<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1995
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: 0-10800
INSITUFORM EAST, INCORPORATED
(Exact Name of Registrant as specified in its charter)
Delaware 52-0905854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3421 Pennsy Drive 20785
Landover, Maryland (Zip Code)
(Address of principal executive offices)
Registrant's telephone and fax numbers
including area code: 301-386-4100 (tel)
301-386-2444 (fax)
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 _____
As of May 1, 1995, the following number of shares of the issuer's
classes of common stock were outstanding:
Common Stock $.04 Par Value 4,059,266
Class B Common Stock $.04 Par Value 297,596<PAGE>
TABLE OF CONTENTS
Page Reference
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended March 31,
1995 and 1994 (Unaudited) 3
Condensed Consolidated Balance Sheets
March 31, 1995 and June 30, 1994 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows 6
Nine Months Ended March 31, 1995 and 1994
(Unaudited)
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
2<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION> INSITUFORM EAST, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended March 31, Ended March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $5,316,915 $2,173,412 $15,535,981 $ 9,870,125
Costs and Expenses:
Cost of sales 3,570,488 2,186,283 10,908,143 8,105,946
Selling, general and
administrative 1,082,257 842,635 2,971,649 2,621,760
Total Costs and
Expenses 4,652,745 3,028,918 13,879,792 10,727,706
Earnings (Loss) from
Operations 664,170 (855,506) 1,656,189 (857,581)
Interest Expense - - - (1,950)
Investment Income 8,064 9,596 23,746 26,738
Other Income 80,670 65,272 185,849 169,162
Equity in Earnings of
MIDSOUTH Partners 141,223 26,574 554,600 177,340
Earnings (Loss) Before
Income Taxes and Non-
owned Interest 894,127 (754,064) 2,420,384 (486,291)
Provision (Credit) for
Income Taxes 365,000 (296,000) 971,000 (191,000)
Earnings (Loss) Before
Non-owned Interest 529,127 (458,064) 1,449,384 (295,291)
Non-owned Interest in
(Earnings) Loss of Con-
solidated Subsidiary (3,860) 268 (7,458) (496)
Earnings (Loss) from
Continuing Operations 525,267 (457,796) 1,441,926 (295,787)
Estimated Loss on
Disposal of Cement
Mortar Lining Service
Capability - Net of
income tax credit of
$27,000 - - - (43,000)
Net Earnings (Loss) $ 525,267 $ (457,796) $ 1,441,926 $ (338,787)
Net Earnings (Loss) Per
Share
Earnings (Loss) from
Continuing Operations $ .12 $ (.11) $ .33 $ (.07)
Estimated Loss on
Disposal of Discon-
tinued Operations - - - (.01)
Net Earnings (Loss)
Per Share $ .12 $ (.11) $ .33 $ (.08)
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3<PAGE>
<TABLE>
<CAPTION>
INSITUFORM EAST, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
1995 1994
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 1,726,157 $ 788,402
Accounts receivable 4,511,483 4,974,099
Inventory - raw materials 986,034 764,938
Prepaid and refundable income taxes 53,428 428,239
Prepaid expenses 299,312 188,069
Total Current Assets 7,576,414 7,143,747
Investment in and Advances to MIDSOUTH
Partners 1,297,528 866,178
Property, Plant and Equipment - at cost
less accumulated depreciation 8,987,210 8,699,078
Other Assets 75,000 87,000
Total Assets $17,936,152 $16,796,003
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INSITUFORM EAST, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
March 31, June 30,
1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 788,174 $ 1,250,154
Accrued compensation and related
expenses 914,273 1,108,411
Income taxes payable 490,768 26,226
Dividends payable - 217,843
Total Current Liabilities 2,193,215 2,602,634
Deferred Income Taxes 1,038,000 919,000
Total Liabilities 3,231,215 3,521,634
Non-owned Interest in Consolidated
Subsidiary - 11,358
Stockholders' Equity:
Common Stock - $.04 Par value;
10,000,000 shares authorized;
4,387,163 and 4,387,063 shares
issued; 4,059,266 and 4,059,166
shares outstanding 175,486 175,482
Class B Common Stock - $.04 Par
value; 800,000 shares authorized;
297,596 and 297,696 shares issued
and outstanding 11,904 11,908
Additional Paid-in Capital 4,000,424 4,000,424
Retained Earnings 11,706,736 10,264,810
15,894,550 14,452,624
Less Cost of 327,897 shares of
common stock in treasury 1,189,613 1,189,613
Total Stockholders' Equity 14,704,937 13,263,011
Total Liabilities and
Stockholders' Equity $17,936,152 $16,796,003
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
5<PAGE>
<TABLE>
<CAPTION>
INSITUFORM EAST, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities:
Earnings (loss) from continuing
operations $ 1,441,926 $ (295,787)
Estimated loss on disposal - (43,000)
Net earnings (loss) 1,441,926 (338,787)
Adjustments for noncash items
included in net earnings (loss):
Depreciation and amortization 763,325 759,771
Undistributed earnings of MIDSOUTH
Partners (554,600) (177,340)
