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, 1996
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 3, 1996, was $8,748,663.
As of September 3, 1996, the following number of shares of each of the issuer's
classes of common stock were outstanding:
Common Stock 4,059,266
Class B Common Stock 297,596
Total 4,356,862
Documents Incorporated by Reference: None
Total number of pages of this report: 49 Index to Exhibits located at page: 36
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1. Business............................................... 3
Item 2. Properties............................................. 8
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............................................. 34
Item 13. Certain Relationships and Related Transactions......... 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................ 36
CONSOLIDATED
STATEMENTS OF EARNINGS
AND BALANCE SHEETS
Pages 15 through 16
<PAGE>
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(R) 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 and became the exclusive licensee for the Insituform process
in Tennessee, the rest of Kentucky and northern Mississippi. The Company was
assigned three representatives to a seven-member Management Committee
established to manage the business activities of the Partnership and allocated a
42.5% interest in Partnership profits and losses.
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 preformed PVC thermoplastic pipe under the
NuPipe(R) 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. A formal plan to discontinue
providing cement mortar lining services, adopted in June 1993, was substantially
completed in June 1994.
On June 12, 1996, as a result of a default by a partner under the
Partnership Agreement, the Company was issued an arbitration award granting it
the unilateral right to appoint a MIDSOUTH Partners Management Committee
representative in place of the defaulted partner's representative. Accordingly,
the Company obtained majority representation on the Management Committee
effective June 12, 1996.
For financial reporting purposes for the fiscal year ended June
30, 1996, the Company has included its wholly-owned subsidiary corporations
(collectively, "East") and its majority-controlled subsidiary partnership,
MIDSOUTH Partners, in its consolidated financial statements. Prior to the fiscal
year ended June 30, 1996, the Company accounted for its minority investment in
MIDSOUTH Partners using the equity method.
(b) Financial Information about Industry Segments
Substantially all of the Company's revenue, operating profit and
identifiable assets through June 30, 1996 are attributable to the rehabilitation
and repair of underground sewers and other pipelines, the Company's only
business segment.
(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(R) material,
coated with polyethylene 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(R) product within the original pipe. Lateral or side connections are
then reopened by use of the Insitucutter(R) 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.
East and MIDSOUTH Partners are sublicensees of Insituform Technologies, Inc.
("ITI"). The Company has entered into seven 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,
Tennessee, Kentucky and northern Mississippi. 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 supply agreements with
ITI whereby the Company committed to purchase 90% of its Insitutube material
requirements from ITI. The agreements automatically renew 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, 1997.
The Company has also entered into license agreements 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 East
under an agreement with ITI, the Insitucutter patent holder. Unless otherwise
terminated, this agreement will continue until April 6, 1998, the date of
expiration of the Insitucutter device patent.
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
East'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 56 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 2014. 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 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 state and
local government entities - cities, counties, state agencies and regional
authorities. During the year ended June 30, 1996, Federal government contracts
(collectively), a county government in the Washington, D.C. metropolitan area
and a regional sanitary authority in southwest Ohio accounted for 23%, 20% and
10%, respectively, of the Company's revenues. During the year ended June 30,
1995, Federal Government contracts (collectively), a regional sanitary authority
in southwest 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.
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.
The total value of all uncompleted and multi-year contract awards
from customers was approximately $5.1 million at June 30, 1996 as compared to
$11.9 million at June 30, 1995. The twelve-month backlog at June 30, 1996 was
approximately $4.9 million as compared to $11.5 million at June 30, 1995. June
30, 1996 backlog figures include approximately $1.8 million from MIDSOUTH
Partners. MIDSOUTH Partners' backlog of approximately $4.1 million at June 30,
1995 is not included in consolidated Company backlog figures at June 30, 1995.
The total value of all uncompleted and multi-year contracts at June 30, 1996 and
1995 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.
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 eighteen 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
will accept a technologically inferior modified sliplining technique to
cured-in-place technology.
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
East's sales and marketing effort is directed by its Vice
President of Sales and Marketing. East's sales and marketing team includes five
sales engineers, three primarily serving municipal customers and two primarily
serving industrial market customers. MIDSOUTH Partners' sales and marketing
activities are directed by the partnership Management Committee through the
partnership's General Manager. MIDSOUTH Partners' sales and marketing team
includes one Sales Manager and one regional sales representative. Sales and
marketing personnel 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, 1996, the Company employed 189 full-time personnel,
including 46 employees of MIDSOUTH Partners.
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 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.
MIDSOUTH Partners leases a 15,000 square foot facility in
Knoxville, Tennessee to serve its customers in Tennessee, Kentucky and northern
Mississippi.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
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, 1996 as reported by NASDAQ:
<TABLE>
Bid Prices* For Common Stock
<CAPTION>
Quarter Ended High Low
<S> <C>
1994
<S> <C> <C> <C>
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
September 30 $5.50 $4.00
December 31 $5.13 $4.13
1996
March 31 $4.50 $3.75
June 30 $4.00 $3.13
- ---------------------
* 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 September 3, 1996, there were 826 shareholders of record of
Common Stock and 7 shareholders of record of Class B Common Stock.
(c) Dividend Policy
On June 10, 1996 and 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, 1996 and 1995, payable July 15, 1996 and July 14, 1995,
respectively.
On June 10, 1994, 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, payable July 15, 1994.
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.
<TABLE>
(in thousands, except per share and return on equity amounts)
<CAPTION>
Years Ended June 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Sales $30,471 $21,594 $14,804 $13,105 $19,376
Gross profit $ 8,182 $ 6,578 $ 3,327 $ 2,199 $ 6,206
Earnings (loss) before income taxes $ 2,753 $ 3,496 $ 243 $(1,398) $ 1,671
Net earnings (loss) from continuing
operations $ 1,679 $ 2,120 $ 147 $ (849) $ 1,037
Net earnings (loss) $ 1,679 $ 2,120 $ 147 $(1,812) $ 755
Net earnings (loss) per share from
continuing operations $0.38 $0.48 $0.03 $(0.20) $0.23
Net earnings (loss) per share $0.38 $0.48 $0.03 $(0.42) $0.17
Weighted average number of shares 4,420 4,377 4,360 4,362 4,405
Dividends declared per share:
Common Stock $0.06 $0.06 $0.05 $0.05 $0.05
Class B Common Stock $0.06 $0.06 $0.05 $0.05 $0.05
FINANCIAL POSITION:
Working capital $ 8,709 $ 5,412 $ 4,541 $ 4,255 $ 5,698
Total assets $23,189 $19,480 $16,796 $16,731 $19,206
Long-term debt $ 113 $ 0 $ 0 $ 0 $ 0
Stockholders' equity $16,539 $15,122 $13,263 $13,333 $15,458
OTHER:
Average stockholders' equity
(Weighted average equity during
the year exclusive of current
earnings [loss]) $15,107 $13,247 $13,322 $15,375 $15,010
Return on equity
(Net earnings [loss] divided
by average stockholders'
equity as defined above) 11.11% 16.0% 1.1% (11.8%) 5.0%
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview and Outlook
The Company reported net earnings of $1,678,557 ($0.38 per share)on
$30.5 million in sales, an 11% return on equity, for the Company's fiscal year
ended June 30, 1996. The Company recognized net earnings of $2,120,108 ($0.48
per share) on sales of $21.6 million, a 16% return on equity, for the Company's
fiscal year ended June 30, 1995. The apparent 41% jump in annual sales is
principally attributable to initiation, in fiscal 1996, of the inclusion of
MIDSOUTH Partners contract revenues in consolidated sales totals. Independent of
partnership revenues, East sales increased 4% from fiscal 1995 to fiscal 1996.
The Company attributed its 21% decrease in comparable fiscal year net earnings
to the combination of adverse sales volume during the last six months of fiscal
1996 due to harsh winter weather conditions and lower backlog levels, reduced
margins on contracts performed by MIDSOUTH Partners and increased semi-fixed
operating costs associated with expanded East production capabilities.
The fiscal 1996 change in consolidated reporting arises from a change
in control of MIDSOUTH Partners (also trading as Insituform MIDSOUTH), whereby
the Company obtained majority representation on the partnership Management
Committee as a result of a June 12, 1996 arbitration award. The change in
control does not change the Company's unaltered 42.5% equity share in
partnership earnings and, therefore, financial consolidation of the Company's
now majority-controlled subsidiary partnership has no affect on the previous,
current or future share of contribution by MIDSOUTH Partners to the overall net
earnings of the Company. The Company's investment in MIDSOUTH Partners is
accounted for using the equity method in prior years.
