UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
(301) 773-4560 (24-hour public
information Fax Vault System)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.04 per share
Class B Common Stock, par value $.04 per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No ___
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant computed by reference to the last price at
which such stock was sold, as of September 8, 1995, was $13,852,050.
As of September 8, 1995, the following number of shares of each of the
issuer's classes of common stock were outstanding:
<TABLE>
<S> <C>
Common Stock 4,059,266
Class B Common Stock 297,596
Total 4,356,862
</TABLE>
Documents Incorporated by Reference:
None
Total number of pages of this report: 41 Index to Exhibits located at page: 38
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and Management 35
Item 13. Certain Relationships and Related Transactions 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 38
</TABLE>
__________________________________
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND BALANCE SHEETS
Pages 15 through 16
__________________________________
2
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PART I
Item 1. Business
(a) General Development of Business
Insituform East, Incorporated (the "Company" or "Registrant") was
organized under the laws of the State of Delaware on February 26, 1970, under
the name Universal Construction and Supply Company. Its present name was
adopted on August 24, 1978. The Company was engaged in underground conduit
construction from inception until 1974 and construction equipment rental from
1974 to 1978. The Company then phased out these lines of business and entered
into sublicensing agreements for the Insituform(registration symbol) process,
a patented technology for reconstructing pipelines with little or no
excavation. Since July 1978, the Company has been primarily engaged in the
business of rehabilitating underground sewers and other pipelines using the
Insituform process.
Between 1982 and 1986, the Company added western Pennsylvania, Ohio,
three Kentucky counties and West Virginia to its original Insituform licensed
territory of Maryland, Virginia, the District of Columbia, Delaware and
eastern Pennsylvania.
In December 1985, MIDSOUTH Partners was organized as a Tennessee General
Partnership with the Company holding a 42.5% general partnership interest.
MIDSOUTH Partners is the exclusive licensee for the Insituform process in
Tennessee, the rest of Kentucky and northern Mississippi.
In September 1987, the Company established a branch facility in
Cincinnati, Ohio, to support operating activities in the western region of its
licensed territory.
In May 1989, the Company acquired an 80% interest in TRY TEK Machine
Works, Inc. ("TRY TEK"). TRY TEK, located in Hanover, Pennsylvania, was
founded in September 1985 to custom design and build special machinery,
including machinery used in the Insituform process. The Company acquired an
additional 10% interest in TRY TEK in February 1993 and the remaining 10%
interest in TRY TEK in March 1995.
In December 1990, the Company acquired an exclusive license for the sale
and installation of pre-formed PVC thermoplastic pipe under the
NuPipe(registration symbol) process and trademark for a sales region identical
to the territories licensed to the Company for the Insituform process.
In September 1991, the Company added cement mortar lining of potable
water lines to its service capability. On June 11, 1993, the Company adopted
a formal plan to discontinue providing cement mortar lining services, primarily
as a result of continuing operating losses and significant decreases in market
prices in this already traditionally low margin industry. This formal plan,
which consisted primarily of the completion of two contracts in progress and
the disposal of remaining equipment and materials, was substantially completed
in June 1994.
(b) Financial Information about Industry Segments
Substantially all of the Company's revenue, operating profit and
identifiable assets through June 30, 1995 are attributable to the
rehabilitation and repair of underground sewers and other pipelines, the
Company's only business segment.
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(c) Narrative Description of Business
The Company is primarily engaged in the business of rehabilitating
underground sewers and other conduits -- including waste water, storm water,
and industrial process pipelines -- using the Insituform process. The
Insituform process utilizes a polyester fiber-felt material, the
Insitutube(registration symbol) material, coated with polyurethane and
impregnated with a liquid, thermosetting resin. The Insitutube material is
inserted in the pipe through an existing manhole or other access point. By
use of an inversion tube and cold water pressure, the Insitutube material is
forced through the pipeline, turned inside out and pressed firmly against the
inner wall of the damaged pipeline. When the Insitutube material is fully
extended, the cold water within the tube is recirculated through a boiler in
a truck. The heated water cures the thermosetting resin to form a hard,
jointless, impact and corrosion resistant Insitupipe(registration symbol)
product within the original pipe. Lateral or side connections are then
reopened by use of the Insitucutter(registration symbol) device, a
remote-controlled cutting machine.
RELATIONSHIP WITH INSITUFORM TECHNOLOGIES, INC.
On December 9, 1992, Insituform Technologies, Inc. (formerly Insituform
of North America, Inc.), through its acquisition of Insituform Group, Ltd.,
N.V., acquired the worldwide patent rights for the Insituform process. The
Company is a sublicensee of Insituform Technologies, Inc. ("ITI"). The
Company has entered into six sublicense agreements with ITI which grant the
Company rights to perform the Insituform process in Virginia, Maryland,
Delaware, Ohio, the District of Columbia, Pennsylvania, West Virginia, and
three Kentucky counties. The Company can perform the Insituform process in
other locations subject to payment of additional royalties.
The sublicense agreements require the Company to pay ITI a royalty of 8%
of the revenue, excluding certain deductions, from all contracts using the
Insituform process, with a minimum annual royalty requirement for each
licensed territory. In the event the Company performs the Insituform process
outside its territory, the sublicense agreements require it to pay a royalty
of from 8% to 12% of the gross contract price to the independent sublicensee
of such other territory, if any, in addition to all royalties due ITI.
The sublicense agreements extend for the life of the underlying patents
or patent rights, including any improvements or modifications extending such
life. The agreements may be terminated by the Company upon two calendar
quarters written notice to ITI. The agreements may only be canceled by ITI in
certain events. In addition, ITI has the right to approve the quality and
specifications of equipment and materials not purchased directly from ITI.
On May 1, 1987, the Company entered into a supply agreement with ITI
whereby the Company committed to purchase 90% of its Insitutube material
requirements from ITI. The agreement automatically renews annually unless
notice of termination is provided by either party six months prior to the end
of a renewal period. As a result of certain terms not previously being
fulfilled by ITI, the Company believes it is no longer required to purchase
90% of its Insitutube material requirements from ITI under the otherwise
continuing agreement. The continuing agreement currently extends through
April 30, 1996.
In December 1990, the Company entered into a license agreement with
NuPipe, Inc., a wholly-owned subsidiary of ITI, for the sale and installation
of pre-formed PVC thermoplastic pipe under the NuPipe process and trademark.
The Company has committed to pay a royalty equal to 6.75% of gross contract
revenues utilizing the process and to purchase certain installation equipment
and installation materials from ITI.
TRY TEK manufactures Insitucutter devices for sale to ITI and the Company
under an agreement with ITI, the Insitucutter patent holder. Unless otherwise
terminated, this agreement will continue until April 14, 1997, the date of
expiration of the Insitucutter device patent.
4
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In 1981, the Company was assigned the rights to an agreement (the SAW
Agreement) regarding the introduction of potential Insituform process
sublicensees to ITI. In connection with the introduction of current
Insituform process sublicensees to ITI, the Company receives quarterly payments
from ITI equal to 0.5% of contract revenues from Insituform process
installations in the Company's licensed territory and the states of
New York, New Jersey, North Carolina, South Carolina, Georgia and Alabama.
PATENTS
The Insituform process was developed in the United Kingdom in 1971. The
Company's rights to utilize the patents, trademarks and know-how related to
the Insituform process are derived from its licensor, ITI. There are presently
53 United States patents which cover various aspects of the Insituform process
and related installation techniques. The last patent to expire will remain in
effect until 2013. Two initial method patents relating to the Insituform
process (one of which covers material aspects of the inversion process) expired
in 1994, a patent relating to the Insitutube material will expire in May 2001
and a primary method patent relating to the Insitutube saturation process
expires in February 2001.
Although management of the Company believes these patents are important to
the business of the Company, there can be no assurance that the validity of the
patents will not be successfully challenged or that they are sufficient to
afford protection against another company utilizing a process similar to the
Insituform process. It is possible that the Company's business could be
adversely affected upon expiration of the patents, or by increased competition
in the event that one or more of the patents were adjudicated to be invalid or
inadequate in scope to protect the Company's operations. Management of the
Company believes, however, that while the Company has relied on the strength
and validity of these patents, the Company's significant installation
experience with the Insituform process and its degree of market penetration in
its licensed territory should enable the Company to compete effectively in the
pipeline rehabilitation market in the future as older patents expire or become
obsolete.
CUSTOMERS
The Company performs services under contracts with governmental
authorities, private industries and commercial entities. In each of the last
three fiscal years, more than 65% of the Company's customers have been
municipalities, state agencies or regional authorities. During the year ended
June 30, 1995, Federal Government contracts (collectively), the Metropolitan
Sewer District ("MSD") of Greater Cincinnati, Ohio and Washington Metropolitan
Area Transit Authority ("WMATA") accounted for 21%, 15% and 10%, respectively,
of the Company's revenues. During the fiscal year ended June 30, 1994, Federal
Government contracts (collectively) accounted for 15% of the Company's
revenues. During the year ended June 30, 1993, contracts with the City of
Richmond, Virginia; Fairfax County, Virginia and the Washington Suburban
Sanitary Commission ("WSSC") accounted for 15%, 12% and 11%, respectively, of
the Company's revenues.
SUPPLIERS
The Company's materials and equipment are generally available from several
suppliers. However, the Company believes that ITI is presently the sole source
of proprietary Insitutube material and, therefore, the Company is presently
dependent upon ITI for its supply of Insitutube material. During the last
three years the Company has not experienced any difficulty in obtaining
adequate supplies of Insitutube material from ITI and, subject to ITI's right
to approve the quality and specifications of material not purchased from ITI,
the Company has the right to substitute an alternate polyester fiber-felt or
other tube material available in the marketplace. The Company presently
maintains an annually renewed supply agreement with ITI for Insitutube material
(see "Relationship with Insituform Technologies, Inc." above).
REVENUE RECOGNITION, CONTRACT AWARDS AND BACKLOG
The Company recognizes revenues using the units of completion method as
pipeline sections are rehabilitated using the Insituform process. An
Insituform process installation is generally performed between manholes or
similar access points within a twenty-four hour period. A rehabilitated
pipeline section is considered completed work and is generally billable to the
customer. In most cases, contracts consisting of individual line sections have
a duration of less than one year.
