunTrust
pursuant to a swing-line facility, and would accrue interest at a
rate per annum equal to 0.5% below SunTrust's prime rate. The
Credit Agreement obligates the Company to comply with certain
financial ratios and restrictive covenants that, among other
things, limit the ability of the Company and its subsidiaries to
incur further indebtedness, pay dividends, make loans and encumber
any properties, and requires guarantees of certain domestic
subsidiaries.
<PAGE>
The Company's senior subordinated note in the principal amount of
$5 million acquired by Hanseatic Corporation in July 1993 requires
quarterly payments of interest at 8.5% per annum and installments
of principal in the amount of $1 million on each of the fifth
through eighth anniversary dates of closing, with the entire
remaining principal due nine years after closing. The note is
subordinated to bank and other institutional financing (including
the Credit Agreement), and purchase money debt incurred in
connection with acquisitions of businesses. The note is pre-payable
at the option of the Company, at premiums until the fifth
anniversary of closing ranging from 3% to 1% of the amount prepaid.
Warrants with respect to 350,877 shares of Common Stock issued in
connection with such note are exercisable, at the election of the
holder, through July 25, 1998, at a price per share of Common Stock
of $14.25, and such shares are entitled to demand and incidental
registration rights.
The Company also remains obligated on certain notes issued in
connection with the acquisition, in October 1994, of all of the
outstanding stock of Gelco and affiliates, originally representing
the one-half of the purchase price of $18 million not paid in cash
at closing, such notes due on the first and second anniversaries of
closing. In addition, the Company issued promissory notes,
aggregating $2.85 million, to the former Gelco shareholders and
their affiliates, representing net current liabilities of the
acquired companies to related parties and a portion of working
capital at closing. The notes issued in the Gelco closing are
secured by the assets acquired, subject to the rights of SunTrust,
as agent, under its loan arrangement with the Company.
In May 1995, the Company had agreed to extend by one year, through
July 3, 1996 (the "Maturity Date"), the maturity of the secured,
non-recourse promissory note (the "Note") held by the Company
issued by Ringwood Limited ("Ringwood"), an affiliate of Brian
Chandler and Douglas Chick, directors of the Company, in the
principal amount of $3.624 million, and in December 1995 the
interest payment otherwise due in January 1996 was postponed to be
due on a date (the "Extension Date") no later than 30 days after
the date of first publication of the Company's operating results
covering a 30-day period after the consummation of the IMA Merger.
At the Extension Date, Ringwood had defaulted in the payment to the
Company of its interest payment postponed as aforesaid, and on the
Maturity Date had defaulted in payment of the principal amount of
the Note. Effective in August 1996, the Company foreclosed on the
255,801 shares of Common Stock beneficially owned by Ringwood and
Messrs. Chandler and Chick, and pledged as security for the Note
(the "Pledge"), in full satisfaction of the obligation of Ringwood
and Messrs. Chandler and Chick under the Note and the Pledge. See
Note 7 of the Notes to Consolidated Financial Statements included
elsewhere herein.
In October 1992, prior to its acquisition by the Company, Naylor
Industries, Inc. ("Naylor") sold all of the common stock of its
industrial services subsidiary, and as part of the sale remains
obligated to indemnify the purchaser, with certain exceptions and
subject to specified limitations, against certain claims, including
<PAGE>
<PAGE>
certain pending or threatened litigation known to Naylor as of the
date of the purchase. There can be no assurance that any claims, if
successful, are or will be wholly or partially insured, or covered
by financial reserves, or that such claims will not result in
retroactive adjustments in Naylor's insurance premiums based on the
terms of its retrospective rated policies. The Company's financial
statements reflect management's estimate of the likely amounts of
such remaining premium. The Company has also provided in its
financial statements for the estimated amount of liabilities that
are likely to be incurred from pending litigation and claims
involving Naylor.
Management believes its working capital and its existing credit
availability will be adequate to meet its capital requirements for
the foreseeable future. In connection with any plans for the
expansion of the Company's business and for general corporate
purposes, the Company may consider an offering of shares of Common
Stock or convertible or other debt. The Company has not reached any
determination with respect to the size or nature of any such
offering or whether any such offering will be undertaken, and there
can be no assurance that any such offering will be made.