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 less favorable results experienced during the
last two quarters of fiscal 1996 are presently anticipated to extend or expand
through the first quarter of fiscal 1997. However, the Company presently
believes that anticipated increases in immediately workable backlog should
result in favorable results over the remaining three quarters of fiscal 1997.
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.
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. Strategic participation
undertaken by the Company in this market share segment to preserve competitive
presence, usually at levels materially below normal margins, necessarily dilutes
the overall margin performance of the Company. However, a majority of the
Company's customers already use or are implementing improved procurement
specifications and contract award evaluation criteria emphasizing technical
value instead of simply low price. In a value and quality based market,
Insituform remains at a distinct advantage. As customers and consulting
engineers increasingly rely on quality based purchasing criteria to help ensure
long term solutions to their infrastructure needs, they help clearly
differentiate 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.
<TABLE>
Results of Operations:
<CAPTION>
Key Statistics: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Sales (100%) $30,470,867 $21,594,313 $14,803,848
Gross profit 27% 30% 22%
Selling, general and administrative
expenses 17% 19% 24%
Net earnings 6% 10% 1%
</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, 1996, 1995 and 1994 came from contracts with customers to
rehabilitate existing pipelines using the Insituform process.
Sales increased almost $8.9 million (41%) from $21.6 million in fiscal 1995
to $30.5 million in fiscal 1996 primarily as a result of including MIDSOUTH
Partners contract revenues in the fiscal 1996 consolidated sales total.
Comparable period East sales increased 4% primarily as a result of expanded
production capacity and high levels of workable backlog during the first six
months of fiscal 1996.
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 the Company's municipal, Federal
government and industrial market sectors.
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 27%, 30%
and 22% for fiscal 1996, 1995 and 1994, respectively. The decrease in fiscal
1996 gross profit margin as compared to fiscal 1995 is primarily a result of
increased semi-fixed operating costs associated with expanded East production
capabilities in fiscal 1996 and reduced margins on MIDSOUTH Partners Insituform
contracts. 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.
Selling, general and administrative expenses increased 26% in fiscal 1996
compared to fiscal 1995 primarily as a result of the inclusion of selling,
general and administrative expenses of MIDSOUTH Partners in fiscal 1996.
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.
The Company's equity in the unconsolidated earnings of MIDSOUTH Partners
operations was $738,798 and $154,786 for fiscal 1995 and 1994, respectively.
During the years ended June 30, 1995 and 1994, MIDSOUTH Partners recognized
sales revenues of $8.9 million and $6.2 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.
<TABLE>
Liquidity and Capital Resources
<CAPTION>
Key Statistics: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Working Capital $8,708,601 $5,411,770 $4,541,113
Current Ratio 3.6 to 1 2.6 to 1 2.7 to 1
Cash Provided from (Used in) Operations $3,876,283 $3,587,813 $ (459,610)
Capital Expenditures $2,056,459 $1,499,325 $ 631,285
</TABLE>
During the fiscal year ended June 30, 1996, $3,876,283 in cash was
provided by the Company's operating activities, due in part to the consolidation
of MIDSOUTH Partners, the Company's net earnings for the year and $1.6 million
in depreciation and amortization expenses included in net earnings that did not
require the outlay of cash. Due in part to the consolidation of MIDSOUTH
Partners, the Company's cash position increased $1.4 million, improving working
capital to $8.7 million with a current ratio of 3.6 to 1 at June 30, 1996.
Capital expenditures during fiscal 1996, 1995 and 1994 included
purchases of vehicles and equipment to upgrade and improve the Company's
production capabilities and to replace aging units. Fiscal 1996 and 1995 capital
expenditures also included purchases of vehicles and equipment to expand
production capabilities.
During fiscal 1996, 1995 and 1994, the Company declared cash dividends
of $261,412, $261,412 and $217,843, respectively. The Company also received a
$123,250 cash distribution from MIDSOUTH Partners in fiscal 1995.
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.
<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, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1996. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Washington, D.C.
September 20, 1996
<PAGE>
<TABLE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Sales $30,470,867 $21,594,313 $14,803,848
----------- ----------- -----------
Costs and Expenses:
Cost of sales 22,288,437 15,016,598 11,476,838
Selling, general and administrative 5,140,417 4,087,445 3,531,500
---------- ---------- ----------
Total Costs and Expenses 27,428,854 19,104,043 15,008,338
---------- ---------- ----------
Earnings (Loss) from Operations 3,042,013 2,490,270 (204,490)
Investment Income 135,429 40,670 29,045
Interest Expense (16,719) 0 (1,950)
Other Income 250,656 225,828 265,949
Equity in Earnings of MIDSOUTH Partners 0 738,798 154,786
---------- ---------- ----------
Earnings Before Income Taxes and
Non-owned Interests 3,411,379 3,495,566 243,340
Provision for Income Taxes 1,074,000 1,368,000 95,000
Non-owned Interests in Earnings of
Consolidated Subsidiaries 658,822 7,458 963
---------- ---------- --------
Net Earnings $1,678,557 $2,120,108 $147,377
========== ========== ========
Net Earnings Per Share $0.38 $0.48 $0.03
===== ===== =====
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30,
1996 1995
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $4,183,084 $2,791,758
Accounts receivable:
Due from customers 6,079,658 4,448,391
Other 306,428 227,477
Inventories 1,159,532 1,111,202
Prepaid and refundable income taxes 86,950 5,276
Prepaid expenses 258,387 200,926
----------- -----------
Total Current Assets 12,074,039 8,785,030
Investment in and Advances to MIDSOUTH Partners 0 1,481,726
Property, Plant and Equipment, at cost less
accumulated depreciation 11,009,316 9,142,211
Other Assets 106,000 71,000
----------- -----------
Total Assets $23,189,355 $19,479,967
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $707,730 $1,024,166
Accrued compensation and related expenses 2,019,977 1,627,034
Income taxes payable 340,160 460,648
Dividends payable 261,412 261,412
Current portion of capital lease obligations 36,159 0
--------- ----------
Total Current Liabilities 3,365,438 3,373,260
Deferred Income Taxes 818,000 985,000
Long Term Capital Lease Obligations 112,732 0
--------- ----------
Total Liabilities 4,296,170 4,358,260
--------- ----------
Non-owned Interests in Consolidated Subsidiary 2,354,333 0
--------- ----------
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.04 par value; 10,000,000 shares authorized; 4,387,163 shares
issued; 4,059,266 shares
outstanding 175,486 175,486
Class B common stock - $.04 par value; 800,000 shares
authorized; 297,596 shares issued and outstanding 11,904 11,904
Additional paid-in capital 4,000,424 4,000,424
Retained earnings 13,540,651 12,123,506
----------- -----------
17,728,465 16,311,320
Less cost of 327,897 shares of common stock in treasury 1,189,613 1,189,613
----------- -----------
Total Stockholders' Equity 16,538,852 15,121,707
----------- -----------
Total Liabilities and Stockholders' Equity $23,189,355 $19,479,967
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<CAPTION>
$.04 Par $.04 Par
Value Value Class Additional Common Total
Common B Common Paid-in Retained Stock in Stockholders'
Stock Stock Capital Earnings Treasury Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1993 $175,482 $11,908 $4,000,424 $10,335,276 $(1,189,613) $13,333,477
Dividends declared 0 0 0 (217,843) 0 (217,843)
Net earnings for the year 0 0 0 147,377 0 147,377
-------- ------- ---------- ----------- ----------- -----------
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) 0 0 0 0
Dividends declared 0 0 0 (261,412) 0 (261,412)
Net earnings for the year 0 0 0 2,120,108 0 2,120,108
-------- ------- ---------- ---------- ----------- -----------
Balance - June 30, 1995 175,486 11,904 4,000,424 12,123,506 (1,189,613) 15,121,707
Dividends declared 0 0 0 (261,412) 0 (261,412)
Net earnings for the year 0 0 0 1,678,557 0 1,678,557
-------- ------- ---------- ----------- ----------- -----------
Balance - June 30, 1996 $175,486 $11,904 $4,000,424 $13,540,651 $(1,189,613) $16,538,852
======== ======= ========== =========== ============ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended June 30,
1996 1995 1994
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net earnings $1,678,557 $2,120,108 $147,377
Adjustments for noncash items included in net earnings:
Depreciation and amortization 1,633,358 1,043,915 1,003,774
Equity in earnings of MIDSOUTH Partners 0 (738,798) (154,786)
Deferred income taxes (167,000) 66,000 322,000
Non-owned interests in earnings of consolidated
subsidiaries 658,822 7,458 963
Changes in assets and liabilities, net of effect of
consolidation of majority-controlled Partnership:
Receivables 566,218 298,231 (2,550,454)
Inventories 383,408 (346,264) 67,079
Other current assets (22,784) 410,106 502,282
Payables and accruals (854,296) 727,057 202,155
---------- --------- ---------
Net cash provided by (used in) operating activities 3,876,283 3,587,813 (459,610)
--------- --------- ---------
Cash Flows from Investing Activities
Capital expenditures (2,056,459) (1,499,325) (631,285)
Cash distribution from MIDSOUTH Partners 0 123,250 0
Cash distribution from MIDSOUTH Partners to
non-owned interests (368,000) 0 0
Disposal of net assets of discontinued service line 0 0 124,082
Disposal of equipment, net 28,387 28,277 82,111
Cash balance of majority-controlled Partnership prior to
consolidation 241,094 0 0
Acquisition of non-owned interest in consolidated subsidiary 0 (18,816) 0
Increase in other assets (13,000) 0 0
---------- ---------- ---------
Net cash used in investing activities (2,167,978) (1,366,614) (425,092)
---------- ---------- ---------
Cash Flows from Financing Activities:
Dividends paid (261,412) (217,843) (217,843)
Proceeds from line of credit advances 0 0 600,000
Repayments of line of credit advances 0 0 (600,000)
Principal payments under capital lease obligations (55,567) 0 0
---------- ---------- ----------
Net cash used in financing activities (316,979) (217,843) (217,843)
Net increase (decrease) in cash and cash equivalents 1,391,326 2,003,356 (1,102,545)
Cash and cash equivalents at beginning of year 2,791,758 788,402 1,890,947
---------- ---------- ----------
Cash and cash equivalents at end of year $4,183,084 $2,791,758 $788,402
========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $16,719 $0 $1,950
Income taxes paid (refunded) $1,443,162 $444,615 $(695,661)
Supplemental schedule of noncash investing and financing activities:
Capital equipment acquired under capital lease obligations $133,088 $0 $0
See notes to consolidated financial statements.