5
<PAGE>
The total value of all uncompleted and multi-year contract awards from
customers was approximately $11.9 million at June 30, 1995 as compared to $17.0
million at June 30, 1994. The twelve-month backlog at June 30, 1995 was
approximately $11.5 million as compared to $11.1 million at June 30, 1994. The
total value of all uncompleted and multi-year contracts at June 30, 1995 and
1994 includes work not estimated to be released and installed within twelve
months as well as potential work included in term contract awards which
may or may not be fully ordered by contract expiration. Backlog figures at
specific dates are not necessarily indicative of sales and earnings for future
periods due to the irregular timing and receipt of larger annual term contract
renewals and other large project awards.
MIDSOUTH PARTNERS
MIDSOUTH Partners was organized as a Tennessee general partnership in
December of 1985 and began operations February 1, 1986. The following
corporations are its general partners:
<TABLE>
<CAPTION>
Interest in
Profits and Losses
<S> <C>
Insitu, Inc. (a subsidiary of the Company) 42.5%
E-Midsouth, Inc. (a subsidiary of Enviroq Corporation) 42.5%
Insituform California, Inc. (a subsidiary of ITI) 15.0%
</TABLE>
MIDSOUTH Partners operates as the Insituform process sublicensee for
Tennessee, most of Kentucky (excluding Boone, Kenton and Campbell counties)
and northern Mississippi. MIDSOUTH Partners had a twelve-month backlog of
approximately $4.1 million and $5.0 million at June 30, 1995 and 1994,
respectively.
COMPETITION
The general pipeline reconstruction, rehabilitation and repair business
is highly competitive. The Company faces conceptual and practical competition
both from a number of contractors employing traditional methods of pipeline
replacement and repair and from contractors offering alternative trenchless
products and technologies.
Traditional Methods. The Insituform process conceptually competes with
traditional methods of pipe rehabilitation including full replacement, point
repair and sliplining. The Company believes the Insituform process usually
offers a cost advantage over full replacement as well as the practical advantage
of avoiding excavation. In addition, the Insituform process also offers
qualitatively better rehabilitation than sliplining which may significantly
reduce the diameter of the pipe. Grouting is also undertaken in the United
States. The Company considers grouting a short-term repair technique and not
a long-term pipeline rehabilitation solution competitive with the Insituform
process. As a practical matter, competition for the Company typically begins
at the point an end user has conceptually determined to employ trenchless
technology over traditional rehabilitation methods involving substantial
excavation.
Trenchless Cured-in-Place Technologies. Over the years, the Company has
witnessed a continuing introduction of alternative cured-in-place technologies,
none of which the Company believes has been able to offer the quality or
technical and other merits inherent in the Insituform process. The Company
believes it remains the dominant provider of trenchless cured-in-place pipeline
rehabilitation in its licensed territory.
Modified Sliplining Techniques. Several modified sliplining techniques
have been introduced in the trenchless marketplace to include the use of "fold
and formed" thermoplastic pipe. The NuPipe product offered by the Company is
a folded thermoplastic product installed using modified sliplining techniques.
The Company believes that the majority of customers will select the
cured-in-place Insituform process over modified sliplining techniques due to
the quality and longevity of the Insitupipe product, the proven performance
record of the Company's Insituform process installations over the past
seventeen years, and the broader range of design alternatives available with
the Insituform process. The Company does offer its NuPipe product to customers
in situations where, for budget restraints or other reasons, customers or
consulting engineers consider a modified sliplining technique to be an
acceptable rehabilitation alternative.
6
<PAGE>
Other Trenchless Technologies. The Company is aware of a number of other
trenchless technologies both under development and from time to time introduced
into the marketplace with mixed results. The Company believes that the
successful, in the ground, over twenty years proven performance of the
Insituform process continues to present a significant advantage over these
alternative trenchless products.
The principal areas of competition in general pipeline reconstruction,
rehabilitation and repair include the quality of the work performed, the ability
to provide a long-term solution to the pipeline problems rather than a
short-term repair, the amount of disruption to traffic and commercial activity
and the price. The Company believes that the Insituform process competes
favorably in each of these areas with traditional replacement or repair
methods. In particular, the ability to install an Insitupipe product with
little or no excavation at prices typically at or below traditional open
trench replacement methods is of substantial competitive advantage. Further,
and despite a small reduction in pipe diameter resulting from the installation
of the Insitupipe product against the walls of the original pipe, the smooth
finished interior reduces friction and generally increases flow capacity.
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.
SALES AND MARKETING
The Company's sales and marketing effort is directed by its Vice President
of Sales and Marketing. The Company's sales and marketing team includes five
sales engineers primarily serving municipal customers and one sales engineer
primarily serving industrial market customers. Sales engineers are full-time
employees compensated through a combination of salary and bonus. The Company
also participates in seminars and trade shows, and produces and distributes
technical video presentations, brochures and newsletters for current
and prospective users of the Insituform process.
RESEARCH AND DEVELOPMENT
The Company is confident of its present capability to provide
rehabilitation services to its customers primarily using the Insituform
process and relies on its licensor, ITI, for major research and development
projects. On a continuing basis, however, the Company expends engineering
efforts to improve installation methods and design techniques for specific
customer applications.
GOVERNMENTAL REGULATIONS
The Company does not anticipate any material impediments in the use of the
Insituform process arising from existing or future regulations or requirements,
including those regulating the discharge of materials into the environment.
EMPLOYEES
At June 30, 1995, the Company employed 129 persons. None of the
Company's employees are represented or covered by collective bargaining
agreements.
Item 2. Properties
The Company owns four buildings totaling 76,700 square feet situated on a
15.45 acre site in the Ardwick Industrial Park, Prince George's County,
Maryland. This facility houses the maintenance, operations, marketing,
administration and executive offices of the Company. After completing
construction of a 31,700
7
<PAGE>
square foot Maintenance and Shop building in fiscal
1990, the Company renovated and expanded its warehousing, production
capabilities and administration and executive offices during fiscal 1991 and
1992.
The Company also leases a 13,000 square foot branch facility in the
Cincinnati, Ohio metropolitan area to service operations in the western
region of its licensed territory.
TRY TEK owns 13,885 square feet of land in Hanover, Pennsylvania, with
6,139 square feet of manufacturing, administration and storage facilities
housed in three buildings.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
8
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
(a) Market Information
(i) Common Stock
The Company's Common Stock is traded in the over-the-counter market and
is included in the National Association of Securities Dealers ("NASD")
National Market System ("NMS"). Holders of Common Stock have one vote per
share on all matters on which stockholders are entitled to vote together.
Quotations for such shares are reported in the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system under the trading
symbol INEI.
The following table shows the range of bid quotations for each quarter in
the two year period ended June 30, 1995 as reported by NASDAQ:
<TABLE>
<CAPTION>
Bid Prices* For Common Stock
Quarter Ended High Low
<S> <C> <C>
1993
September 30 $2.88 $2.19
December 31 $2.88 $1.88
1994
March 31 $3.38 $2.38
June 30 $3.00 $2.50
September 30 $2.88 $2.50
December 31 $2.94 $2.38
1995
March 31 $4.25 $2.50
June 30 $4.75 $2.88
_____________________
* Bid prices reflect interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
</TABLE>
(ii) Class B Common Stock
There is no public trading market for shares of the Company's Class B
Common Stock. Holders of shares of Class B Common Stock have ten votes per
share on all matters with the exception of voting power to elect directors.
With respect to election of directors, holders of Class B Common Stock, voting
separately as a class, are entitled to elect the remaining directors after
election of not less than 25% of the directors by the holders of shares of
Common Stock, voting separately as a class. Shares of Class B Common Stock are
convertible at any time to shares of Common Stock on a share-for-share basis.
(b) Holders
As of August 25, 1995, there were 924 shareholders of record of Common
Stock and 7 shareholders of record of Class B Common Stock.
9
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(c) Dividend Policy
On June 9, 1995 the Company declared cash dividends of six cents per
share on its shares of Common Stock and six cents per share on its shares of
Class B Common Stock to its shareholders of record at the close of business on
June 30, 1995, payable July 14, 1995.
On June 10, 1994 and June 11, 1993, the Company declared cash dividends
of five cents per share on its shares of Common Stock and five cents per share
on its shares of Class B Common Stock to its shareholders of record at the
close of business on June 30, 1994 and 1993, respectively, payable July 15,
1994 and 1993, respectively.
The declaration of any future dividends will be determined by the Board
of Directors based upon conditions then existing, including the Company's
earnings, financial condition, capital requirements and other factors. While
there can be no assurances as to the declaration of any future dividends, it
is presently contemplated that dividends will be declared annually with a
record date of June 30th and a payment date of July 15th.
Item 6. Selected Financial Data
The selected financial data set forth below should be read in conjunction
with the Company's financial statements and related notes included elsewhere
in this report.
(in thousands, except per share and return on equity amounts)
<TABLE>
<CAPTION>
Years Ended June 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Sales $21,594 $14,804 $13,105 $19,376 $21,295
Gross profit $ 6,578 $ 3,327 $ 2,199 $ 6,206 $ 6,970
Earnings (loss) before income
taxes $ 3,496 $ 243 $(1,398) $ 1,671 $ 2,760
Net earnings (loss) from continuing
operations $ 2,120 $ 147 $ (849) $ 1,037 $ 1,693
Net earnings (loss) $ 2,120 $ 147 $(1,812) $ 755 $ 1,693
Net earnings (loss) per share from
continuing operations $ 0.48 $ 0.03 $ (0.20) $ 0.23 $ 0.38
Net earnings (loss) per share $ 0.48 $ 0.03 $ (0.42) $ 0.17 $ 0.38
Weighted average number of
shares 4,377 4,360 4,362 4,405 4,486
Dividends declared per share:
Common Stock $ 0.06 $ 0.05 $ 0.05 $ 0.05 $ 0.05
Class B Common Stock $ 0.06 $ 0.05 $ 0.05 $ 0.05 $ 0.05
FINANCIAL POSITION:
Working capital $ 5,412 $ 4,541 $ 4,255 $ 5,698 $ 9,109
Total assets $19,480 $16,796 $16,731 $19,206 $21,765
Long-term debt $ -- $ -- $ -- $ -- $ 3,142
Stockholders' equity $15,122 $13,263 $13,333 $15,458 $15,111
OTHER:
Average stockholders' equity
(Weighted average equity during
the year exclusive of current
earnings [loss]) $13,247 $13,322 $15,375 $15,010 $13,774
Return on equity
(Net earnings [loss] divided by
average stockholders' equity as
defined above) 16.0% 1.1% (11.8%) 5.0% 12.3%
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview and Outlook
The Company recognized record sales of $21,594,313 (up 46%), near-record
net earnings of $2,120,108 ($0.48 per share), and a six-year high in the rate
of return on equity to stockholders (16%) for the Company's fiscal year ended
June 30, 1995. The Company recognized net earnings of $147,377 ($0.03 per
share) from sales of $14.8 million for the fiscal year ended June 30, 1994.