Non-owned interest in earnings
of consolidated subsidiary 7,458 496
Deferred income taxes 119,000 406,000
Cash effect of changes in:
Receivables 462,616 313,067
Inventories (221,096) 81,827
Other current assets 263,568 (13,577)
Payables and accruals (191,576) (779,557)
Net cash provided by operating
activities 2,090,621 251,900
Cash Flows from Investing Activities:
Capital expenditures, net (1,039,457) (348,918)
Cash distribution from MIDSOUTH
Partners 123,250 -
Acquisition of non-owned interest
in consolidated subsidiary (18,816) -
Disposal of net assets of discon-
tinued service line - 134,360
Net cash used in investing activities (935,023) (214,558)
Cash Flows from Financing Activities:
Proceeds from line of credit advances - 600,000
Repayment of line of credit advances - (600,000)
Dividends paid (217,843) (217,843)
Net cash used in financing activities (217,843) (217,843)
Net Increase (Decrease) in Cash and
Short-term Investments 937,755 (180,501)
Cash and short-term investments at
beginning of period 788,402 1,890,947
Cash and short-term investments at
end of period $ 1,726,157 $1,710,446
Supplemental disclosure of cash flow information:
Interest paid $ - $ 1,950
Income taxes paid (refunded) $ 12,647 $ (682,148)
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
6<PAGE>
INSITUFORM EAST, INCORPORATED
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of March 31, 1995,
the Condensed Consolidated Statements of Operations for the three
months and nine months ended March 31, 1995 and 1994, and the
Condensed Consolidated Statements of Cash Flows for the nine months
ended March 31, 1995 and 1994 have been prepared by the Company
without audit. The Condensed Consolidated Balance Sheet as of June
30, 1994 (unaudited) has been derived from the Company's June 30,
1994 audited financial statements. In the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1995 and for all periods
presented have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It
is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto
included in the Company's June 30, 1994 audited financial
statements. The results of operations for the periods ended March
31, 1995 and 1994 are not necessarily indicative of full year
operating results.
2. Computation of Net Earnings Per Share
Net earnings per share was computed by dividing net earnings
by the weighted average number of common shares outstanding during
the period including common stock equivalents from dilutive stock
options. Weighted average number of shares of 4,377,221 and
4,361,587 were used in computing net earnings per share for the
three months ended March 31, 1995 and 1994, respectively; 4,365,588
and 4,358,437 shares were used in computing net earnings per share
for the nine months ended March 31, 1995 and 1994, respectively.
3. MIDSOUTH Partners
MIDSOUTH Partners, a Tennessee general partnership organized
in December 1985, is the Insituform process licensee for Tennessee,
most of Kentucky and Northern Mississippi. The Company's 42.5%
investment in MIDSOUTH Partners is accounted for using the equity
method. Summarized results of operations for MIDSOUTH Partners are
as follows:
7<PAGE>
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $2,132,577 $1,323,362 $6,515,334 $4,844,116
Gross Profit $ 585,736 $ 303,808 $2,059,480 $1,119,837
Partnership Net
Earnings $ 332,291 $ 62,527 $1,304,942 $ 417,450
</TABLE>
4. Discontinued Operations
The Company adopted a formal plan to discontinue providing
cement mortar lining services on June 11, 1993. This plan included
declining to bid on future cement mortar lining contracts,
fulfilling existing commitments and selling remaining equipment and
materials associated with this service capability. The Company
substantially completed two existing contracts in progress and sold
substantially all remaining equipment and materials during the year
ended June 30, 1994.
During the quarter and year ended June 30, 1993, the Company
established an estimated loss on the disposal of discontinued
operations of -$391,000 (net of income tax benefit of $250,000).
The estimated loss on disposal was increased -$43,000 (net of
income tax benefit of $27,000) during the three months ended
September 30, 1993 to increase the provision for additional
operating losses to complete remaining cement mortar lining
contracts during fiscal 1994.
Operating results from cement mortar lining activities for the
three months and nine months ended March 31, 1994 are presented
separately in the accompanying Condensed Consolidated Statements of
Operations. There were no sales revenues from cement mortar lining
activities during the three months ended March 31, 1994. Sales
revenues from cement mortar lining activities for the nine months
ended March 31, 1994 were $830,822. Sales revenues from cement
mortar lining activities are not included in sales in the
accompanying Condensed Consolidated Statements of Operations.