</TABLE>
<PAGE>
INSITUFORM EAST, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1. Summary of Significant Accounting Policies
Business Operations
Insituform East, Incorporated (the "Company"), operating pursuant to
sublicense agreements as explained in Note 9, is primarily engaged in the
rehabilitation of underground sewers and other pipelines using the patented
Insituform(R) process. The process involves installing a cured-in-place
Insitupipe(R) 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,. TRY TEK
Machine Works, Inc. (majority-owned prior to March 31, 1995) and Insituform of
Pennsylvania, Inc. (collectively, "East"). The consolidated financial statements
as of June 30, 1996 and for the year then ended also include the accounts of
MIDSOUTH Partners, the Company's majority-controlled subsidiary Partnership. All
significant intercompany accounts and transactions have been eliminated. The
Company's investment in MIDSOUTH Partners as of June 30, 1995 and for each of
the two years in the period ended June 30, 1995 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(R) product 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.
Cash and Cash Equivalents
Cash and cash equivalents consist of checking accounts and temporary
investments in repurchase agreements, money market funds, certificates of
deposit and U.S. Treasury instruments. Cash equivalents 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.
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.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
New Accounting Standards
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), issued by the Financial Accounting
Standards Board is effective for transactions entered into in fiscal years that
begin after December 15, 1995. The disclosure requirements of SFAS No. 123 are
also effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard encourages entities to adopt a fair value
method of accounting for employee stock-based compensation plans. As allowed
under the provisions of SFAS No. 123, the Company intends to continue to measure
compensation cost for employee stock-based compensation plans using the
intrinsic value based method of accounting prescribed by the Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. As
such, the Company would be required to provide pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied. Thus, adoption during the fiscal year ending June 30, 1997,
should have no effect on the Company's financial position or results of
operations.
2. Accounts Receivable
Accounts receivable due from customers consists of amounts due for
completed work, net of an allowance for doubtful accounts of $12,856 and $25,000
at June 30, 1996 and June 30, 1995, respectively. Other accounts receivable
includes expense advances to officers and employees of $10,498 and $9,880 at
June 30, 1996 and 1995, 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. 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 Partnership's general partners at June 30, 1996 are
Insitu, Inc., a wholly-owned subsidiary of the Company; E-Midsouth, Inc., an
affiliate of Insituform Technologies, Inc. ("ITI"); and Insituform California,
Inc., also an affiliate of ITI.
Management and conduct of the business of MIDSOUTH Partners is vested in
a Management Committee. The seven-member Partnership Management Committee
consisted of four Insitu, Inc. representatives, two E-Midsouth, Inc.
representatives and one Insituform California, Inc. representative at June
30, 1996. The Company did not have majority representation on the
Partnership Management Committee prior to a June 12, 1996 arbitration
award, which, in connection with a default of the Partnership Agreement by
E-Midsouth, Inc., granted Insitu, Inc. the unilateral right to appoint an
additional Management Committee member in place of an E-Midsouth, Inc.
representative.
Partnership profits and losses are allocated to the partners as
follows:
Insitu, Inc. 42.5%
E-Midsouth, Inc. 42.5%
Insituform California, Inc. 15.0%
<TABLE>
The following is condensed financial information of MIDSOUTH Partners at
June 30, 1996, 1995 and 1994, and for each of the three years in the period
ended June 30, 1996:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash $ 678,176 $ 241,094 $ 210,487
Accounts Receivable 2,193,636 2,249,690 1,162,273
Inventories 445,210 431,738 252,262
Property, Plant and Equipment, Net 1,298,593 1,319,303 937,901
Other Assets 129,359 185,097 138,807
---------- ---------- ----------
Total Assets $4,744,974 $4,426,922 $2,701,730
========== ========== ==========
Current Liabilities $ 581,228 $ 859,489 $ 533,470
Long-Term Obligations Under
Capital Lease 112,732 22,196 71,370
---------- ---------- ----------
Total Liabilities $ 693,960 $ 881,685 $ 604,840
========== ========== ==========
Revenues $8,395,698 $8,894,746 $6,185,972
========== ========== ==========
Gross Profit $2,074,144 $2,739,390 $1,303,112
========== ========== ==========
Partnership Earnings $1,145,777 $1,738,347 $ 364,204
========== ========== ===========
</TABLE>
During the three years ended June 30, 1996, 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, 1996.
4. Property, Plant and Equipment
<TABLE>
Property, plant and equipment consist of the following:
<CAPTION>
June 30,
1996 1995
<S> <C> <C>
Land and improvements $2,018,587 $2,018,587
Buildings and improvements 5,565,252 5,405,594
Vehicles and production equipment 9,867,451 6,381,331
Small tools, radios and machine shop equipment 4,119,870 2,993,920
Office furniture and equipment 933,867 694,495
Leasehold improvements 147,032 55,101
----------- ----------
22,652,059 17,549,028
Less accumulated depreciation 11,642,743 8,406,817
----------- ----------
Property, plant and equipment, at cost less
accumulated depreciation $11,009,316 $9,142,211
=========== ==========
</TABLE>
The Company incurred repair and maintenance costs of $1,021,845,
$789,144 and $532,664 for the years ended June 30, 1996, 1995 and 1994,
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. Sales revenues from cement mortar lining activities
for the year ended June 30, 1994 was $1,080,773. This amount is not included in
sales in the accompanying Consolidated Statements of Earnings.
6. Notes Payable
The Company maintains a $3,000,000 Revolving Line of Credit facility
with a bank. This facility, currently available to the Company through December
31, 1997, 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. Leases
MIDSOUTH Partners leases mobile production equipment from an unrelated
party. These leases are classified as capital leases. The net book value of
equipment under capital lease at June 30, 1996 is $137,397. A schedule of
minimum lease payments and the present value of minimum lease payments for these
leases at June 30, 1996 is as follows:
<TABLE>
Minimum lease payments:
<CAPTION>
Year Ending June 30,
<S> <C> <C>
1997 $59,331
1998 41,580
1999 41,580
2000 41,580
2001 19,500
2002 14,625
--------
Total Minimum lease payments 218,196
Less amount representing interest 69,305
--------
Present value of minimum lease payments 148,891
Less current portion 36,159
--------
Long-term capital lease obligations $112,732
========
</TABLE>
The Company leases operations facilities in Knoxville, Tennessee and
Cincinnati, Ohio. The Company also leases equipment on a short-term basis for
specific contract requirements. Rental expense for leased equipment and
facilities charged to operations was $361,184, $377,555 and $226,598 for the
years ended June 30, 1996, 1995 and 1994, respectively. These leases are
classified as operating leases. The Company has committed to make minimum lease
payments of $72,464, $53,127 and $44,069 on noncancelable operating leases
during the years ending June 30, 1997, 1998 and 1999, respectively.