Recently Issued Accounting Standards
- ------------------------------------
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), issued by the Financial
Accounting Standards Board is effective for transactions entered
into in fiscal years that begin after December 15, 1995. The
disclosure requirements of SFAS No. 123 are also effective for
financial statements for fiscal years beginning after December 15,
1995. The new standard encourages entities to adopt a fair value
method of accounting for employee stock-based compensation plans
and requires such accounting for transactions in which an entity
acquires goods or services from non-employees through issuance of
equity instruments. As allowed under the provisions of SFAS No.
123, the Company will continue to measure compensation cost for
employee stock-based compensation plans using the intrinsic value
based method of accounting prescribed by the Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. As
such, the Company will make pro forma disclosures in its annual
financial statements of net income and earnings per share as if the
fair value based method of accounting had been applied.
Results of Operations - Six Months Ended June 30, 1996 Compared to
Six Months Ended June 30, 1995
Revenues. Revenues for the second quarter of 1996 increased 3.1%
to $71.8 million from $69.6 million in the prior year, while
revenues for the first half of 1996 increased 6.1% to $139.9
million from $131.9 million in the prior year. This increase was a
result of an increase in construction revenues, offset by decreases
in product sales to and royalties and license fees from independent
licensees. The increase in construction revenues for the first half
of 1996 reflects the April 1995 acquisition of the pipeline
rehabilitation business of Enviroq, including Insituform Southeast,
Inc. (and the consequent consolidation of Midsouth Partners),
<PAGE>
resulting in the elimination of the related product sales and
royalty revenues. Fluctuations in currency exchange rates of the
Japanese yen, British pound sterling, and Canadian dollar to the
United States dollar negatively impacted total revenues by
approximately $1.1 million in the first half of 1996.
Construction revenues during the second quarter increased 6.1% to
$67.5 million from $63.6 million in 1995, while, for the first half
of 1996, construction revenues increased by 8.3% to $128.2 million
from $118.4 million in the prior year. The increase reflects the
acquisition of Insituform Southeast in April 1995, which together
with the consolidation of Midsouth Partners, contributed $8.0
million and $14.7 million to, respectively, the three and six
months ended June 30, 1996, as compared to $7.3 million in the
prior year subsequent to the acquisition. See Note 3 of the Notes
to Consolidated Financial Statements for information describing the
Company's majority interest in Midsouth Partners resulting from the
Enviroq acquisition, and the June 1996 decision in arbitration
regarding Midsouth's management committee.
Construction revenues also reflect increases for the quarter and
six-month periods by operations in the United States from the
Company's central region of $4.6 million and $7.6 million,
respectively, and the western region of $3.6 million and $6.7
million, respectively. In addition, United Kingdom revenues
increased by $4.0 million and $7.5 million, respectively, for the
three and six-month periods, which primarily reflect volume
increases resulting from the acquisition of the FormaPipe business
in November 1995. These increases were offset by decreases in
revenues by the Company's New England operations of $2.0 million
and $6.2 million, respectively, and in its Plains region of $2.4
million and $1.1 million respectively, for the three and six-month
periods. Fluctuations in currency exchange rates of the British
pound sterling and Canadian dollar to the United States dollar
negatively impacted total revenues by approximately $0.3 million in
the first half of 1996.
Product sales for the second quarter decreased 27.5% to $2.9
million in 1996 from $4.0 million in 1995, and for the first half
of 1996 decreased 10.8% to $8.6 million from $9.7 million in 1995.
For the first half of 1995, product sales included $1.2 million in
pre-acquisition sales to Insituform Southeast and Midsouth
Partners. The decrease in product sales was partially offset by
increases in sales to European licensees of $0.1 million for the
six-month period. Fluctuations in currency exchange rates of the
Japanese yen and British pound sterling to the United States dollar
negatively impacted total revenues by approximately $0.8 million
for the first half of 1996.