5. Subsequent Event
On April 18, 1995, Insituform Mid-America, Inc. ("IMA")
acquired the pipeline rehabilitation business of ENVIROQ
Corporation ("Enviroq"), including Enviroq's 42.5% interest in
MIDSOUTH Partners which is held through Enviroq's special purpose
subsidiary, E-Midsouth, Inc. Under the MIDSOUTH Partners'
8<PAGE>
Partnership Agreement, it is an event of default if, among other
things, a change in the control of any partner occurs without the
prior written consent of all the other partners. The IMA
acquisition of Enviroq, which resulted in a change in the control
of Enviroq and E-Midsouth, Inc. was made without the prior written
consent of the Partnership's two other partners, special purpose
subsidiaries of the Company and Insituform Technologies, Inc.
("ITI").
The Partnership Agreement grants non-defaulting partners the
right to require compliance with the agreement, enjoin any breach
or seek dissolution of the partnership, among other alternatives.
The Company has filed with the American Arbitration Association a
demand for arbitration alleging a breach of the Partnership
Agreement by E-Midsouth, Inc. Separately, on April 4, 1995, ITI
affiliated companies initiated action against Enviroq and IMA in
Tennessee Chancery Court regarding ITI's rights as licensor to
withhold consent to the assignment of Insituform and NuPipe license
agreements. Simultaneously with the initiation of its suit, ITI
entered into agreements with IMA and Enviroq to postpone, through
April 30, 1995 (subsequently extended through May 31, 1995), the
Tennessee court proceedings as well as any other assertion by ITI
of its rights under Insituform and NuPipe license agreements and
its rights under the MIDSOUTH Partners' Partnership Agreement.
Although the Company cannot, at this time, predict the outcome
of the matters described herein, any potential outcome that
resulted in the loss by the Company of its ability to recognize its
share of the results of operations of MIDSOUTH Partners could have
a material adverse effect on the future earnings of the Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview and Outlook
The Company recognized net earnings of $525,267 ($0.12 per
share) from $5.3 million in sales for the third quarter of fiscal
1995 ended March 31, 1995, producing net earnings of $1,441,926
($0.33 per share) from sales of $15.5 million for the first nine
months of fiscal 1995. The Company recognized a loss of
- - -$457,796 (-$0.11 per share) from sales of $2.2 million for the
third quarter of fiscal 1994 ended March 31, 1994, resulting in a
net loss of -$338,787 (-$0.08 per share) from $9.9 million in sales
for the first nine months of fiscal 1994. The Company attributed
its improved fiscal 1995 operating results to increased sales,
expanded production capabilities and improved comparable period
operating results from MIDSOUTH Partners. In addition, third
quarter fiscal 1994 operating results were adversely affected by a
combination of severe weather conditions and delays in customer
work releases.
9<PAGE>
While there can be no assurances regarding future operating
performance, based on the volume and mix of the Company's present
and expected backlog of customer orders, the favorable results
experienced during the last four quarters are presently anticipated
to continue throughout the remainder of calendar 1995.
The Company believes the trenchless pipeline reconstruction
marketplace is continuing to expand, enticing ever more entrants
and products hoping that cheapest price alone will permit them to
succeed in a market otherwise dominated by Insituform. The Company
is encouraged that, in response, many of its municipal, federal
government and industrial customers are increasingly implementing
improved procurement specifications and product evaluation criteria
emphasizing technical value instead of simply low price. The
Company continues to believe that customers and consulting
engineers using such improved purchasing criteria help to ensure
long term solutions to their infrastructure needs by clearly
differentiating proven products such as Insituform from cheaply
priced trenchless substitutes with quality, technical and other
risks not equally tested by time or independent third parties.
The principal factor affecting the Company's future
performance remains the volatility of earnings as a function of
sales volume at normal margins. Accordingly, because a substantial
portion of the Company's costs remain semi-fixed in nature,
earnings can, at times, be severely reduced or eliminated during
periods of depressed or low margin sales. Conversely, at normal
margins, increases in period sales can significantly leverage
positive earnings.
Results of Operations
Three Months Ended March 31, 1995 Compared with Three Months Ended
March 31, 1994
The Company recognized net earnings of $525,267 ($0.12 per
share) for the third quarter of fiscal 1995 ended March 31, 1995,
as compared to a net loss of -$457,796 (-$0.11 per share) for the
third quarter of fiscal 1994 ended March 31, 1994. The Company's
improved comparable period operating results are primarily a result
of increased sales, expanded production capabilities and improved
comparable period operating results from MIDSOUTH Partners.
Sales increased 145% from $2.2 million for the three months
ended March 31, 1994 to $5.3 million for the three months ended
March 31, 1995. This increase was due in part to an expanded
production capacity associated with the Company adding an
additional installation crew to its Operations Group during the
second quarter of fiscal 1995. In addition, third quarter fiscal
1994 sales were adversely affected by a combination of severe
weather conditions and delays in customer work releases.