8. Income Taxes
A reconciliation of income tax computed at the statutory Federal rate
to the provision for income taxes included in the consolidated statements of
earnings is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Statutory Federal income tax rate: 34% 34% 34%
=== === ===
Income tax expense computed
<S> <C> <C> <C>
at the statutory Federal rate $ 935,869 $1,188,492 $82,736
State income tax expense, net of
Federal tax benefit 116,282 167,141 11,147
Non-taxable interest income 0 (517) (4,497)
Non-deductible expenses 21,849 12,884 5,614
---------- ---------- -------
Provision for income taxes $1,074,000 $1,368,000 $95,000
========== ========== =======
Effective tax rate 39% 39% 39%
=== === ===
</TABLE>
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
Years Ended June 30,
1996 1995 1994
Current
<S> <C> <C> <C>
Federal $1,082,000 $1,135,000 $20,000
State 159,000 167,000 3,000
---------- ---------- -------
1,241,000 1,302,000 23,000
---------- ---------- -------
Deferred
Federal (146,000) 58,000 63,000
State (21,000) 8,000 9,000
---------- ---------- -------
(167,000) 66,000 72,000
---------- ---------- -------
Total $1,074,000 $1,368,000 $95,000
========== ========== =======
</TABLE>
<TABLE>
The components of the deferred tax expense (benefit) resulting from net
temporary differences are as follows:
<CAPTION>
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Depreciation $ 52,000 $16,000 $(40,000)
MIDSOUTH Partners operations (76,000) 126,000 101,000
Deferred revenue (155,000) (107,000) 0
Deferred compensation 8,000 33,000 10,000
Other 4,000 (2,000) 1,000
--------- ------- -------
Total $(167,000) $66,000 $72,000
========= ======= =======
</TABLE>
<TABLE>
Deferred Income Taxes, provided for the tax effect of cumulative
temporary differences for income tax and financial reporting purposes, consists
of the following:
<CAPTION>
Years Ended June 30,
1996 1995
<S> <C> <C>
Depreciation $1,021,000 $969,000
MIDSOUTH Partners operations 85,000 161,000
Deferred revenue (262,000) (107,000)
Deferred compensation (15,000) (23,000)
Other (11,000) (15,000)
---------- --------
Total $ 818,000 $985,000
========== ========
</TABLE>
9. Commitments and Contingencies
License Agreements
The Company has entered into seven 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, Kentucky, Tennessee and Northern
Mississippi. 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.
The Company has also entered into license agreements for identical
territories with NuPipe, Inc., a wholly-owned subsidiary of ITI, for the sale
and installation of pre-formed PVC thermoplastic pipe under the NuPipe(R)
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 East for the years ended June 30, 1997 and 1996
have been waived by ITI. Payments of minimum annual royalties for MIDSOUTH
Partners for the years ended December 31, 1996 and 1995 have been waived by ITI.
During the years ended June 30, 1996, 1995 and 1994, the Company incurred
royalty expense of $1,846,932, $1,354,163 and $919,732, respectively.
Supply Agreements
The Company entered into supply agreements with ITI committing East and
MIDSOUTH Partners 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 agreements. These
agreements, which presently extend through April 30, 1997, are renewable
annually unless notice of termination is provided by either party six months
prior to the end of the current renewal period. During the three years ended
June 30, 1996, the Company purchased substantially all of its Insitutube from
ITI.
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.
10. 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 10, 1996, 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, 1996, payable July 15, 1996.
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, 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, payable July 15, 1994.
At June 30, 1996, the Company held 327,897 shares of its Common Stock
in Treasury at an average price of $3.63 per share.
11. Profit Sharing Plans
East and MIDSOUTH Partners maintain separate profit sharing retirement
plans for all employees meeting certain minimum eligibility requirements who are
not covered by collective bargaining agreements. Contributions are determined
annually by the Company. During the years ended June 30, 1996, 1995 and 1994,
the Company recognized profit sharing expense of $263,722, $183,489 and $84,775,
respectively. Fiscal 1996 profit sharing expense consisted of $198,844 for East
and $64,878 for MIDSOUTH Partners.
12. Net Earnings Per Share
Net earnings 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 4,419,636, 4,376,993 and 4,359,748 were used
in computing earnings per share for the years ended June 30, 1996, 1995 and
1994, respectively.
13. 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
were reserved for certain full-time employees of the Company. This plan
automatically terminated on February 17, 1996.
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.
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 Directors 1989 Board of Directors 1985 Employee
Stock Option Plan Stock Option Plan Stock Option Plan
---------------------------------------------------------------------------------
Average Price Average Price Average Price
Shares Per Share Shares Per Share Shares Per Share
Outstanding,
<S> <C> <C> <C> <C> <C> <C> <C>
July 1, 1993 285,000 $5.83 0 $0
Granted 60,000 2.44 0 0
Exercised 0 0 0 0
Expired (60,000) 5.83 0 0
------- ----
Outstanding,
June 30, 1994 285,000 5.12 0 0
Granted 105,000 $2.63 0 0 0 0
Exercised 0 0 0 0 0 0
Expired 0 0 (45,000) 5.75 0 0
------- ------- ----
Outstanding,
June 30, 1995 105,000 2.63 240,000 5.00 0 0
Granted 105,000 4.22 0 0 0 0
Exercised 0 0 0 0 0 0
Expired 0 0 (60,000) 5.75 0 0
------- ------- ----
Outstanding,
June 30, 1996 210,000 $3.43 180,000 $4.75 0 $0
======= ======= ====
</TABLE>
14. 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 state and
local government entities - cities, counties, state agencies and regional
authorities. During the year ended June 30, 1996, Federal government contracts
(collectively), a county government in the Washington, D.C. metropolitan area
and a regional sanitary authority in southwest Ohio accounted for 23%, 20% and
10%, respectively, of the Company's revenues. During the year ended June 30,
1995, Federal Government contracts (collectively), a regional sanitary authority
in southwest 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.
15. Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for the years ended June 30, 1996 and
1995 are presented in the following table. Sales and Gross Profit figures for
the first three quarters of the Company's fiscal year ended June 30, 1996 have
been restated to include the operations of the Company's majority-controlled
subsidiary partnership, MIDSOUTH Partners, beginning July 1, 1995.
<TABLE>
<CAPTION>
Three Months Ended
September 30, December 31, March 31, June 30,
1995 1995 1996 1996
Year Ended June 30, 1996
<S> <C> <C> <C> <C>
Sales $8,470,336 $8,370,379 $6,898,327 $6,731,825
Gross Profit $2,625,029 $2,555,522 $1,555,040 $1,446,839
Net Earnings $ 661,302 $ 668,294 $ 124,413 $ 224,548
Net Earnings Per Share $ 0.15 $ 0.15 $ 0.03 $ 0.05
Three Months Ended
September 30, December 31, March 31, June 30,
1994 1994 1995 1995
Year Ended June 30, 1995
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
</TABLE>
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 1996 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>
Name, Age, Principal Occupation,
Business Experience and First Became Class of Common Stock
Directorships A Director For which Elected
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
George Wm. Erikson, Age 54 (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 51 (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 The
Palmer National Bank from 1983 to 1996, and Director of its successor,
The George Mason Bank, N.A., since 1996.
Calvin G. Franklin, Age 66 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 from 1989 to
1995; Director of Signet Bank, N.A. from 1985 to 1989; retired Major
General, U.S. Army.
Webb C. Hayes, IV, Age 48 (3) 1994 Class B Common Stock
Director and Executive Vice President
of George Mason Bankshares, Inc.
and Chairman, President and CEO of George Mason Bank, N.A., since
1996; Chairman of the Board of Palmer National Bancorp, Inc. and The
Palmer National Bank from 1985 to 1996, President and Chief Executive
Officer from 1983 to 1996; 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 55 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 71 (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 1991 to 1994.