The Company attributed its significantly improved fiscal 1995 operating results
to increased sales at normal margins from all market sectors -- municipal,
federal government and industrial -- of its pipeline rehabilitation market,
to expanded production capabilities and to improved comparable period operating
results from MIDSOUTH Partners.
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 fiscal 1995 are
presently anticipated to extend through fiscal 1996. The Company intends to
further expand its production capabilities during fiscal 1996 both to increase
its Insituform installation capacity and to further extend its ability to
provide complimentary products and services to its trenchless rehabilitation
customers.
The Company believes the trenchless pipeline reconstruction marketplace
is continuing to expand, thereby enticing, however, the entry of ever more
imitations and substitute products hoping that cheap price alone may permit
them to succeed in a market otherwise dominated by Insituform. In those
limited markets where the cheapest priced product may be deemed technically
"good enough," Insituform is at a disadvantage. Conversely, the Company is
encouraged that a majority of its municipal, federal government and industrial
customers already use or are implementing ever-improving procurement
specifications and contract award evaluation criteria emphasizing technical
value instead of simply low price. In value and quality based procurements,
Insituform remains at an advantage. The Company continues to believe that
customers and consulting engineers using quality based 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 technical, performance and installation 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 are semi-
fixed in nature, earnings can, at times, be severely reduced or eliminated
during periods of either depressed sales at normal margins or material
increases in discounted sales, even where total revenues may experience an
apparent buoyancy or growth from the addition of discounted sales undertaken
from time to time for strategic reasons. Conversely, at normal margins,
increases in period sales typically leverage positive earnings significantly.
Results of Operations:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Key Statistics:
Sales (100%) $21,594,313 $14,803,848 $13,105,020
Gross Profit from Continuing Operations 30% 22% 17%
Selling, general and administrative expenses 19% 24% 32%
Equity in earnings of MIDSOUTH Partners 3% 1% 3%
Net earnings (loss) 10% 1% (14%)
</TABLE>
The Company's primary source of revenue is from the rehabilitation and
reconstruction of sewers and other underground conduits using the patented
Insituform process. Although the Company does rehabilitate pipelines using
the NuPipe process, does custom design and build special machinery and does
perform manhole rehabilitation and pipeline cleaning and television inspection
services exclusive of the Insituform process, over 95% of the Company's
revenues for the years ended June 30, 1995, 1994 and 1993 came from contracts
with customers to rehabilitate existing pipelines using the Insituform process.
11
<PAGE>
Sales increased $6.8 million (46%) from $14.8 million for the year ended
June 30, 1994 to $21.6 million for the year ended June 30, 1995. Improved
fiscal 1995 sales performance was due in part to expanded production
capabilities and in part to higher utilization of all installation resources
throughout the year. Sales volume increases were achieved in all three of the
Company's market sectors. Sales to municipal customers accounted for 65% of
fiscal 1995 revenues. Sales to federal government and industrial customers
increased to 21% and 14% of total sales, respectively, for fiscal 1995.
Sales increased $1.7 million (13%) from $13.1 million for the year ended
June 30, 1993 to $14.8 million for the year ended June 30, 1994. Improved
fiscal 1994 performance was due in part to increased purchasing activity from
the Company's Federal government customers and increases in other
rehabilitation services performed in conjunction with contracted Insituform
process installations.
Although Insituform prices vary for Insitutube sizes and other contract
conditions, the Company has generally incorporated anticipated cost increases,
resulting from inflation ranging from 2% to 5% during the past three years,
into its contract prices. As a result, inflation has not had a significant
impact on the Company's revenues and net earnings.
The Company's gross profit as a percentage of sales revenues was 30%, 22%
and 17% for fiscal 1995, 1994 and 1993, respectively. The increase in fiscal
1995 gross profit margin as compared to fiscal 1994 is due primarily to the
absorption of semi-fixed operating costs over increased sales in fiscal 1995.
The improved fiscal 1994 gross profit margin as compared to fiscal 1993 is
primarily due to improved operational efficiency and the impact of reduced
semi-fixed costs on increased revenues. The favorable effect of improved
efficiency and reduced semi-fixed costs was offset to some extent by the impact
of increased revenues from reduced margin subcontracted services during fiscal
1994.
Selling, general and administrative costs increased 16% in fiscal 1995 as
compared to fiscal 1994 primarily as a result of costs associated with
increased production activities. Selling, general and administrative
expenses decreased 15% in fiscal 1994 as compared to fiscal 1993 as a result
of comprehensive cost eduction programs implemented to return the Company to
profitability.
The Company's equity in the earnings of MIDSOUTH Partners operations was
$738,798, $154,786 and $343,341 for fiscal 1995, 1994 and 1993, respectively.
During the years ended June 30, 1995, 1994 and 1993, MIDSOUTH Partners
recognized sales revenues of $8.9 million, $6.2 million and $8.1 million,
respectively. The Company's equity in MIDSOUTH Partners' earnings increased
377% from fiscal 1994 to fiscal 1995 primarily as a result of increased sales
and improved gross profit margins. The 44% increase in sales was due in part
to maintaining consistently high production levels throughout the year and
increased sales to Federal government customers. The Partnership's gross
profit margin as a percentage of sales increased from 21% in fiscal 1994 to 31%
in fiscal 1995 due in part to improved production efficiency, the mix of
contracts performed and the absorption of semi-fixed operating costs over
increased sales. Because a substantial portion of the Partnership's costs are
semi-fixed in nature, increases in period sales can significantly leverage
improved earnings. The decrease in the Company's equity in MIDSOUTH Partners'
earnings from fiscal 1993 to fiscal 1994 was primarily due to decreased sales
volume during fiscal 1994 and the mix of contracts performed.
As discussed further in Note 8 to the Financial Statements enclosed herein
(Part II, Item 8., page 24), the Company has filed a demand for arbitration and
Insituform Technologies, Inc. (ITI) has initiated litigation in connection with
the acquisition of control of a 42.5% interest in MIDSOUTH Partners by
Insituform Mid-America, Inc. (IMA) on April 18, 1995. ITI has agreed to
postpone its litigation in connection with a joint announcement by ITI and IMA
on May 24, 1995 that they had entered into a definitive agreement providing for
the combination of ITI and IMA which, if consummated, would result in IMA
becoming a wholly-owned subsidiary of ITI. Although the Company cannot, at this
time, predict the eventual outcome of these matters and their impact on the
Company's interest in the Partnership, 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.
12
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Key Statistics: 1995 1994 1993
<S> <C> <C> <C>
Working Capital $5,411,770 $4,541,113 $4,254,720
Current Ratio 2.6 to 1 2.7 to 1 2.8 to 1
Cash Provided from (Used in) Operations $3,587,813 $ (459,610) $ (216,641)
Capital Expenditures $1,499,325 $ 631,285 $ 867,601
</TABLE>
During the fiscal year ended June 30, 1995, $3,587,813 in cash was
provided by the Company's operating activities, due in part to the Company's
net earnings for the year and a $727,057 increase in Accounts Payable and
Accrued Expenses. The increase in Accounts Payable and Accrued Expenses
includes a $434,422 increase in income taxes payable resulting from the timing
of payment of fiscal 1995 estimated federal and state income tax deposits. The
Company's cash position increased $2.0 million, improving working capital to
$5.4 million with a current ratio of 2.6 to 1 at June 30, 1995.
Capital expenditures during fiscal year 1995, 1994 and 1993 included
purchases of vehicles and equipment to upgrade and improve the Company's
production capabilities. Fiscal year 1995 capital expenditures also included
purchases of vehicles and equipment to expand production capabilities and
replace aging units. Fiscal year 1994 capital expenditures also included
purchases of vehicles and equipment to replace aging units.
During fiscal 1995, 1994 and 1993, the Company declared cash dividends
of $261,412, $217,843 and $217,843, respectively. During fiscal 1993, the
Company expended $94,630 for the open-market purchase of 23,285 shares of its
Common Stock at an average price of $4.06 per share. The Company also
received cash distributions of $123,250 and $340,000 from MIDSOUTH Partners in
fiscal 1995 and 1993, respectively.
The Company maintains a $3,000,000 unsecured bank line of credit to meet
the Company's short-term cash flow requirements. The Company anticipates that
expanding production capabilities 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.
Item 8. Financial Statements and Supplementary Data
See pages 14 through 27, infra.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Not applicable.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Insituform East, Incorporated
We have audited the accompanying consolidated balance sheets of Insituform
East, Incorporated and subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Insituform East, Incorporated and
subsidiaries as of June 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
September 8, 1995
Washington, D.C.
14
INSITUFORM EAST, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 2,791,758 $ 788,402
Accounts receivable
Due from customers 4,448,391 4,797,684
Other 227,477 176,415
Inventories 1,111,202 764,938
Prepaid and refundable taxes 5,276 428,239
Prepaid expenses 200,926 188,069
Total Current Assets 8,785,030 7,143,747
Investment in and Advances to MIDSOUTH Partners 1,481,726 866,178
Property, Plant and Equipment, at cost less
accumulated depreciation 9,142,211 8,699,078
Other Assets 71,000 87,000
Total Assets $19,479,967 $16,796,003
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,024,166 $ 1,250,154
Accrued compensation and related expenses 1,627,034 1,108,411
Income taxes payable 460,648 26,226
Dividends payable 261,412 217,843
Total Current Liabilities 3,373,260 2,602,634
Deferred Income Taxes 985,000 919,000
Total Liabilities 4,358,260 3,521,634
Non-owned Interest in Consolidated Subsidiary - 11,358
Commitments and Contingencies
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 12,123,506 10,264,810
16,311,320 14,452,624
Less cost of 327,897 shares of common stock
in treasury 1,189,613 1,189,613
Total Stockholders' Equity 15,121,707 13,263,011
Total Liabilities and Stockholders' Equity $19,479,967 $16,796,003
See notes to consolidated financial statements.