Royalty and license fees for the second quarter of 1996 decreased
31.8% to $1.4 million compared to $2.0 million in 1995, and for the
first half of 1996 decreased 20.6% to $3.0 million from $3.8
million in 1995. The decrease in the first half of 1996 was
primarily attributable to lower royalties collected from
independent licensees in the United States, coupled with the
elimination of intercompany royalties from recently-acquired
subsidiaries. During the first half of 1996, the Company signed
<PAGE>
license agreements for Insituform in Taiwan and NuPipe in Germany
and recognized $0.3 million in license fee revenue, while in the
first half of 1995, the Company signed license agreements in Poland
and South Africa, and recognized $0.2 million in license fee
revenue.
Operating Costs and Expenses. In the second quarter of 1996, cost
of construction contracts increased 8.3% to $45.5 million from
$42.0 million in 1995, while, in the first half of 1996, cost of
construction contracts increased 11.7% to $87.8 million from $78.6
million in 1995. The increases were primarily attributable to
newly-acquired licensees, which added, collectively, $5.5 million
to costs in the six-month period in 1996. Increases in construction
costs in the United States by the central region of $3.0 million
and $6.1 million, respectively, and in the western region of $3.3
million and $5.6 million, respectively, for the three and six-month
periods, are reflective of increased volume in 1996. The Company's
New England and Plains operations experienced decreases in costs in
the three and six-month periods of 1996 of $2.6 million and $7.2
million, and $2.7 million and $1.8 million, respectively. The
Company's corrosion and abrasion activities in the United States
and Chile experienced a decline in costs of $3.0 million for the
six-month period due primarily to a decrease in volume as a result
of lower workable backlog.
Construction costs as a percentage of construction revenues
increased during the second quarter to 67.4% as compared to 66.1%
in the second quarter of 1995. For the six-month period,
construction costs as a percentage of construction revenues
increased to 68.5% as compared to 66.3% in 1995. These increases
are principally due to lower margins achieved by newly-acquired
subsidiaries, coupled with lower margins in certain regions of the
United States, which have resulted from poor weather conditions and
competitive bidding conditions.
Cost of product sales decreased 22.7% to $2.2 million in the second
quarter of 1996 from $2.9 million in 1995, while, during the first
half of 1996,cost of product sales decreased 14.3% to $5.9 million
from $6.9 million. These decreases are a result of decreased
revenue coupled with improved margins achieved by the Company's
manufacturing of Insituform and NuPipe products in the United
States, as a result of continued improvements in efficiency. In
addition, margins achieved by Japan improved in the first half of
1996 by over 4.8% from the prior year. For the first half of 1996,
cost of product sales as a percentage of product sales improved to
68.6% in 1996, as compared to 71.4% in 1995, due to improvements in
overall margin.
As a percentage of revenues, selling, administrative and general
expenses in the second quarter were 20.5% compared to 20.2% in
1995, while, for the first half of 1996, selling, administrative
and general expenses as a percentage of revenues was 21.1% compared
to 20.6% in the first half of 1995. The 1996 increase as a
percentage of revenues is attributable primarily to higher costs of
operations in the newly-acquired subsidiaries, coupled with
management's investment in stronger operations and sales
management, improvement in quality (ISO 9000), and focus on the
<PAGE>
industrial market in 1996. In the second quarter of 1996, selling,
administrative and general costs increased 4.8% to $14.7 million
compared to $14.0 million in 1995, while, in the first half of
1995, selling, administrative and general expenses increased 8.3%
to $29.5 million as compared to $27.2 million in 1995. The increase
during the first half of 1996 is due, in large part, to the
incremental costs of operations for recently acquired entities of
$1.0 million (of which $0.3 million related to incremental goodwill
and non-compete amortization). Other increases were attributable to
added personnel costs in the Company's contracting operations in
the United States principally in the areas of industrial sales, and
operations and project management.
Strategic marketing and product development costs decreased 16.9%
to $1.7 million compared to $2.0 million in 1995 during the second
quarter of 1995, and, for the first half of 1996, strategic
marketing and product development costs decreased 6.5% to $3.8
million as compared to $4.0 million in the prior year. The decrease
is primarily due to controlled spending in advertising and research
projects, offset somewhat by increased costs related to the focus
on industrial marketing.
Litigation Settlement. As more fully described in Note 10 to the
Notes to Consolidated Financial Statements, during the second
quarter of 1995 the Company entered into a memorandum of
understanding to settle a pending shareholder class action lawsuit.