Thomas J. Schaefer, Age 58 (2) (3) 1981 Common Stock
Independent private investor since 1995;
President, Chief Executive
Officer and Director of Columbia First Bank from 1988 to 1995; 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 50
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 50
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 42
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 49
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.
</TABLE>
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, 1996, 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 circumstance. 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
<TABLE>
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, 1996, 1995 and 1994:
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Name Other Total Restricted
and Annual Annual Stock Options/ LTIP All Other
Principal Fiscal Salary Bonus Compensation Compensation Awards SARs Payouts Compensation
Position Year ($) ($) ($) 2/ ($) ($) (#) ($) ($) 3/
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
George Wm. Erikson 1996 $201,555 $22,393 $0 $223,948 $0 15,000 $0 $11,264
Chairman & General 1995 196,555 31,457 0 228,012 0 15,000 0 12,033
Counsel 1/ 1994 188,559 2,086 0 190,645 0 15,000 0 19,683
Robert W. Erikson 1996 $201,555 $22,393 $0 $223,948 $0 15,000 $0 $9,014
President 1/ 1995 196,555 31,457 0 228,012 0 15,000 0 10,118
1994 188,559 2,086 0 190,645 0 15,000 0 18,322
John F. Mulhall 1996 $118,023 $13,112 $0 $131,135 $0 0 $0 $8,639
Vice President of 1995 114,993 18,404 0 133,397 0 0 0 7,926
Sales & Marketing 1994 110,322 1,221 0 111,543 0 0 0 9,521
Gregory Laszczynski 1996 $124,335 $13,814 $0 $138,149 $0 0 $0 $10,531
Vice President of 1995 109,756 17,564 0 127,320 0 0 0 8,308
Operations 1994 105,297 1,165 0 106,462 0 0 0 9,649
Raymond T. Verrey 1996 $96,568 $10,729 $0 $107,297 $0 0 $0 $7,564
Vice President & 1995 94,076 15,056 0 109,132 0 0 0 6,859
Chief Financial 1994 90,254 998 0 91,252 0 0 0 7,837
Officer
Robert F. Hartman 1996 $85,891 $9,542 $0 $95,433 $0 0 $0 $6,665
Vice President of 1995 83,664 13,390 0 97,054 0 0 0 5,754
Administration & 1994 80,254 888 0 81,142 0 0 0 6,632
Secretary
- -------------------------------------------------------------------------------------------------------------------
1/ The Company's Chief Executive Officer Committee, consisting of the Chairman
and the 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 lesser of $50,000 or 10% of his total salary and
bonus.
3/ Contributions to the Insituform East, Incorporated Employee Advantage
Plan, as described on page 31.
</TABLE>
CASH COMPENSATION PURSUANT TO PLANS
Insituform East, Incorporated 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 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 1996 1/ as of 06/30/96
<S> <C> <C>
George Wm. Erikson, Chairman $9,014 100%
Robert W. Erikson, President 9,014 100%
John F. Mulhall, Vice President of Sales & Marketing 7,989 100%
Gregory Laszczynski, Vice President of Operations 8,403 100%
Raymond T. Verrey, Vice President & Chief
Financial Officer 6,117 100%
Robert F. Hartman, Vice President of
Administration & Secretary 5,177 60%
All Executive officers as a group (6 persons) $45,714 N/A
- --------------------------------------------------------------------------------
1/ Total contributions to employees of $211,541 include Insituform East's
contribution of $198,844 and reallocated amounts totaling $12,697 forfeited
by former participants who terminated employment with Insituform East
during the fiscal year 1996.
</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, 1996,
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 1996 as of 06/30/96
<S> <C> <C>
George Wm. Erikson, Chairman $2,250 100%
Robert W. Erikson, President 0 100%
John F. Mulhall, Vice President of Sales & Marketing 650 100%
Gregory Laszczynski, Vice President of Operations 2,128 100%
Raymond T. Verrey, Vice President & Chief Financial
Officer 1,447 100%
Robert F. Hartman, Vice President of Administration
& Secretary 1,488 100%
All Executive officers as a group (6 persons) $7,963 N/A
- --------------------------------------------------------------------------------
</TABLE>
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. This plan automatically terminated on February 17, 1996. The
purpose of the plan was 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 was employed on a full-time basis was eligible for participation. The plan
was administered by the Stock Option Committee consisting of Messrs. Thomas J.
Schaefer, Jack Massar and Webb C. Hayes, IV.
During fiscal year 1996, 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, 1996.
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 persons 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 by the Board of Directors. Options were
first granted to directors on December 1, 1989 and at each of the four
succeeding Board of Directors meetings following the Annual Meetings of
Stockholders in 1990, 1991, 1992 and 1993. No further options are anticipated
to be granted under this plan.
Each grant of options under the plan entitles each director to whom
such options were 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 previously granted, which have not
already been exercised or expired, will remain in effect until exercise or
expiration, whichever comes first. The Plan will terminate in 1999, unless
terminated sooner by the Board of Directors. Under terms of this plan, 180,000
shares of Common Stock remain reserved for the directors of the Company.
No options available under this plan were granted to or exercised by
directors of the Company during fiscal year 1996.
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 persons 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 8, 1995, 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 $4.2188. No options available under
this plan were exercised by directors of the Company during fiscal year 1996.
OPTIONS/SAR GRANTS
No option of Stock Appreciation Right grants were made to any of the
named executive officers during fiscal year 1996 under the 1985 Employee Stock
Option Plan or the 1989 Board of Directors Stock Option Plan. The following
table sets forth information concerning options granted to each of the named
executive officers, who are also directors, during fiscal year 1996 under the
1994 Board of Directors Stock Option Plan.
<TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realized Value
at Assumed Annual
Rates of Stock Price
Individual Grants Appreciation for Option Term
% of Total
Options/SARs
Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George Wm. Erikson 15,000 1/ 14% $4.2188 12/8/00 $17,484 $38,634
Robert W. Erikson 15,000 1/ 14% $4.2188 12/8/00 $17,484 $38,634
- -------------------------------------------------------------------------------------------------------------------
1/ Option grants under the 1994 Board of Directors Stock Option Plans, as described on page 32.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
All option or Stock Appreciation Right grants made under the 1985
Employee Stock Option Plan had expired prior to fiscal year 1996. No option or
Stock Appreciation Right grants made under the 1989 and 1994 Board of Directors
Stock Option Plans to any of the named executive officers were exercised during
fiscal year 1996. The following table sets forth information concerning option
or Stock Appreciation right grants held by each of the named executive officers,
who are also directors, as of June 30, 1996.
<TABLE>
AGGREGATED OPTION/SAR GRANTS IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
<CAPTION>
Number of Unexercised Value of Unexercised
Options/SARs at In the Money Options/SARs
Fiscal Year-End (#) at Fiscal Year-End ($)
- -------------------------------------------------------------------------------------------------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C> <C>
George Wm. Erikson 0 $0 75,000 1/ 0 $17,813 $0
Robert W. Erikson 0 $0 75,000 1/ 0 $17,813 $0
- -------------------------------------------------------------------------------------------------------------------
1/ Options exercisable under the IEI 1989 and 1994 Board of Directors Stock Option Plans, as described on page 32.
</TABLE>
LONG-TERM INCENTIVE PLAN AWARDS
The Company does not have a long-term incentive plan.
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 1991, has a consulting
agreement with the Company. Mr. Massar received $48,600 from the Company for
services rendered pursuant to this agreement during fiscal year 1996. Mr.
Massar is also reimbursed for travel-related expenses in connection with
services performed under this agreement.
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 Wm.
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 1996
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 1996
participated in deliberations of the CERBCO, Inc. Board of Directors concerning
executive officercompensation for CERBCO, Inc.
Mr. Robert W. Erikson served, during fiscal 1996, 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 1996 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, was Chairman of the Board and an executive officer of The Palmer
National Bank. Palmer National Bancorp, Inc., parent of The Palmer National
Bank, was acquired by George Mason Bankshares, Inc. in May 1996. The Palmer
National Bank was subsequently renamed George Mason Bank, N.A. Since May 1996,
Mr. Erikson no longer participates in compensation matters affecting Mr. Hayes.
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 3, 1996.
<TABLE>
<CAPTION>
Number of Shares Outstanding %
Name and Address of of Class of Class
Beneficial Owner Title of Class Beneficially Owned Beneficially 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 ownership of 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.