</TABLE>
15
<PAGE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Sales $21,594,313 $14,803,848 $13,105,020
Costs and Expenses:
Cost of sales 15,016,598 11,476,838 10,906,131
Selling, general and administrative 4,087,445 3,531,500 4,179,375
Total Costs and Expenses 19,104,043 15,008,338 15,085,506
Earnings (Loss) from Operations 2,490,270 (204,490) (1,980,486)
Investment Income 40,670 29,045 61,123
Interest Expense - (1,950) -
Other Income 225,828 265,949 177,618
Equity in Earnings of MIDSOUTH Partners 738,798 154,786 343,341
Earnings (Loss) Before Income Taxes and
Non-owned Interests 3,495,566 243,340 (1,398,404)
Provision (Credit) for Income Taxes 1,368,000 95,000 (543,000)
Earnings (Loss) Before Non-owned
Interests 2,127,566 148,340 (855,404)
Non-owned Interests in Loss (Earnings) of
Consolidated Subsidiary (7,458) (963) 6,416
Earnings (Loss) from Continuing
Operations 2,120,108 147,377 (848,988)
Loss from Discontinued Cement Mortar
Lining Operations - net of income tax
credit of $366,000 - - (572,461)
Estimated Loss on Disposal of Cement
Mortar Lining Service Capability -
net of income tax credit of $250,000 - - (391,000)
Net Earnings (Loss) $ 2,120,108 $ 147,377 $(1,812,449)
Net Earnings (Loss) Per Share:
Earnings (Loss) from Continuing
Operations $ 0.48 $ 0.03 $ (0.20)
Loss from Discontinued Operations - - (0.13)
Estimated Loss on Disposal - - (0.09)
Net Earnings (Loss) Per Share $ 0.48 $ 0.03 $ (0.42)
See notes to consolidated financial statements.
</TABLE>
16
<PAGE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
$.04 Par
$.04 Par Value
Value Class B Additional Common Total
Common Common Paid-in Retained Stock in Stockholders'
Stock Stock Capital Earnings Treasury Equity
<S> <C> <C> <C> <C> <C> <C>
Balance-July 1, 1992 $175,482 $11,908 $4,000,424 $12,365,568 $(1,094,983) $15,458,399
Purchase of common
stock in treasury - - - - (94,630) (94,630)
Dividends declared - - - (217,843) - (217,843)
Net loss for the year - - - (1,812,449) - (1,812,449)
Balance-June 30, 1993 175,482 11,908 4,000,424 10,335,276 (1,189,613) 13,333,477
Dividends declared - - - (217,843) - (217,843)
Net earnings for the year - - - 147,377 - 147,377
Balance-June 30, 1994 175,482 11,908 4,000,424 10,264,810 (1,189,613) 13,263,011
Conversion of Class B
common stock 4 (4) - - - -
Dividends declared - - - (261,412) - (261,412)
Net earnings for the year - - - 2,120,108 - 2,120,108
Balance-June 30, 1995 $175,486 $11,904 $4,000,424 $12,123,506 $(1,189,613) $15,121,707
See notes to consolidated financial statements.
</TABLE>
17
<PAGE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Earnings (loss) from continuing operations $ 2,120,108 $ 147,377 $ (848,988)
Loss from discontinued operations - - (572,461)
Estimated loss on disposal of service line - - (391,000)
Net earnings (loss) 2,120,108 147,377 (1,812,449)
Adjustments for noncash items included in
net earnings (loss)
Depreciation and amortization 1,043,915 1,003,774 1,275,163
Equity in earnings of MIDSOUTH Partners (738,798) (154,786) (343,341)
Deferred income taxes 66,000 322,000 (390,000)
Estimated loss on disposal of discontinued
service line equipment - - 299,685
Non-owned interests in earnings (loss) of
consolidated subsidiary 7,458 963 (6,416)
Cash effect of changes in:
Receivables 298,231 (2,550,454) 1,913,079
Inventories (346,264) 67,079 72,749
Other current assets 410,106 502,282 (895,761)
Payables and accruals 727,057 202,155 (329,350)
Net cash provided by (used in)
operating activities 3,587,813 (459,610) (216,641)
Cash Flows from Investing Activities:
Capital expenditures (1,499,325) (631,285) (867,601)
Cash distributions from MIDSOUTH Partners 123,250 - 340,000
Disposal of net assets of
discontinued service line - 124,082 -
Disposal of equipment, net 28,277 82,111 44,392
Acquisition of non-owned interest in
consolidated subsidiary (18,816) - -
Increase in other assets - - (60,000)
Net cash used in investing activities (1,366,614) (425,092) (543,209)
Cash Flows from Financing Activities:
Dividends paid (217,843) (217,843) (219,007)
Proceeds from line of credit advances - 600,000 -
Repayments of line of credit advances - (600,000) -
Purchase of treasury stock - - (94,630)
Net cash used in financing activities (217,843) (217,843) (313,637)
Net increase (decrease) in cash and
short-term investments 2,003,356 (1,102,545) (1,073,487)
Cash and short-term investments at
beginning of year 788,402 1,890,947 2,964,434
Cash and short-term investments
at end of year $ 2,791,758 $ 788,402 $ 1,890,947
Supplemental disclosure of cash flow
information:
Interest paid $ - $ 1,950 $ -
Income taxes paid (refunded) $ 444,615 $ (695,661) $ 138,949
See notes to consolidated financial statements.
</TABLE>
18
<PAGE>
INSITUFORM EAST, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1. Summary of Significant Accounting Policies
Business Operations
Insituform East, Incorporated (the "Company"), operating pursuant to
sublicense agreements as explained in Note 8, is primarily engaged in the
rehabilitation of underground sewers and other pipelines using the patented
Insituform(registration symbol) process. The process involves installing a
cured-in-place Insitupipe(registration symbol) product inside existing
pipelines.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Insituform Ohio, Inc., Insitu, Inc.,
Insituform of Pennsylvania, Inc. and TRY TEK Machine Works, Inc.
(majority-owned prior to March 31, 1995). All significant intercompany
accounts and transactions have been eliminated. The Company's 42.5% investment
in MIDSOUTH Partners is accounted for using the equity method.
Revenue Recognition
The Company recognizes revenue using the units of completion method as
pipeline sections are rehabilitated using the Insituform process. Installation
of the Insitutube(registration symbol) product is generally performed between
manholes or similar access points within a twenty-four hour period. A
rehabilitated pipeline section as considered completed work and is generally
billable to the customer. In most cases, contracts consisting of individual
line sections have a duration of less than one year.
Cash and Short-term Investments
Cash and short-term investments are composed of checking accounts and
temporary investments in repurchase agreements, money market funds,
certificates of deposit and U.S. Treasury instruments. Short-term investments
are stated at cost plus accrued interest which approximates market. For
purposes of the consolidated statements of cash flows, the Company considers
only highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Substantially all inventories consist of raw
materials utilized in the Insituform process.
Depreciation and Amortization
Property and equipment placed in service after December 31, 1981 is
depreciated using the straight-line method over the estimated useful lives.
Property and equipment placed in service before January 1, 1982, other than
office furniture and equipment, is depreciated using the double-declining
balance method. The useful lives for buildings and improvements range from
twenty to forty years. The useful lives for vehicles, production equipment and
office furniture and equipment range from three to ten years.
Ordinary maintenance and repairs are expensed as incurred while major
renewals and betterments are capitalized. Upon sale or retirement of property
and equipment, the cost and accumulated depreciation are removed from the
respective accounts and any gain or loss recognized.
19
<PAGE>
Income Taxes
The Company provides for federal and state income taxes at the statutory
rates in effect on taxable income. Deferred income taxes result primarily from
the temporary differences in recognizing depreciation, contract revenues,
compensated absences, the estimated loss on disposal of cement mortar lining
service capability and the results of operations of MIDSOUTH Partners for tax
and financial reporting purposes.
2. Accounts Receivable
Accounts receivable due from customers consists of amounts due for
completed work, net of an allowance for doubtful accounts of $25,000 at June
30, 1995 and June 30, 1994. Other accounts receivable includes expense
advances to officers and employees of $9,880 and $6,729 at June 30, 1995 and
1994, respectively.
3. Investment in MIDSOUTH Partners
MIDSOUTH Partners was organized as Insituform MIDSOUTH, a Tennessee
general partnership, in December 1985 with the Company as a general partner.
On March 12, 1990, the Company transferred its general partnership interest to
Insitu, Inc., a wholly-owned subsidiary of the Company. The following
corporations are the current general partners of MIDSOUTH Partners:
<TABLE>
<CAPTION>
Interest in
Profits and Losses
<S> <C>
Insitu, Inc. 42.5%
E-Midsouth, Inc. (a subsidiary of Enviroq Corporation) 42.5%
Insituform California, Inc. (a subsidiary of Insituform Technologies, Inc.) 15.0%
</TABLE>
MIDSOUTH Partners is the exclusive licensee for the Insituform process and
NuPipe process in Tennessee, Kentucky (excluding Boone, Kenton and Campbell
counties) and northern Mississippi.
The following is condensed financial information of MIDSOUTH Partners at
June 30, 1995, 1994 and 1993, and for each of the three years in the period
ended June 30, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash $ 241,094 $ 210,487 $ 186,382
Accounts Receivable 2,249,690 1,162,273 1,587,521
Inventories 431,738 252,262 252,672
Property, Plant and Equipment, Net 1,319,303 937,901 965,647
Other Assets 185,097 138,807 153,928
Total Assets $ 4,426,922 $2,701,730 $ 3,146,150
Current Accounts Payable $ 859,489 $ 533,470 $ 1,299,025
Long-term Obligations Under Capital Lease 22,196 71,370 113,439
Total Liabilities $ 881,685 $ 604,840 $ 1,412,464
Revenues $ 8,894,746 $6,185,972 $ 8,052,548
Gross Profit $ 2,739,390 $1,303,112 $ 1,324,919
Partnership Earnings $ 1,738,347 $ 364,204 $ 807,861
</TABLE>
20
<PAGE>
During the three years ended June 30, 1995, the Company received $46,800
annually for accounting and administrative services provided to MIDSOUTH
Partners.