Under the settlement, the Company made a cash payment to class
members in the amount of $3.2 million, and issued 30,000 shares of
Common Stock. Accordingly, the Company charged earnings for $3.6
million during the second quarter of 1995.
Interest expense. In the second quarter of 1996, interest expense
decreased 9.0% to $1.6 million from $1.7 million in 1995. This
decrease was primarily due to lower interest rates and reduced
principal in 1996. However, for the first half of 1996, interest
expense increased 1.1% to $3.2 million from $3.1 million in 1995.
This increase was due primarily to interest on debt used to finance
the Insituform Southeast acquisition incurred in April 1995, offset
by reduced principal and lower interest rates on other existing
debt.
Other income. Other income was virtually unchanged for the
three-month and six-month periods ended June 30, 1996 compared to
1995.
Taxes on Income. In the second quarter, taxes on income increased
96.8% to $2.5 million from $1.3 million in 1995, while, in the
first half of 1996, taxes on income increased 24.0% to $4.1 million
from $3.3 million in 1995. The increase in the first half of 1996
was a result of $1.2 million more in income before taxes on income
compared to the prior year, coupled with an increase in the
effective tax rate to 39.8% from 36.1% during the first half of
1995. This increase was primarily due to a shift in earnings mix in
1996 to jurisdictions with higher tax rates, coupled with
additional amortization of goodwill associated with the Enviroq
acquisition, which is not deductible for tax purposes.
<PAGE>
Net Income. Total revenues for the second quarter increased by $2.1
million, or 3.1%, in 1996 over 1995, which was offset by a decrease
in gross profit of $0.8 million, or 3.2%, coupled with increased
operating costs of $0.3 million, or 2.0%. These factors contributed
to a decrease in operating income of $1.1 million, or 13.1%. A
decrease in interest expense of $0.2 million, coupled with a
litigation loss of $3.6 million in 1995, offset by an increase in
taxes on income of $1.2 million, resulted in an increase in income
from continuing operations of $1.4 million, or 59.3%. Minority
interests decreased by $0.3 million, offset by a decrease in equity
in earnings of affiliated companies of $0.1 million. As a result
of the foregoing, net income for the second quarter of 1996 was
$3.8 million, an increase of $1.7 million, or 78.7%, from 1995.
For the first half of 1996, total revenues increased $8.0 million,
or 6.1%, over the first half of 1995, which was offset by a
decrease in gross profit of $0.4 million, or 0.8%, and an increase
of operating expenses of $2.0 million, or 6.4%. These factors
resulted in a decrease in operating profit of $2.4 million, or
15.8%. The litigation loss of $3.6 million in 1995 was coupled with
decreased interest expense and improved other income of $0.1
million, collectively. These factors were offset by increased taxes
on income of $0.8 million, which resulted in an increase in income
before minority interests and equity in earnings of affiliated
companies of $0.4 million, or 6.1%. A decrease in minority
interests of $0.5 million was offset by a decrease in equity in
earnings of affiliated companies of $0.4 million. As a result of
the foregoing, net income for the first half of 1996 was $6.1
million, an increase of $0.5 million from net income of $5.6
million in the first half of 1995.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
------------------
In previously reported proceedings initiated by the Company in
the United States District Court for the Southern District of
Texas, Houston Division against Cat Contracting, Inc., et al.,
(Civil Action No. H-90-1690) in which the court, in October 1995,
among other matters ruled that defendants' serial impregnation
process infringed the Company's patent and issued a permanent
injunction against defendants' use of the processes covered by such
patent, the court has further denied defendants' February 1996
motion for a partial new trial. In July 1996, defendants filed a
notice of appeal from such ruling with the United States Court of
appeals for the Federal Circuit.
In previously reported proceedings initiated by the Company in
the United States District Court for the Central District of
California against Spiniello Limited, Inc., et al. (Civil Action
No. 95-5484 (GHK)), in which the court, in November 1995,
preliminarily enjoined defendants from infringing the Company's
serial impregnation patent and from misappropriating various of the
Company's trade secrets, the Company, in June 1996, filed motions
seeking to hold defendants in contempt of the preliminary
injunction for using such trade secrets and for a further
preliminary injunction to enjoin using or disclosing additional
trade secrets of the Company. In addition, the Company has moved to
file a supplemental complaint alleging the infringement of an
additional Insituform patent and compel discovery.