<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 0 75,000 1.8%
Calvin G. Franklin Common Stock 0 30,000 0.7%
Webb C. Hayes, IV Common Stock 0 30,000 0.7%
Paul C. Kincheloe, Jr. Common Stock 0 30,000 0.7%
Jack Massar Common Stock 0 75,000 1.8%
Thomas J. Schaefer Common Stock 27,500 75,000 2.5%
All directors and officers Common Stock * 44,500 390,000 9.8%
As a group (11 persons, Class B Common Stock * 0 0 0.0%
including those named above)
- -------------------------------------------------------------------------------------------------------------------
* 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, was
President, Chief Executive Officer and a Director of Columbia First Bank. The
Company maintained a commercial banking relationship with Columbia First Bank
including a $3,000,000 revolving line of credit during fiscal 1996 until
Columbia First Bank was acquired by First Union National Bank on November 3,
1995. Management of the Company believes that Columbia First Bank's fees for
commercial banking services were competitive with fees charged by other area
banks.
(c) Indebtness of Management
Not applicable.
(d) Transactions with Promoters
Not applicable.
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 Statements of Earnings 15
Consolidated Balance Sheets 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
10.1 Loan Agreement dated July 1, 1996 between the Company 38-41
and First Union National Bank of Virginia (the "Bank")
evidencing the Company's $3,000,000 Line of Credit
facility with the Bank.
10.2 Promissory Note dated July 1, 1996 between the Company 42-46
and First Union National Bank of Virginia executed in
connection with extension of the Company's $3,000,000
Line of Credit facility to December 31, 1997.
11.0 Statement re computation of per share earnings 47
23.0 Independent Auditors' Consent 48
27.0 Financial Data Schedule 49
* 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, 1996.
<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
George Wm. Erikson
Chairman Director and
Principal Executive Officer September 20, 1996
/s/ ROBERT W. ERIKSON
Robert W. Erikson
President Director and
Principal Executive Officer September 20, 1996
/s/ CALVIN G. FRANKLIN
Calvin G. Franklin Director September 20, 1996
/s/ WEBB C. HAYES, IV
Webb C. Hayes, IV Director September 20, 1996
/s/ PAUL C. KINCHELOE, JR.
Paul C. Kincheloe, Jr. Director September 20, 1996
/s/ JACK MASSAR
Jack Massar Director September 20, 1996
/s/ THOMAS J. SCHAEFER
Thomas J. Schaefer Director September 20, 1996
/s/ RAYMOND T. VERREY Principal Accounting Officer, September 20, 1996
Raymond T. Verrey Principal Financial Officer
Vice President and
Chief Financial Officer
EXHIBIT 10.1
LOAN AGREEMENT
First Union National Bank of Virginia
1970 Chain Bridge Road
McLean, Virginia 22102
(Hereinafter referred to as the "Bank")
Insituform East, Incorporated, a Delaware corporation
3421 Pennsy Drive
Landover, Maryland 20785
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into this July 1, 1996, by and
between Bank and Borrower, a Corporation organized under the laws of Virginia.
Borrower has applied to Bank for a loan or loans (individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
Line of Credit - in the principal amount of $3,000,000.00 which is evidenced by
the Promissory Note dated July 1, 1996 ("Line of Credit Note"), under which
Borrower may borrow, repay, and reborrow, from time to time, so long as the
total indebtedness outstanding at any one time does not exceed the principal
amount. The loan proceeds are to be used by Borrower solely for Bonding and
working capital. Notwithstanding other terms and conditions of this Agreement or
other Loan Documents, Bank is obligated to make advances to Borrower up to the
principal amount of $3,000,000.00 upon the request of Borrower. Bank's
obligation to advance or readvance under the Line of Credit Note shall terminate
if Borrower is in Default under the Line of Credit Note.
This Agreement applies to the loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As used
in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of
which more than 50% of the issued and outstanding voting stock is owned directly
or indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. Section 101 except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: Accurate Information. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof,
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. Authorization; Non-Contravention. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and, if necessary,
by making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower or any guarantor,
or a default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause
for the acceleration of any obligations of Borrower or any guarantor to any
other creditor. Asset Ownership. Borrower has good and marketable title to all
of the properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower
has duly filed, paid and/or discharged all taxes or other claims which may
become a lien on any of its property or assets, except to the extent that such
items are being appropriately contested in good faith and an adequate reserve
for the payment thereof is being maintained. Sufficiency of Capital. Borrower is
not, and after consummation of this Agreement and after giving effect to all
indebtedness incurred and liens created by Borrower in connection with the loan,
will not be, insolvent within the meaning of 1 1 U.S.C. Section 101 (32).
Compliance with Laws. Borrower is in compliance in all respects with all
federal, state and local laws, rules and regulations applicable to its
properties, operations, business, and finances, including, without limitation,
any federal or state laws relating to liquor (including 18 U.S.C. Section 3617,
et seq.) or narcotics (including 21 U.S.C. Section 801 et seq.) and/or any
commercial crimes; all applicable federal, state and local laws and regulations
intended to protect the environment; and the Employee Retirement Income Security
Act of 1974, as amended ("ERlSA"), if applicable. Organization and Authority.
Each corporate or limited liability company Borrower and any guarantor, as
applicable, is duly created, validly existing and in good standing under the
laws of the state of its organization, and has all powers, governmental
licenses, authorizations, consents and approvals required to operate its
business as now conducted. Each Corporate or limited liability company Borrower
and any guarantor is duly qualified, licensed and in good standing in each
jurisdiction where qualification or licensing is required by the nature of its
business or the character and location of its property, business or customers,
and in which the failure to so qualify or be licensed, as the case may be, in
the aggregate, could have a material adverse effect on the business, financial
position, results of operations, properties or prospects of Borrower or any such
guarantor. No Litigation. There are no pending or threatened suits, claims or
demands against Borrower or any guarantor that have not been disclosed to Bank
by Borrower in writing.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: Business Continuity. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. Maintain Properties. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. Access to Books & Records. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank to make copies thereof
at Bank's expense. Insurance. Maintain adequate insurance coverage with respect
to its properties and business against loss or damage of the kinds and in the
amounts customarily insured against by companies of established reputation
engaged in the same or similar businesses including, without limitation,
commercial general liability insurance, workers compensation insurance, and
business interruption insurance; all acquired in such amounts and from such
companies as Bank may reasonably require. Notice of Default and Other Notices.
(a) Notice of Default. Furnish to Bank immediately upon becoming aware of the
existence of any condition or event which constitutes a Default (as defined in
the Loan Documents) or any event which, upon the giving of notice or lapse of
time or both, may become a Default, written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing
of (i) any material adverse change in its financial condition or its business;
(ii) any default under any material agreement, contract or other instrument to
which it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any indebtedness owing by Borrower; (iii) any
material adverse claim against or affecting Borrower or any part of its
properties; (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental agency
or unit affecting Borrower; and (v) at least thirty (30) days prior thereto, any
change in Borrower's name or address as shown above, and/or any change in
Borrower's structure. Compliance with Other Agreements. Comply with all terms
and conditions contained in this Agreement, and any other Loan Documents, and
swap agreements, if applicable, as defined in the Note. Payment of Debts. Pay
and discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities of whatever nature or amount, except those which Borrower in
good faith disputes. Reports and Proxies. Deliver to Bank, promptly, a copy of
all financial statements, reports, notices, and proxy statements, sent by
Borrower to stockholders, and all regular or periodic reports required to be
filed by Borrower with any governmental agency or authority. Other Financial
Information. Deliver promptly such other information regarding the operation,
business affairs, and financial condition of Borrower which Bank may reasonably
request. Non-Default Certificate From Borrower. Deliver to Bank, with the
Financial Statements required herein, a certificate signed by Borrower, if
Borrower is an individual, or by a principal financial officer of Borrower
warranting that no "Default" as specified in the Loan Documents nor any event
which, upon the giving of notice or lapse of time or both, would constitute such
a Default, has occurred. Estoppel Certificate. Furnish, within fifteen days
after request by Bank, a written statement duly acknowledged of the amount due
under the loan and whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: Default on Other Contracts or
Obligations. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed. Judgment Entered. Permit the entry of any monetary
judgment or the assessment against, the filing of any tax lien against, or the
issuance of any writ of garnishment or attachment against any property of or
debts due Borrower. Government Intervention. Permit the assertion or making of
any seizure, vesting or intervention by or under authority of any government by
which the management of Borrower or any guarantor is displaced of its authority
in the conduct of its respective business or such business is curtailed or
materially impaired. Prepayment of Other Debt. Retire any long-term debt entered
into prior to the date of this Agreement at a date in advance of its legal
obligation to do so. Retire or Repurchase Capital Stock. Retire or otherwise
acquire shares of its capital stock, such that the Borrower is in default of one
or more financial covenant.