10<PAGE>
Cost of sales increased 63% in the third quarter of fiscal
1995 as compared to the third quarter of fiscal 1994. As a result,
gross profit as a percentage of sales increased from a negative
gross profit of 1% for the third quarter of fiscal 1994 to a gross
profit of 33% of sales for the third quarter of fiscal 1995. The
increase in gross profit as a percentage of sales is due primarily
to the absorption of semi-fixed operating costs over increased
sales.
Selling, general and administrative expenses increased
$239,622 (28%) for the third quarter of fiscal 1995 as compared to
the third quarter last year, primarily as a result of additional
costs associated with expanded operating activities.
The Company's equity in the operating results of MIDSOUTH
Partners increased from pretax earnings of $26,574 for the third
quarter of fiscal 1994 to pretax earnings of $141,223 for the third
quarter of fiscal 1995 primarily as a result of a 61% increase in
comparable period revenues from $1.3 million to $2.1 million.
The total value of uncompleted contract awards from customers
was approximately $13.8 million at March 31, 1995 as compared to
$16.2 million at March 31, 1994. The twelve-month backlog at March
31, 1995 was approximately $11.4 million as compared to $8.1
million at March 31, 1994. The total value of uncompleted
contracts at March 31, 1995 and 1994 includes work not estimated to
be released and installed within twelve months as well as potential
work in term contract awards which may or may not be fully ordered
by contract expiration. Twelve-month backlog for MIDSOUTH Partners
was approximately $3.5 million and $2.4 million at March 31, 1995
and 1994, respectively. Backlog figures at specific dates are not
necessarily indicative of sales and earnings for future periods due
to the irregular timing and receipt of annual term contract
renewals and other project awards.
Nine Months Ended March 31, 1995 Compared with Nine Months Ended
March 31, 1994
The Company realized net earnings of $1,441,926 ($0.33 per
share) for the first nine months of fiscal 1995 as compared to a
loss from continuing operations of -$295,787 (-$0.07 per share) and
a net loss of -$338,787 (-$0.08 per share) for the first nine
months of fiscal 1994. The Company's improved comparable nine
month operating results are primarily a result of improved
comparable third quarter results.
Sales increased 57% for the first nine months of fiscal 1995
compared with the first nine months of fiscal 1994. Cost of sales
increased 35% for the nine months ended March 31, 1995 as compared
to the nine months ended March 31, 1994. This resulted in a gross
profit of 30% for the first nine months of fiscal 1995 as compared
to a gross profit of 18% for the first nine months of fiscal 1994.
This increase in gross profit as a percentage of sales is due
primarily to the absorption of semi-fixed operating costs over
increased sales for the first nine months of fiscal 1995.
11<PAGE>
Selling, general and administrative expenses increased 13% in
the nine months ended March 31, 1995 as compared to the first nine
months of fiscal 1994 primarily as a result of additional costs
associated with expanded operating activities. Selling, general
and administrative expenses as a percentage of sales decreased from
26% of sales for the first nine months of fiscal 1994 to 19% of
sales for the first nine months of fiscal 1995 primarily from the
dilutive effect of increased sales.
The Company's equity in the earnings of MIDSOUTH Partners
increased from pretax earnings of $177,340 for the first nine
months of fiscal 1994 to pretax earnings of $554,600 for the first
nine months of fiscal 1995 primarily as the result of a 34%
increase in comparable period revenues from $4.8 million to $6.5
million.
Financial Condition
The Company's operating activities provided $2,090,621 in cash
during the first nine months of fiscal 1995 as compared to $251,900
in cash provided from operating activities during the first nine
months of fiscal 1994. The increase in cash provided from
operating activities for the nine months ended March 31, 1995 is
primarily the result of improved comparable period operating
results.
During the first nine months of fiscal 1995, the Company
expended $1,039,457 for equipment purchases and other capital
improvements, received a $123,250 cash distribution from MIDSOUTH
Partners and paid $217,843 in dividends to shareholders.
The Company's financial liquidity remained strong as the
Company's cash position improved almost $800,000 to $1.7 million
during the nine months ended March 31, 1995. In addition, working
capital improved from $4.5 million to almost $5.4 million and the
Company's current ratio improved from 2.75 to 1 to 3.45 to 1 during
the first nine months of fiscal 1995.
The Company anticipates that maintaining and improving
operational performance in the future will require additional
capital expenditures. Management believes that cash flow from
future operations, existing working capital, the available line of
credit and the unencumbered real and personal property owned by the
Company provide adequate resources to finance the cash requirements
of future capital expenditures.
12<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable.
(b) Reports on Form 8-K
None.
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 EAST, INCORPORATED
(Registrant)
Date May 12, 1995 /s/ Robert W. Erikson
Robert W. Erikson
President
Date May 12, 1995 /s/ Raymond T. Verrey
Raymond T. Verrey
Chief Financial Officer
13