In June 1996, the arbitration panel in previously reported
proceedings commenced by Insitu, Inc. ("Insitu") (a wholly-owned
subsidiary of Insituform East, Incorporated) determined that
E-Midsouth, Inc. ("E-Midsouth") (an indirect, wholly-owned
subsidiary of the Company as a result of its acquisition of
Insituform Mid-America, Inc.) but not Insituform California, Inc.
(another wholly-owned subsidiary of the Company) was in default of
its obligations under the Midsouth Partners partnership agreement
and that, as a consequence thereof, Insitu had the right
unilaterally to appoint a representative to the seven-member
management committee of the partnership, in place of a
representative appointed by E-Midsouth and in addition to the three
members previously appointed by Insitu, and to receive legal fees
from E-Midsouth in the amount of approximately $132,000.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
(a) On June 4, 1996, the Company convened its Annual Meeting
of Stockholders (the "Annual Meeting").
(b) Not applicable because (i) proxies for the Annual Meeting
were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934 together with the Company's Proxy Statement
dated May 3, 1996; (ii) there was no solicitation in opposition to
<PAGE>
<PAGE>
management's nominees as listed in such Proxy Statement; and (iii)
all of such nominees were elected.
(c) At the Annual Meeting, the stockholders voted in favor of
management's nominees for election as Class I directors of the
Company. The holders of 18,639,438 shares voted in favor of, and
holders of 5,678,600 shares withheld their vote for, the election
of William Gorham; the holders of 24,075,931 shares voted in favor
of, and the holders of 242,107 shares withheld their vote for, the
election of Alvin J. Siteman; the holders of 18,639,951 shares
voted in favor of, and the holders of 5,679,087 shares withheld
their vote for, the election of Silas Spengler; and the holders of
18,639,146 shares voted in favor of, and the holders of 5,678,892
shares withheld their vote for, the election of Sheldon Weinig.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) The exhibits filed or incorporated by reference as part of
this Quarterly Report on Form 10-Q are listed on the attached Index
to Exhibits.
(b) Subsequent to the quarter ended June 30, 1996, the Company
filed a Current Report on Form 8-K dated July 17, 1996 addressing,
under "Item 4. Changes in Registrant's Certifying Accountants"
thereunder, the change of independent auditors from BDO Seidman,
LLP to Arthur Andersen, LLP. There were no disagreements between
the Company and BDO Seidman, LLP during the two most recent fiscal
years or any subsequent interim period prior to July 17, 1996 on
any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of the prior
independent auditors, would have caused them to make reference in
connection with their report to the subject matter of their
disagreement. No financial statements were filed with such Current
Report on Form 8-K.
<PAGE>
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.
INSITUFORM TECHNOLOGIES, INC.
August 14, 1996 By: s/William A. Martin
-----------------------------
William A. Martin
Senior Vice President and
Principal Financial and
Accounting Officer
<PAGE>
<PAGE>
INDEX TO EXHIBITS
-----------------
27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and is not filed.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 16,348
<SECURITIES> 1
<RECEIVABLES> 57,394
<ALLOWANCES> 905
<INVENTORY> 16,277
<CURRENT-ASSETS> 122,990
<PP&E> 58,103
<DEPRECIATION> 46,397
<TOTAL-ASSETS> 261,516
<CURRENT-LIABILITIES> 44,250
<BONDS> 0
271
0
<COMMON> 0
<OTHER-SE> 122,856
<TOTAL-LIABILITY-AND-EQUITY> 261,516
<SALES> 8,632
<TOTAL-REVENUES> 139,879
<CGS> 5,923
<TOTAL-COSTS> 88,059
<OTHER-EXPENSES> 33,229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,152
<INCOME-PRETAX> 10,351
<INCOME-TAX> 4,117
<INCOME-CONTINUING> 6,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,080
<EPS-PRIMARY> 0.220
<EPS-DILUTED> 0.220
</TABLE>