FINANCIAL COVENANTS. Borrower, on a consolidated basis, agrees to the following
Provisions from the date of this Agreement and until final payment in full of
the Obligations, unless Bank shall otherwise consent in writing: Current Ratio.
Maintain at all times a Current Ratio of not less than 1 .75 to 1 .00 or working
capital of at least $3,500,000. For the purpose of this computation, "current
ratio" shall mean the ratio of consolidated current assets (as defined herein)
to consolidated current liabilities (as defined by GAAP). For the purpose of
this computation, "current assets" shall mean the sum of cash, short-term
investments, trade accounts receivable (net of any allowance for bad debt),
inventory, and cost and estimated earnings in excess of billings. "Working
capital" shall mean the excess of the current assets over the current
liabilities. Total Liabilities to Tangible Net Worth. Borrower shall at all
times maintain a Consolidated Tangible Net Worth of at least $ 13,000,000. For
the purpose or this computation, "consolidated tangible net worth" shall mean
the consolidated stockholders' equity of the Borrower and its subsidiaries, if
any, after adding thereto the aggregate amount of subordinated stockholder loans
(as defined herein), and after subtracting therefrom the aggregate amount of (a)
any intangible assets of the Borrower and its subsidiaries, if any (including,
and without limitation, goodwill, franchises, licenses, patents, trademarks,
trade names, copyrights, service marks, and brand names), (b) any investments in
any affiliates, with the exception of the company's investment in and advances
to Midsouth Partners, and (c) loans and advances to officers, directors, and
shareholders made by the Borrower and its subsidiaries, if any. Net Worth.
Borrower shall at all times maintain a consolidated net worth of at least $
14,500,000. For the purpose of this computation, "net worth" shall mean the
consolidated stockholders' equity of the Borrower and its subsidiaries.
Debt/Worth Ratio. Borrower shall at all times maintain a consolidated debt/worth
ratio (defined as consolidated total liabilities divided by consolidated
tangible net worth) of not more than 1.40 to 1.00. For the purpose of this
computation, "consolidated total liabilities" shall mean all liabilities of
Borrower and its subsidiaries, if any, excluding subordinated stockholder loans,
and including capitalized leases and all reserves for deferred taxes and other
deferred sums appearing on the liabilities side of a balance sheet of Borrower
and its subsidiaries, if any, and in accordance with generally accepted
accounting principals applied on a consistent basis. Annual Financial
Statements. Deliver to Bank, within ninety days after the close of each such
annual period, audited financial statements reflecting its operations during
such annual period, including, without limitation, a balance sheet, profit and
loss statement and statement of cash flows, with supporting schedules; all on
consolidated and consolidating basis and in reasonable detail, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year. If audited statements are required,
all such statements shall be examined by an independent certified public
accountant acceptable to Bank. The opinion of such independent certified public
accountant shall not be acceptable to Bank if qualified due to any limitations
in scope imposed by Borrower. Any other qualification of the opinion by the
accountant shall render the acceptability of the financial statements subject to
Bank's approval. If unaudited statements are required, such statements shall be
certified as to their correctness by a principal financial officer of Borrower.
Periodic Financial Statements. Deliver to Bank unaudited management-prepared
quarterly financial statements including, without limitation, a balance sheet,
profit and loss statement, and statement of cash flows, with supporting
schedules, within 45 days after the close of each such period; all in reasonable
detail and prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. Such statements
shall be certified as to their correctness by a principal financial officer of
Borrower and in each case, if audited statements are required, subject to audit
and year-end adjustments.
CONDITIONS PRECEDENT. The obligations of Bank to make the loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower, as of the day and year first written above, has
caused this Agreement to be executed under seal.
Insituform East, Incorporated, a Delaware corporation
Taxpayer Identification Number: 52-0905854
CORPORATE By: /s/ Robert W. Erikson
SEAL Robert W. Erikson, President
First Union National Bank of Virginia
/s/ Robert Gates
Robert Gates, Vice President
21736
EXHIBIT 10.2
PROMISSORY NOTE
$3,000,000.00 July 1, 1996
Insituform East, Incorporated, a Delaware corporation
3421 Pennsy Drive
Landover, Maryland 20785
(Individually and collectively "Borrower")
First Union National Bank of Virginia
1970 Chain Bridge Road
McLean, Virginia 22102
(Hereinafter referred to as the "Bank")
RENEWAL/MODIFICATION. This Promissory Note renews, extends and/or modifies that
certain promissory note dated February 3, 1992, most recently modified by a
Fourth Modification and Extension Agreement dated August 21, 1995, evidencing an
original principal indebtedness of $3,000,000.00. This Promissory Note is not a
novation.
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Three Million and no/100 dollars ($3,000,000.00) or such sum
as may be advanced from time to time with interest on the unpaid principal
balance at the rate and on the terms provided in this Promissory Note (including
all renewals, extensions and/or modifications hereof, this "Note").
IMPORTANT NOTICE
THIS NOTE CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER
OF IMPORTANT RIGHTS YOU MAY HAVE AS A BORROWER AND ALLOWS BANK TO OBTAIN A
JUDGMENT AGAINST YOU WITHOUT FURTHER NOTICE.
INTEREST RATE. Prime Rate. Interest shall accrue on the unpaid principal balance
of this Note from the date hereof at the rate of Bank's Prime Rate plus 0.0%
(000 basis points) as that rate may change from time to time with changes to
occur on the date Bank's Prime Rate changes ("Interest Rate"). Bank's Prime Rate
shall be that rate announced by Bank from time to time as its Prime Rate and is
one of several interest rate bases used by Bank. Bank lends at rates both above
and below Bank's Prime Rate, and Borrower acknowledges that Bank's Prime Rate is
not represented or intended to be the lowest or most favorable rate of interest
offered by Bank.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus three
percent (3%) ("Default Rate") unless the loan is governed by the laws of the
State of North Carolina and the original principal amount is less than or equal
to Three Hundred Thousand and No/100 Dollars ($300,000.00). The Default Rate
shall apply from the occurrence of a Default (defined herein) until the
Obligations or any judgment thereon is paid in full.
INTEREST COMPUTATION. Actual/360 Computation. Interest shall be computed on the
basis of a 360-day year for the actual number of days in the interest period
("Actual/360 Computation"). The Actual/360 Computation determines the annual
effective interest yield by taking the stated (nominal) interest rate for a
year's period and then dividing said rate by 360 to determine the daily periodic
rate to be applied for each day in the interest period. Application of the
Actual/360 Computation produces an annualized effective interest rate exceeding
that of the nominal rate.
PAYMENT. This Note shall be due and payable in consecutive periodic payments of
accrued interest only commencing July 31, 1996, and on the last day of each
month thereafter until fully paid. In any event, all principal and accrued
interest shall be due and payable December 31, 1997.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations (defined herein) shall be applied to accrued
interest and then to principal. If a Default (defined herein) occurs, monies may
be applied to the Obligations in any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents (defined
herein) is rescinded, avoided or for any reason returned by Bank because of any
adverse claim or threatened action, the returned payment shall remain payable as
an obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and may include, without limitation, a commitment
letter that survives closing, a loan agreement, this Note, guaranty agreements,
security agreements, security instruments, financing statements, mortgage
instruments, letters of credit and any modifications, but however, does not
include swap agreements as defined in 11 U.S.C. Section 101 whenever executed.