The Company and Insituform Southeast Corp., both affiliates of general
partners, have each unconditionally committed to advance funds to MIDSOUTH
Partners, up to a maximum of $250,000 each, with interest payable at Chase
Manhattan Bank's Prime Lending Rate. These commitments currently extend
through December 31, 1995.
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Land and improvements $ 2,018,587 $ 2,018,587
Buildings and improvements 5,405,594 5,371,337
Automobiles, trucks, trailers and specialized
equipment 6,381,331 5,435,068
Small tools, radios and machine shop equipment 2,993,920 2,823,207
Office furniture and equipment 694,495 663,371
Leasehold improvements 55,101 55,101
17,549,028 16,366,671
Less accumulated depreciation 8,406,817 7,667,593
Property, plant and equipment, at cost less
accumulated depreciation $ 9,142,211 $ 8,699,078
</TABLE>
The Company incurred repair and maintenance costs of $789,144, $532,664
and $721,825 for the years ended June 30, 1995, 1994 and 1993, respectively.
5. 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.
The Company recognized an estimated loss on disposal of discontinued
operations of -$391,000 (net of income tax benefit of $250,000) during the
year ended June 30, 1993, consisting of an estimated loss on the disposal of
equipment and materials used to provide cement mortar lining services
($192,000, net) and a provision for additional operating losses ($199,000, net)
anticipated for the fiscal 1994 phase out period. During the year ended June
30, 1994, the Company incurred disposal costs of $391,000 (net) which were
applied against the estimate. Disposal costs consisted of a loss on disposal
of equipment and materials of $146,000 (net) and operating losses of $245,000
(net).
Operating results from cement mortar lining activities for the years
ended June 30, 1994 and 1993 are presented separately in the accompanying
Consolidated Statements of Operations. Sales revenues from cement mortar
lining activities for the years ended June 30, 1994 and 1993 were $1,080,773
and $1,460,344, respectively. These amounts are not included in sales in the
accompanying Consolidated Statements of Operations.
21
<PAGE>
6. Notes Payable
On February 3, 1992, the Company first obtained its present $3,000,000
Revolving Line of Credit facility and canceled its then-existing $3,000,000
line of credit facility with another bank. This facility, currently available
to the Company through December 31, 1996, is reviewed annually. Interest on
borrowings against this facility is payable monthly at the bank's prime rate.
Loans against this facility are unsecured; however, the Company is required to
comply quarterly with financial liquidity, net worth, tangible net worth and
debt to equity leverage covenants.
7. Income Taxes
A reconciliation of income tax computed at the statutory Federal rate to
the provision (credit) for income tax included in the consolidated statements
of operations is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Statutory Federal income tax rate: 34% 34% 34%
Income tax expense (benefit) computed at
the statutory Federal rate $1,188,492 $82,736 $(475,457)
State income tax expense (benefit), net of
Federal tax benefit (expense) 167,141 11,147 (62,311)
Non-taxable interest income (517) (4,497) (15,008)
Non-deductible expenses 12,884 5,614 9,776
Provision (credit) for income taxes $1,368,000 $95,000 $(543,000)
Effective tax rate 39% 39% 39%
</TABLE>
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Current
Federal $1,135,000 $20,000 $(351,000)
State 167,000 3,000 (52,000)
1,302,000 23,000 (403,000)
Deferred
Federal 58,000 63,000 (122,000)
State 8,000 9,000 (18,000)
66,000 72,000 (140,000)
Total $1,368,000 $95,000 $(543,000)
</TABLE>
22
<PAGE>
The components of the deferred tax expense (benefit) resulting from net
temporary differences are as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Depreciation $ 16,000 $(40,000) $ 12,000
MIDSOUTH Partners operations 126,000 101,000 (145,000)
Deferred revenue (107,000) -- --
Deferred compensation 33,000 10,000 --
Other (2,000) 1,000 (7,000)
Total $ 66,000 $ 72,000 $(140,000)
</TABLE>
Deferred Income Taxes, provided for the tax effect of cumulative
temporary differences for income tax and financial reporting purposes,
consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
1995 1994
<S> <C> <C>
Depreciation $ 969,000 $953,000
MIDSOUTH Partners operations 161,000 35,000
Deferred revenue (107,000) -
Deferred compensation (23,000) (56,000)
Other (15,000) (13,000)
Total $ 985,000 $919,000
</TABLE>
8. Commitments and Contingencies
License Agreements
The Company has entered into six sublicense agreements with Insituform
Technologies, Inc. ("ITI") which grant the Company rights to perform the
Insituform process in Maryland, Virginia, Delaware, the District of Columbia,
Pennsylvania, Ohio, West Virginia and three Kentucky counties. The agreements
are for the life of the patents or the patent rights unless sooner terminated
by a specified action of the Company or ITI. The agreements specify that a
royalty equal to 8% of the gross contract price of all contracts performed by
the Company utilizing the process, less certain fees, be paid to ITI.
In December 1990, the Company entered into a license agreement with
NuPipe, Inc., a wholly-owned subsidiary of ITI, for the sale and installation
of pre-formed PVC thermoplastic pipe under the NuPipe(registration symbol)
process and trademark. The Company has committed to pay royalty equal to
6.75% of gross contract revenues utilizing the NuPipe process and to purchase
certain installation equipment and installation materials from NuPipe, Inc.
The agreements also obligate the Company to pay minimum annual royalties
during the terms of the agreements unless waived upon approval of the Company's
marketing and sales plans for licensed processes by ITI. Payments of minimum
annual royalties for the years ended June 30, 1996 and 1995 have been waived by
ITI. During the years ended June 30, 1995, 1994 and 1993, the Company incurred
royalty expense of $1,354,163, $919,732 and $872,468, respectively.
23
<PAGE>
Supply Agreement
The Company entered into a supply agreement with ITI committing the
Company to purchase 90% of its Insitutube material requirements from ITI. As
a result of certain terms not previously fulfilled by ITI, the Company
believes it is no longer required to purchase 90% of its Insitutube material
requirements from ITI under the otherwise continuing agreement. This
agreement, which presently extends through April 30, 1996, is renewable
annually unless notice of termination is provided by either party six months
prior to the end of the current renewal period.
Ohio Facility Lease Commitment
On October 1, 1987, the Company leased approximately 13,000 square feet
of office and warehouse space on a 1.49 acre site in the Cincinnati, Ohio,
area as headquarters for its Ohio operations. Monthly payments of $3,863 are
required during the current term of the lease expiring October 1, 1996.
Change in Control of Partner of MIDSOUTH Partners Partnership
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'
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, seek dissolution of
the partnership, replace Management Committee appointees of the defaulting
partner, or exercise any combination of these and other remedies. 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), 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.
On May 24, 1995, ITI and IMA jointly announced that they had entered into
a definitive agreement providing for the combination of ITI and IMA which, if
consummated, would result in IMA becoming a wholly-owned subsidiary of ITI.
The arrangements between ITI and IMA further extend the postponement of further
assertion of ITI's rights resulting from IMA's acquisition of the pipeline
rehabilitation business of Enviroq without the consent of ITI, except for
certain procedural steps to preserve the respective rights of the parties.
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.
Other Contingent Liabilities
The Company performs services for the U.S. Government under contracts
which are subject to audit and potential adjustment. Contract revenues are
recorded in amounts which are expected to be realized at contract completion
upon final settlement with U.S. Government representatives.
The Company is a party, both as plaintiff and defendant, to claims
arising out of the ordinary course of business. While it is not possible at
this time to establish the ultimate amount of liability, if any, associated
with pending claims, management of the Company is of the opinion that the
aggregate amount of any such liability will not have a material effect on the
financial position of the Company.
24
<PAGE>
9. Stockholders' Equity
The Company has two classes of Common Stock, which are designated as
Common Stock and Class B Common Stock. Shares of Class B Common Stock are
convertible at any time into shares of Common Stock on a share-for-share
basis. Shares of Class B Common Stock have ten votes per share on all matters
with the exception of voting power to elect directors. With respect to
election of directors, holders of shares of Class B Common Stock, voting
separately as a class, are entitled to elect the remaining directors after
election of not less than 25% of the directors by the holders of shares of
Common Stock, voting separately as a class.
On June 9, 1995, the Company declared cash dividends of six cents per
share on its shares of Common Stock and six cents per share on its shares of
Class B Common Stock to its shareholders of record at the close of business
on June 30, 1995, payable July 14, 1995.
On June 10, 1994 and June 11, 1993, the Company declared cash dividends
of five cents per share on its shares of Common Stock and five cents per share
on its shares of Class B Common Stock to its shareholders of record at the
close of business on June 30, 1994 and 1993, payable July 15, 1994 and 1993,
respectively.
During the year ended June 30, 1993, the Company purchased 23,285 shares
on its Common Stock at an average price of $4.06 per share. At June 30, 1995,
the Company held 327,897 shares of its Common Stock in Treasury at an average
price of $3.63 per share.
10. Profit Sharing Plan
The Company has a profit sharing retirement plan for all of its employees
meeting certain minimum eligibility requirements and who are not covered by a
collective bargaining agreement. No employee is covered by a collective
bargaining agreement. Contributions are determined annually by the Company.
During the years ended June 30, 1995, 1994 and 1993, the Company recognized
profit sharing expense of $183,489, $84,775 and $240,000, respectively.
11. Net Earnings (Loss) Per Share
Net earnings (loss) per share is based on the weighted average number of
common shares outstanding including common stock equivalents from dilutive
stock options. Weighted average shares of 4,376,993, 4,359,748 and 4,361,700
were used in computing earnings per share for the years ended June 30,
1995, 1994 and 1993, respectively.