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations as defined in the
respective Loan Documents, and all obligations under any swap agreements as
defined in 11 U.S.C. Section 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to five percent (5%) of each payment past due for eight
(8) or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to receive such late charge or to receive
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to and shall be such
maximum lawful interest, and (a) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (b) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: (a) Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations under this Note or any other Loan Documents; (b)
False Warranty. A warranty or representation made in the Loan Documents or
furnished Bank in connection with the loan evidenced by this Note proves
materially false, or if of a continuing nature, becomes materially false; (c)
Cross Default. At Bank's option, any default in payment or performance of any
obligation under any other loans, contracts or agreements of Borrower, any
Subsidiary or Affiliate of Borrower ("Affiliate" shall have the meaning as
defined in 11 U.S.C. Section 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein; "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock is
owned directly or indirectly by Borrower), any general partner of or the
holder(s) of the majority ownership interests of Borrower with Bank or its
affiliates; (d) Cessation; Bankruptcy. The death of, appointment of guardian
for, dissolution of, termination of existence of, loss of good standing status
by, appointment of a receiver for, assignment for the benefit of creditors of,
or commencement of any bankruptcy or insolvency proceeding by or against the
Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or
the holder(s) of the majority ownership interests of Borrower, or any party to
the Loan Documents; or (e) Material Capital Structure or Business Alteration. A
material alteration in the type or kind of Borrower's business or the
acquisition of substantially all of Borrower's business or assets, or a material
portion (10% or more) of such business or assets if such a sale is outside
Borrower's ordinary course of business, or more than 50% of its outstanding
stock or voting power in a single transaction or a series of transactions.
REMEDIES UPON DEFAULT. (a) Bank Lien and Set-off. Except as prohibited by law,
Borrower grants Bank a security interest in all of Borrower's accounts with Bank
and any of its affiliates. If a Default (defined herein) occurs, Bank is
authorized to exercise its right of set-off or to foreclose its lien against any
agreement or account of any nature or maturity of Borrower without notice. (b)
Acceleration Upon Default. If a Default occurs, Bank may, at Bank's discretion,
accelerate the maturity of this Note and all other Obligations, and all of the
Obligations shall be immediately due and payable. (c) Cumulative. All remedies
available to Bank with respect to this Note and other Loan Documents and
remedies available at law or in equity shall be cumulative and may be pursued
concurrently or successively.
FINANCIAL AND OTHER INFORMATION. Borrower will provide Bank with such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Borrower's
financial condition. Such information shall be true, complete, and accurate.
VIRGINIA CONFESSION OF JUDGMENT. Borrower hereby duly constitutes and appoints
Keith Northern or Gregory Baugher as the true and lawful attorney-in-fact for
them (either of whom may act), in any or all of their names, place and stead,
and upon the occurrence of a Default in the payment of the Obligations due under
this Note, at maturity, or upon acceleration to confess judgment against them or
any of them, in favor of Bank, its successors, in accordance with 1950 Code of
Virginia Section 8.01-431 et seq., in the Circuit Court for the County of
Fairfax, Virginia, for all amounts owed with respect to the Obligations, under
and pursuant to this Note, including, without limitation, all costs of
collection, reasonable attorneys fees and court costs, hereby ratifying and
confirming the acts of said attorney-in-fact as if done by themselves.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank may
advance and readvance under this Note respectively from time to time, so long as
the total indebtedness outstanding at any one time does not exceed the principal
amount stated on the face of this Note. Notwithstanding other terms and
conditions of this Note or other Loan Documents, Bank is obligated to make
advances to Borrower up to the principal amount of $3,000,000.00 upon the
request of Borrower. Bank's obligation to advance or readvance under this Note
shall terminate if Borrower is in Default under this Note.
30-DAY PAYOUT. During the term of the Note, Borrower agrees to pay down the
outstanding balance to a maximum of One Hundred and No/100 Dollars ($100.00) for
thirty consecutive days annually.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or privilege granted
pursuant to this Note and other Loan Documents shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise or the exercise of any other right, power or privilege.
Each Borrower or any other person who may be liable under the Loan Documents
waives presentment, protest, notice of dishonor, demand for payment, notice of
intention to accelerate maturity, notice of acceleration of maturity, notice of
sale and all other notices of any kind. Further, each agrees that Bank may
extend, modify or renew this Note or make a novation of the loan evidenced by
this Note for any period, whether or not longer than the original period of the
Note, and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any Borrower or any person who
may be liable under this Note or other Loan Documents, all without notice to or
consent of any Borrower or any person who may be liable under this Note or other
Loan Documents and without affecting the liability of Borrower or any person who
may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. (a) Assignment. This Note and other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank's
interests in and rights under this Note and other Loan Documents are freely
assignable, in whole or in part, by Bank. Borrower shall not assign its rights
and interest hereunder without the prior written consent of Bank, and any
attempt by Borrower to assign without Bank's prior written consent is null and
void. Any assignment shall not release Borrower from the Obligations. (b)
Applicable Law; Conflict Between Documents. This Note and other Loan Documents
shall be governed by and construed under the laws of the state where Bank first
shown above is located without regard to that state's conflict of laws
principles. If the terms of this Note should conflict with the terms of the loan
agreement or any commitment letter that survives closing, the terms of this Note
shall control. (c) Jurisdiction. Borrower irrevocably agrees to non-exclusive
personal jurisdiction in the state in which the office of Bank first shown above
is located. (d) Severability. If any provision of this Note or of the other Loan
Documents shall be prohibited or invalid under applicable law, such provision
shall be ineffective but only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Note or other such document. (e) Notices. Any notices to Borrower shall
be sufficiently given, if in writing and mailed or delivered to the Borrower's
address shown above or such other address as provided hereunder, and to Bank, if
in writing and mailed or delivered to Bank's office address shown above or such
other address as Bank may specify in writing from time to time. In the event
that Borrower changes Borrower's address at any time prior to the date the
Obligations are paid in full, Borrower agrees to promptly give written notice of
said change of address by registered or certified mail, return receipt
requested, all charges prepaid. (f) Plural; Captions. All references in the Loan
Documents to Borrower, guarantor, person, document or other nouns of reference
mean both the singular and plural form, as the case may be, and the term
"person" shall mean any individual, person or entity. The captions contained in
the Loan Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents. (g) Binding Contract. Borrower
by execution of and Bank by acceptance of this Note agree that each party is
bound to all terms and provisions of this Note. (h) Advances. Bank in its sole
discretion may make other advances and readvances under this Note pursuant
hereto. (i) Posting of Payments. All payments received during normal banking
hours after 2:00 p.m. local time at the office of Bank first shown above shall
be deemed received at the opening of the next banking day. (j) Joint and Several
Obligations. Each person who signs this Note is a Borrower and is jointly and
severally obligated. (k) Fees and Taxes. Borrower shall promptly pay all
documentary, intangible recordation and/or similar taxes on this transaction
whether assessed at closing or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan Documents
("Disputes") between or among parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or claims arising out
of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
Preservation and Limitation of Remedies. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, Borrower, as of the day and year first above written, has
caused this Note to be executed under seal.
Insituform East, Incorporated, a Delaware corporation
Taxpayer Identification Number: 52-0905854
CORPORATE By: /s/ Robert W. Erikson
SEAL Robert W. Erikson, President
F536261
21736
INSITUFORM EAST, INCORPORATED
EXHIBIT 11.0 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Net earnings 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, 1996,
1995 and 1994 were computed as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
Issued shares of Common Stock and
<S> <C> <C> <C>
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 62,774 20,131 2,886
LESS: Weighted average shares of
treasury stock (327,897) (327,897) (327,897)
---------- ---------- ----------
Weighted average number of common shares
and common stock equivalents 4,419,636 4,376,993 4,359,748
========== ========== ==========
</TABLE>
EXHIBIT 23.0
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-60165 of Insituform East, Incorporated on Form S-8 of our report dated
September 20, 1996, appearing in this Annual Report on Form 10-K of Insituform
East, Incorporated for the year ended June 30, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Washington, D.C.
September 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
AUDITED BALANCE SHEET AS OF JUNE 30, 1996, AND THE COMPANY'S AUDITED STATEMENT
OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000355431
<NAME> Insituform East, Incorporated
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,183,084
<SECURITIES> 0
<RECEIVABLES> 6,398,942
<ALLOWANCES> 12,856
<INVENTORY> 1,159,532
<CURRENT-ASSETS> 12,074,039
<PP&E> 22,652,059
<DEPRECIATION> 11,642,743
<TOTAL-ASSETS> 23,189,355
<CURRENT-LIABILITIES> 3,365,438
<BONDS> 0
<COMMON> 187,390
0
0
<OTHER-SE> 16,351,462
<TOTAL-LIABILITY-AND-EQUITY> 23,189,355
<SALES> 30,470,867
<TOTAL-REVENUES> 30,470,867
<CGS> 22,288,437
<TOTAL-COSTS> 22,288,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,719
<INCOME-PRETAX> 2,752,557
<INCOME-TAX> 1,074,000
<INCOME-CONTINUING> 1,678,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,678,557
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