12. Stock Options
The Company maintains three stock option plans. All grants of options
are made at the market price of the Company's Common Stock at the date of the
grant.
On May 20, 1985, the Board of Directors adopted the Insituform East,
Incorporated Employee Stock Option Plan, which was ratified by the
shareholders in February 1986. Under the terms of this plan, 350,000
shares of Common Stock have been reserved for certain full-time employees of
the Company.
On December 1, 1989, the shareholders of the Company adopted the
Insituform East, Incorporated 1989 Board of Directors Stock Option Plan.
Under the terms of this plan, up to 525,000 shares of Common Stock have been
reserved for the Directors of the Company.
On December 9, 1994, the shareholders of the Company adopted the
Insituform East, Incorporated 1994 Board of Directors Stock Option Plan.
Under the terms of this plan, up to 525,000 shares of Common Stock have been
reserved for the Directors of the Company.
25
<PAGE>
The following summary sets forth the activity under the 1989 and 1994
Board of Directors Plans and 1985 Employee Stock Option Plan during the past
three years:
<TABLE>
<CAPTION>
1994 Board of 1989 Board of
Directors Directors 1985 Employee
Stock Option Plan Stock Option Plan Stock Option Plan
Average Average Average
Price Per Price Per Price Per
Shares Share Shares Share Shares Share
<S> <C> <C> <C> <C> <C> <C>
Outstanding, July 1, 1992 210,000 $6.06 4,300 $5.50
Granted 75,000 5.19 -- --
Exercised -- -- -- --
Expired -- -- (4,300) 5.50
Outstanding, June 30, 1993 285,000 5.83 -- --
Granted 60,000 2.44 -- --
Exercised -- -- -- --
Expired (60,000) 5.83 -- --
Outstanding, June 30, 1994 285,000 5.12 -- --
Granted 105,000 $2.63 -- -- -- --
Exercised -- -- -- -- -- --
Expired -- -- (45,000) 5.75 -- --
Outstanding, June 30, 1995 105,000 $2.63 240,000 $5.00 -- $ --
</TABLE>
13. Significant Customers
The Company performs services under contract with governmental
authorities, private industries and commercial entities. In each of the last
three fiscal years, more than 65% of the Company's customers have
been municipalities, state agencies or regional authorities. During the year
ended June 30, 1995, Federal Government contracts (collectively), the
Metropolitan Sewer District ("MSD") of Greater Cincinnati, Ohio and Washington
Metropolitan Area Transit Authority ("WMATA") accounted for 21%, 15% and 10%,
respectively, of the Company's revenues. During the year ended June 30,
1994, Federal Government contracts (collectively) accounted for 15% of the
Company's revenues. During the year ended June 30, 1993, contracts with the
City of Richmond, Virginia; Fairfax County, Virginia and the Washington
Suburban Sanitary Commission accounted for 15%, 12% and 11%, respectively,
of the Company's revenues.
26
<PAGE>
14. Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for the years ended June 30, 1995 and
1994 are presented in the following table:
<TABLE>
<CAPTION>
Three Months Ended
September 30, December 31, March 31, June 30,
1995 1994 1994 1995 1995
<S> <C> <C> <C> <C>
Sales $ 4,894,861 $ 5,324,205 $ 5,316,915 $ 6,058,332
Gross Profit $ 1,248,004 $ 1,633,407 $ 1,746,427 $ 1,949,877
Net Earnings $ 372,138 $ 544,521 $ 525,267 $ 678,182
Net Earnings Per Share $ 0.09 $ 0.12 $ 0.12 $ 0.15
<CAPTION>
Three Months Ended
September 30, December 31, March 31, June 30,
1994 1993 1993 1994 1994
<S>
Sales $ 4,574,329 $ 3,122,384 $ 2,173,412 $ 4,933,723
Gross Profit (Loss) $ 1,420,495 $ 356,555 $ (12,871) $ 1,562,831
Net Earnings (Loss) from Continuing
Operations $ 339,514 $ (177,505) $ (457,796) $ 443,164
Net Earnings (Loss) $ 296,514 $ (177,505) $ (457,796) $ 486,164
Net Earnings (Loss) Per Share from
Continuing Operations $ 0.08 $ (0.04) $ (0.11) $ 0.10
Net Earnings (Loss) Per Share $ 0.07 $ (0.04) $ (0.11) $ 0.11
</TABLE>
27
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name, age, principal occupation,
business experience and directorship history of the directors and executive
officers of Insituform East, Incorporated. The directors elected at the
Company's next Annual Meeting of Stockholders will serve subject to the By-Laws
and until their successors have been duly elected and qualified.
The individuals listed below who were executive officers but not directors
of the Company throughout fiscal 1995 are Raymond T. Verrey, John F. Mulhall,
Gregory Laszczynski and Robert F. Hartman.
Holders of shares of Class B Common Stock are entitled to elect the
remaining directors after election of not less than 25% of the directors by the
holders of shares of Common Stock, voting separately as a class. The following
list designates those directors elected by holders of shares of Common Stock and
those directors elected by holders of shares of Class B Common Stock.
<TABLE>
<CAPTION>
Class of
Common Stock
Name, Age, Principal Occupation, Business Experience First Became For which
and Directorships A Director Elected
<S> <C> <C>
George Wm. Erikson, Age 53 (1) 1984 Class B Common Stock
Chairman, member of the Chief Executive Officer Committee
and General Counsel since 1986, Director since 1984 and
Chairman of the Board of Directors from 1985 to 1986;
CERBCO, Inc. -- Chairman, General Counsel and Director
since 1988; CERBERONICS, Inc. -- Vice Chairman since
1988, Chairman from 1979 to 1988, Secretary from 1976 to
1988, General Counsel since 1976 and Director since 1975;
Capitol Copy Products, Inc. -- Chairman, General Counsel
and Director since 1987.
Robert W. Erikson, Age 50 (1) 1985 Class B Common Stock
President since September 1991, Vice Chairman and member of
the Chief Executive Officer Committee since 1986, Vice Chairman
of the Board of Directors from 1985 to 1986; CERBCO, Inc. --
President, Vice Chairman and Director since 1988;
CERBERONICS, Inc. -- Chairman since 1988, President from
1977 to 1988 and Director since 1974; Capitol Copy Products, Inc.
-- Vice Chairman and Director since 1987; Director of Palmer
National Bancorp, Inc. and The Palmer National Bank since 1983.
Calvin G. Franklin, Age 65 1994 Common Stock
President and Chief Executive Officer of Engineering Systems
Consultants, Inc. since 1992; Commanding General of D.C.
National Guard from 1981 to 1992; Director of Columbia First
Bank since 1989; Director of Signet Bank, N.A. from 1985 to 1989;
retired Major General, U.S. Army.
28
<PAGE>
Webb C. Hayes, IV, Age 47 (3) 1994 Class B Common Stock
Chairman of the Board of Palmer National Bankcorp, Inc.
and The Palmer National Bank since 1985, President and Chief
Executive Officer since 1983; Director of CERBCO, Inc. since
1991; Director of Capitol Copy Products, Inc. since 1992; Director
of the Federal Reserve Bank of Richmond from 1992 to 1995.
Paul C. Kincheloe, Jr., Age 54 1994 Class B Common Stock
Practicing attorney and real estate investor since 1967; Partner in
the law firm of Kincheloe and Schneiderman since 1983; Director
of CERBCO, Inc. since 1991; Director of Capitol Copy Products,
Inc. since 1992; Director of Herndon Federal Savings & Loan from
1970 to 1983; Director of First Federal Savings & Loan of
Alexandria from 1983 to 1989.
Jack Massar, Age 70 (2) (3) 1991 Class B Common Stock
Independent business consultant since 1991; President of
Insituform Technologies, Inc. (formerly Insituform of North
America, Inc.) from 1984 to 1991 (retired January 1991), Director
from 1983 to 1987; President and Director of NuPipe, Inc. from
1988 to 1991; Director of Insituform Mid-America, Inc. from 1983
to 1991; Director of Wellington Leisure Products, Inc. from August
1991 to June 1994
Thomas J. Schaefer, Age 57 (2) (3) 1981 Common Stock
President, Chief Executive Officer and Director of Columbia First
Bank since 1988; President and Chief Executive Officer of Signet
Bank, N.A. from 1981 to 1988, and Director of Signet Bank, N.A.
from 1978 to 1988; Director of CERBCO, Inc. from July 1990 to
November 1990.
Raymond T. Verrey, Age 49
Vice President, Treasurer and Chief Financial Officer since 1988,
Principal Accounting Officer since 1987; employed by Touche
Ross & Co. from 1975 to 1987, serving as an Audit Manager from
1981 to 1987.
John F. Mulhall, Age 49
Vice President of Sales and Marketing since 1988; Director of
Sales and Marketing from 1987 to 1988; employed by Translogic
Corporation, a material conveying system manufacturer, from
1972 to 1987, serving as Eastern Regional Manager from 1979 to 1987.
Gregory Laszczynski, Age 41
Vice President of Operations since 1989, Director of Operations
from 1987 to 1989; employed by FMC Corporation from 1984 to
1987, serving as a Project Engineer.
Robert F. Hartman, Age 48
Vice President of Administration and Secretary since 1991; Vice
President and Controller of CERBCO, Inc. since 1988; Vice
President and Treasurer of CERBERONICS, Inc. since 1988;
employed by Dynamac International, Inc. from 1985 to 1988,
serving as Controller; employed by CERBERONICS, Inc. from 1979 to
1985, serving as Vice President and Treasurer from 1984 to 1985.
_____________________________________________________
(1) Messrs. George Wm. Erikson and Robert W. Erikson are brothers.
(2) Member of Audit Committee.
(3) Member of Employee Stock Option Committee.
29
</TABLE>
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and beneficial owners of greater than 10 percent
of any class of the Company's equity securities ("Reporting Persons") to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of the Company's equity securities. To the best
of the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company during and with respect to the fiscal year
ended June 30, 1995, all Section 16(a) filing requirements applicable to
Reporting Persons were complied with during the fiscal year.
Item 11. Executive Compensation
GENERAL
Pursuant to the Company's By-laws, the Chief Executive Officer Committee (the
"CEOC") -- consisting of the Chairman, the Vice Chairman and the President, and
such other officers of the Corporation as may from time to time be determined
by the Board -- performs the function of the Chief Executive Officer of the
Company. Since August 30, 1991, the CEOC has consisted of George Wm. Erikson,
Chairman, and Robert W. Erikson, Vice Chairman and President.
The Company does not have a compensation committee. The CEOC, with the annual
review and oversight of the Board, determines the compensation for all officers
of the Company except the members of the CEOC. The Board, as a whole, considers
compensation arrangements proposed by and for members of the CEOC, and pursuant
to the By-laws, is the ultimate determiner of compensation arrangements for
members of the CEOC. When considering CEOC compensation arrangements, Board
review may be conducted with or without the presence (or participation) of the
CEOC members who are also members of the Board as the Board deems appropriate
under the circumstances. Resolutions of the Board determining CEOC compensation
arrangements are voted upon by the Board with such CEOC members abstaining. A
second vote is then taken with all directors participating.
SUMMARY COMPENSATION
The following table sets forth information concerning the compensation paid by
the Company to each of the named executive officers for the fiscal years ended
June 30, 1995, 1994 and 1993:
30
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND OTHER ANNUAL TOTAL ANNUAL RESTRICTED OPTIONS/ LTIP ALL OTHER
PRINCIPAL FISCAL SALARY ($) BONUS ($) COMPENSATION COMPENSATION STOCK AWARDS SARS PAYOUTS COMPENSATION
POSITION YEAR ($) /2 ($) ($) (#) ($) ($) /3
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George Wm. Erikson 1995 $196,555 $31,457 $0 $228,012 $0 15,000 $0 $12,033
Chairman & 1994 188,559 2,086 0 190,645 0 15,000 0 19,683
General Counsel\1 1993 188,000 0 0 188,000 0 15,000 0 20,004
Robert W. Erikson 1995 $196,555 $31,457 $0 $228,012 $0 15,000 0 $10,118
President \1 1994 188,559 2,086 0 190,645 0 15,000 0 18,322
1993 188,000 0 0 188,000 0 15,000 0 19,968
John F. Mulhall 1995 $114,993 $18,404 $0 $133,397 $0 0 $0 $ 7,926
Vice President of 1994 110,322 1,221 0 111,543 0 0 0 9,251
Sales & Marketing 1993 111,156 0 0 111,156 0 0 0 11,736
Gregory Laszczynski 1995 $109,756 $17,564 $0 $127,320 $0 0 $0 $ 8,308
Vice President of 1994 105,297 1,165 0 106,462 0 0 0 9,649
Operations 1993 97,039 0 0 97,039 0 0 0 10,192
Raymond T. Verrey 1995 $94,076 $15,056 $0 $109,132 $0 0 $0 $ 6,859
Vice President & 1994 90,254 998 0 91,252 0 0 0 7,837
Chief Financial 1993 94,154 0 0 94,154 0 0 0 9,727
Officer
Robert F. Hartman 1995 $83,664 $13,390 $0 $ 97,054 $0 0 $0 $ 5,754
Vice President of 1994 80,254 888 0 81,142 0 0 0 6,632
Administration & 1993 78,461 0 0 78,461 0 0 0 7,648
Secretary
1/ The Company's Chief Executive Officer Committee, consisting of the
Chairman and President, exercises the duties and responsibilities of the
Chief Executive Officer of the Company.
2/ None of the named executive officers received perquisites or other
personal benefits in excess of the lessor of $50,000 or 10% of his total
salary and bonus.
3/ Contributions to the IEI Advantage Plan, as described on pages 31 and
32.
</TABLE>
CASH COMPENSATION PURSUANT TO PLANS
Insituform East Employee Advantage Plan
Insituform East maintains a noncontributory profit sharing (retirement)
plan, the Insituform East, Incorporated Employee Advantage Plan (the "IEI
Advantage Plan"), in which all employees not covered by a collective bargaining
agreement and employed with Insituform East for at least one year are eligible
to participate. No employee is covered by a collective bargaining agreement.
The IEI Advantage Plan is administered by the Insituform East Board of Directors
which determines, at its discretion, the amount of Insituform East's annual
contribution. The Insituform East Board of Directors can authorize a
contribution, on behalf of Insituform East, of up to 15% of the compensation
paid to participating employees during the year. The plan is integrated with
social security. Each participating employee is allocated a portion of
Insituform East's contribution based on the amount of that employee's
compensation plus compensation above FICA limits relative to the total
compensation
31
<PAGE>
paid to all participating employees plus total compensation paid
above FICA limits. Amounts allocated under the IEI Advantage Plan begin to vest
after three years of service (at which time 20% of the contribution paid vests)
and are fully vested after seven years of service.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1995 1/ as of 06/30/95
<S> <C> <C>
George Wm. Erikson, Chairman $10,118 100%
Robert W. Erikson, President 10,118 100%
John F. Mulhall, Vice President
of Sales & Marketing 7,263 100%
Gregory Laszczynski, Vice
President of Operations 6,815 100%
Raymond T. Verrey, Vice President
& Chief Financial Officer 5,475 100%
Robert F. Hartman, Vice President of
Administration & Secretary 4,586 40%
All executive officers as a group
(6 persons) $44,375 N/A
1/ Total contributions to employees of $212,646 include Insituform East's
contribution of $183,489 and reallocated amounts totaling $29,157 forfeited
by former participants who terminated employment with Insituform East during
the fiscal year 1995.
</TABLE>
The IEI Advantage Plan includes a salary reduction profit sharing feature
under Section 401(k) of the Internal Revenue Code. Each participant may elect
to defer a portion of his compensation by any whole percentage from 2% to 16%
subject to certain limitations. During the fiscal year ended June 30, 1995,
Insituform East contributed an employer matching contribution equal to 25% of
the participant's deferred compensation up to a maximum of 1.5% of the
participant's total paid compensation for the fiscal year. Participants are
100% vested at all times in their deferral and employer matching accounts.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1995 as of 06/30/95
<S> <C> <C>
George Wm. Erikson, Chairman $1,915 100%
Robert W. Erikson, President - 0 - 100%
John F. Mulhall, Vice
President of Sales & Marketing 663 100%
Gregory Laszczynski, Vice
President of Operations 1,493 100%
Raymond T. Verrey, Vice President
& Chief Financial Officer 1,384 100%
Robert F. Hartman, Vice President
of Administration & Secretary 1,168 100%
All executive officers as a group
(6 persons) $6,623 N/A
</TABLE>
32
<PAGE>
1985 Employee Stock Option Plan
The Company adopted, with stockholder approval at the 1985 Annual Meeting
of Stockholders, the Insituform East, Incorporated 1985 Employee Stock Option
Plan. The purpose of the plan is to advance the growth and development of the
Company by affording an opportunity to employees of the Company to purchase
shares of the Company's Common Stock and to provide incentives for them to put
forth maximum efforts for the success of the Company's business. Any employee
of the Company who is employed on a full-time basis is eligible for
participation. The plan is administered by the Stock Option Committee
consisting of Messrs. Thomas J. Schaefer, Jack Massar and Webb C. Hayes, IV.
During fiscal year 1995, no options were granted to executive officers of
the Company. All options granted under this plan in past years had expired
prior to June 30, 1995.
1989 Board of Directors Stock Option Plan
The Company adopted, with stockholder approval at the 1989 Annual Meeting
of Stockholders, the Insituform East, Incorporated 1989 Board of Directors Stock
Option Plan. The purpose of the plan is to promote the growth and general
prosperity of the Company by permitting the Company, through the granting of
options to purchase shares of its Common Stock, to attract and retain the best
available personnel as members of the Company's Board of Directors with an
additional incentive for such persons to contribute to the success of the
Company. The Plan is administered and options are granted by the Board of
Directors.
Each grant of options under the plan will entitle each director to whom
such options are granted the right to purchase 15,000 shares of the Company's
Common Stock at a designated option price, anytime and from time to time, within
five years from the date of grant. Options are granted under the IEI Directors
Plan each year for five years to each member of the Board of Directors serving
as such on the date of grant; i.e., for each director serving for five years, a
total of five options covering in the aggregate 75,000 shares of Common Stock
(subject to adjustments upon changes in the capital structure of the Company),
over a five year period.
No options available under this plan were granted to or exercised by
directors of the Company during fiscal year 1995.
1994 Board of Directors Stock Option Plan
The Company adopted, with stockholder approval at the 1994 Annual Meeting
of Stockholders, the Insituform East, Incorporated 1994 Board of Directors Stock
Option Plan. The purpose of the plan is to promote the growth and general
prosperity of the Company by permitting the Company, through the granting of
options to purchase shares of its Common Stock, to attract and retain the best
available personnel as members of the Company's Board of Directors with an
additional incentive for such persons to contribute to the success of the
Company. The Plan is administered and options are granted by the Board of
Directors. Under the terms of this plan, up to 525,000 shares of Common Stock
have been reserved for the Directors of the Company.
Each grant of options under the plan will entitle each director to whom
such options are granted the right to purchase 15,000 shares of the Company's
Common Stock at a designated option price, anytime and from time to time, within
five years from the date of grant. Options are granted under the 1994 Board of
Directors Stock Option Plan each year for five years to each member of the Board
of Directors serving as such on the date of grant; i.e., for each director
serving for five years, a total of five options covering in the aggregate 75,000
shares of Common Stock (subject to adjustments upon changes in the capital
structure of the Company), over a five year period.
On December 9, 1994, options on a total of 105,000 shares of Common Stock
were granted to directors of the Company (options on 15,000 shares to each of
seven directors) at a per share price of $2.625. No options available under
this plan were exercised by directors of the Company during fiscal year 1995.
33
<PAGE>
OPTIONS/SAR GRANTS
No option of Stock Appreciation Right grants were made to any of the
named executive officers during fiscal year 1995 under the 1985 Employee Stock
Option Plan or the 1989 Board of Directors Stock Option Plan. The following
table sets forth information concerning options granted to each of the named
executive officers, who are also directors, during fiscal year 1995 under the
1994 Board of Directors Stock Option Plan.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
% of Total
Options/SARs
Option/ Granted to Exercised or
SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
George Wm. Erikson 15,000 1/ 14% $2.625 12/9/99 $10,875 $24,045
Robert W. Erikson 15,000 1/ 14% $2.625 12/9/99 $10,875 $24,045
1/ Option grants under the 1994 Board of Directors Stock Option Plans, as
described on page 33.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
All option or Stock Appreciation Right grants made under the 1985
Employee Stock Option Plan had expired prior to fiscal year 1995. No option or
Stock Appreciation Right grants made under the 1989 and 1994 Board of Directors
Stock Option Plans to any of the named executive officers were exercised during
fiscal year 1995. The following table sets forth information concerning option
or Stock Appreciation right grants held by each of the named executive officers,
who are also directors, as of June 30, 1995.
AGGREGATED OPTION/SAR GRANTS IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options/SARs In the Money Options/SARs
at FY-End (#) at FY-End ($)
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
George Wm. Erikson 0 $0 75,000 1/ 0 $55,313 $0
Robert W. Erikson 0 $0 75,000 1/ 0 $55,313 $0
1/ Options exercisable under the IEI 1989 and 1994 Board of Directors Stock
Option Plans, as described on page 33.
</TABLE>
LONG-TERM INCENTIVE PLAN AWARDS
The Company does not have a long-term incentive plan.
34
<PAGE>
DEFINED BENEFIT OR ACTUARIAL PLANS
The Company does not have any defined benefit or actuarial plans.
COMPENSATION OF DIRECTORS
Non-officer directors of the Company are paid an annual fee of $5,000
plus $1,000 for each meeting of the Board of Directors, and each committee
meeting, attended in person. Meetings attended by telephone are compensated at
the rate of $200. Directors who are salaried employees receive no remuneration
for their services as directors but are eligible with all other directors to
participate in the 1989 Board of Directors Stock Option Plan and the 1994 Board
of Directors Stock Option Plan, as described under the section entitled
"Compensation Pursuant to Plans." All directors of the Company are reimbursed
for Company travel-related expenses.
Mr. Jack Massar, a director of the Company since April 1991, has a
consulting agreement with the Company. Mr. Massar received $49,000 from the
Company for services rendered pursuant to this agreement during fiscal year
1995.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment contracts between the Company and any named
executive officer. There are no arrangements between the Company and any named
executive officer, or payments made to an executive officer, that resulted, or
will result, from the resignation, retirement or other termination of employment
with the Company, in an amount exceeding $100,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company's Board of Directors does not have a Compensation Committee;
the Board of Directors serves in that capacity. Messrs. George Erikson and
Robert W. Erikson, both members of the Board of Directors and executive officers
of the Company, holding the offices of Chairman & General Counsel and President,
respectively, participate in and during fiscal 1995 participated in
deliberations of the Board of Directors concerning executive officer
compensation.
Messrs. George Wm. Erikson and Robert W. Erikson are both members of the
Board of Directors and executive officers of CERBCO, Inc. In their capacity as
directors of CERBCO, Inc., they participate in and during fiscal 1995
participated in deliberations of the CERBCO, Inc. Board of Directors concerning
executive officer compensation for CERBCO, Inc.
Mr. Robert W. Erikson serves, and served during fiscal 1995, as a member
of the Compensation Committee of the Board of Directors of The Palmer National
Bank. Mr. Webb C. Hayes, IV, a director of the Company and director of CERBCO,
Inc. who participates in, and during fiscal 1995 participated in, deliberations
of the Company's Board of Directors and the CERBCO, Inc. Board of Directors
concerning executive officer compensation for the Company and CERBCO, Inc.,
respectively, is Chairman of the Board and an executive officer of The Palmer
National Bank.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following information is furnished with respect to each person or
entity who is known to the Company to be the beneficial owner of more than five
percent of any class of the Company's voting securities as of September 8, 1995.
35
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Outstanding % of
Name & Address of Class Beneficially Class Beneficially
Beneficial Owner Title of Class Owned Owned
<S> <C> <C> <C>
CERBCO, Inc.* Common Stock 1,100,000 27.1%
3421 Pennsy Drive Class B Common Stock 296,141 99.5%
Landover, MD 20785
Robert W. Erikson**
CERBCO, Inc.
3421 Pennsy Drive
Landover, MD 20785
George Wm. Erikson**
CERBCO, Inc.
3421 Pennsy Drive
Landover, MD 20785
* Through its outstanding shares of Common Stock and Class B Common Stock,
CERBCO, Inc. is entitled to cast 57.7% of all votes entitled to be cast on
matters which holders of shares of both classes of the Company's common stock
vote together.
** Messrs. Robert W. Erikson and George Wm. Erikson own 42.4% and 37.2%,
respectively, of the outstanding shares of Class B Common Stock of CERBCO, Inc.
On the basis of their stock holdings and management positions in CERBCO, Inc.,
they could act together to control either the disposition or the voting of the
shares of the Company's Common Stock and Class B Common Stock held by CERBCO,
Inc. Messrs. Robert W. Erikson and George Wm. Erikson are brothers.
</TABLE>
(b) Security Ownership of Management
The following information is furnished with respect to all directors of
the Company who were the beneficial owners of any shares of the Company's Common
Stock or Class B Common Stock as of the Record Date, and with respect to all
directors and officers of the Company as a group.
36
<PAGE>
<TABLE>
<CAPTION>
Amount & Nature of
Beneficial Ownership
Name of Owned Exercisable Percent
Beneficial Owner Title of Class Outright Options of Class
<S> <C> <C> <C> <C>
George Wm. Erikson * Common Stock 16,500 75,000 2.2%
Robert W. Erikson * Common Stock -- 75,000 1.8%
Calvin G. Franklin Common Stock -- 15,000 0.4%
Webb C. Hayes, IV Common Stock -- 15,000 0.4%
Paul C. Kincheloe, Jr. Common Stock -- 15,000 0.4%
Jack Massar Common Stock -- 75,000 1.8%
Thomas J. Schaefer Common Stock 27,500 75,000 2.5%
All directors and officers Common Stock 44,500 * 345,000 8.8%
as a group (11 persons,
including those named Class B -- * -- 0.0%
above) Common Stock
* See Item 12.(a) above for further discussion of the amount and nature of
beneficial ownership of Messrs. G. Wm. Erikson and R. W. Erikson as CERBCO,
Inc. shareholders.
</TABLE>
(c) Changes in Control
None.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
Not applicable.
(b) Certain Business Relationships
Mr. Thomas J. Schaefer, a director of the Company since 1981, is
President, Chief Executive Officer and a Director of Columbia First Bank. The
Company has a commercial banking relationship with Columbia First Bank including
a $3,000,000 revolving line of credit which presently extends through December
31, 1996. Management of the Company believes that Columbia First Bank's fees
for commercial banking services are competitive with fees charged by other area
banks.
(c) Indebtedness of Management
Not applicable.
(d) Transactions with Promoters
Not applicable.
37
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) 1. Financial Statements included under Part II, Item 8:
Pages
Independent Auditors' Report on Financial Statements 14
Consolidated Balance Sheets 15
Consolidated Statements of Operations 16
Consolidated Statements of Stockholders' Equity 17
Consolidated Statements of Cash Flows 18
Notes to Consolidated Financial Statements 19 - 27
2. Financial Statement Schedules:
All schedules are omitted because they are not required,
inapplicable or the information is otherwise shown in the financial
statements or the notes thereto.
3. Exhibits:
Exhibit
Number* Pages
11.0 Statement re computation of per share earnings 40
27.0 Financial Data Schedule 41
______________
* The Exhibit Number used refers to the appropriate subsection in
paragraph (b) of Item 601 of Regulation S-K.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the
fiscal year ended June 30, 1995.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ GEORGE Wm. ERIKSON
George Wm. Erikson
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature & Title Capacity Date
/s/ GEORGE Wm. ERIKSON Director and Sept. 26, 1995
George Wm. Erikson Principal Executive Officer
Chairman
/s/ ROBERT W. ERIKSON Director and Sept. 26, 1995
Robert W. Erikson Principal Executive Officer
President
/s/ CALVIN G. FRANKLIN Director Sept. 26, 1995
Calvin G. Franklin
/s/ WEBB C. HAYES, IV Director Sept. 26, 1995
Webb C. Hayes, IV
/s/ PAUL C. KINCHELOE, JR. Director Sept. 26, 1995
Paul C. Kincheloe, Jr.
/s/ JACK MASSAR Director Sept. 26, 1995
Jack Massar
/s/ THOMAS J. SCHAEFER Director Sept. 26, 1995
Thomas J. Schaefer
/s/ RAYMOND T. VERREY Principal Accounting Officer Sept. 26, 1995
Raymond T. Verrey Principal Financial Officer
Vice President and
Chief Financial Officer
39
Net earnings (loss) per share is based on the weighted average number of
common shares outstanding including common stock equivalents from dilutive stock
options. The weighted average number of shares outstanding for the years ended
June 30, 1995, 1994 and 1993 were computed as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Issued shares of Common Stock and
Class B Common Stock 4,684,759 4,684,759 4,684,759
Add: Weighted average of net shares
(using treasury stock method) of
unexercised dilutive stock options 20,131 2,886 --
Less: Weighted average shares of
treasury stock (327,897) (327,897) (323,059)
Weighted average number of common
shares and common stock equivalents 4,376,993 4,359,748 4,361,700
</TABLE>
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED BALANCE SHEET AS OF JUNE 30, 1995, AND THE COMPANY'S
AUDITED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,791,758
<SECURITIES> 0
<RECEIVABLES> 4,473,391
<ALLOWANCES> 25,000
<INVENTORY> 1,111,202
<CURRENT-ASSETS> 8,785,030
<PP&E> 17,549,028
<DEPRECIATION> 8,406,817
<TOTAL-ASSETS> 19,479,967
<CURRENT-LIABILITIES> 3,373,260
<BONDS> 0
<COMMON> 187,390
0
0
<OTHER-SE> 14,934,317
<TOTAL-LIABILITY-AND-EQUITY> 19,479,967
<SALES> 21,594,313
<TOTAL-REVENUES> 21,594,313
<CGS> 15,016,598
<TOTAL-COSTS> 15,016,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,495,566
<INCOME-TAX> 1,368,000
<INCOME-CONTINUING> 2,120,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,120,108
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
