UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________ to _________________________
Commission file number: 0-10800
INSITUFORM EAST, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 52-0905854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3421 Pennsy Drive 20785
Landover, Maryland (Zip Code)
(Address of principal executive offices)
Registrant's telephone and fax numbers, including area code:
(301) 386-4100 (tel)
(301) 386-2444 (fax)
(301) 773-4560 (24-hour public information Fax Vault System)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of November 1, 1999, 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
<PAGE>
TABLE OF CONTENTS
Page Reference
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1999 and 1998 (Unaudited) 3
Condensed Consolidated Balance Sheets
September 30, 1999 and June 30, 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INSITUFORM EAST, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
<S> <C> <C>
Sales $ 7,314,454 $ 6,047,942
Costs and Expenses:
Cost of sales 6,119,386 5,050,451
Selling, general and administrative 1,110,103 1,039,826
Total Costs and Expenses 7,229,489 6,090,277
Earnings (Loss) from Operations 84,965 (42,335)
Investment Income 9,683 24,740
Interest Expense (58,221) (12,705)
Other Income 39,301 55,605
Earnings Before Income Taxes
and Non-owned Interests 75,728 25,305
Non-owned Interests in Pretax Loss
of Midsouth Partners 19,889 61,623
Earnings Before Income Taxes 95,617 86,928
Provision for Income Taxes 37,000 34,000
Net Earnings $ 58,617 $ 52,928
Basic Earnings Per Share $ 0.01 $ 0.01
Diluted Earnings Per Share $ 0.01 $ 0.01
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
INSITUFORM EAST, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 809,075 $ 793,187
Accounts receivable - net of allowance
for doubtful accounts of $0 7,868,183 6,588,435
Inventories - raw materials 1,149,239 1,273,402
Prepaid and refundable income taxes 87,677 93,532
Prepaid expenses 268,451 303,752
Total Current Assets 10,182,625 9,052,308
Property, Plant and Equipment - at cost less accumulated
depreciation of $15,841,810 and $15,283,598 11,542,111 11,424,630
Cash Surrender Value of SERP Life Insurance 149,190 73,785
Other Assets 44,445 26,000
Total Assets $21,918,371 $20,576,723
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to CERBCO, Inc. $ 4,200,000 $ 1,800,000
Partner loans to Midsouth Partners 0 400,000
Accounts payable 1,478,157 1,366,483
Accrued compensation and related expenses 1,463,748 1,361,115
Income taxes payable 15,724 14,724
Current portion of capital lease obligations 38,696 42,167
Total Current Liabilities 7,196,325 4,984,489
Deferred Income Taxes 255,000 219,000
Long-Term Capital Lease Obligations 56,356 62,662
Accrued SERP Liability 65,720 55,623
Total Liabilities 7,573,401 5,321,774
Non-owned Interests in Consolidated Subsidiary 0 968,596
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 11,346,769 11,288,152
15,534,583 15,475,966
Less cost of 327,897 shares of common stock in treasury 1,189,613 1,189,613
Total Stockholders' Equity 14,344,970 14,286,353
Total Liabilities and Stockholders' Equity $21,918,371 $20,576,723
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
INSITUFORM EAST, INCORPORATED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings $ 58,617 $ 52,928
Adjustments for noncash items included in net earnings:
Depreciation and amortization 578,563 485,971
Deferred income taxes 36,000 104,000
Non-owned interests in loss of consolidated subsidiary (19,889) (61,623)
Accrued SERP liability 10,097 26,572
Changes in assets and liabilities:
Receivables (1,279,748) (1,002,470)
Inventories 124,163 9,285
Other current assets 41,156 67,715
Payables and accruals 215,307 36,994
Net cash used in operating activities (235,734) (280,628)
Cash Flows from Investing Activities:
Purchase of remaining interests in Midsouth Partners (948,707) 0
Capital expenditures, net (694,489) (398,035)
Increase in cash surrender value of SERP life insurance (75,405) (80,299)
Increase in other assets (20,000) -
Net cash used in investing activities (1,738,601) (478,334)
Cash Flows from Financing Activities:
Proceeds from line of credit advances from CERBCO, Inc. 2,400,000 0
Repayment of partner loans by Midsouth Partners (400,000) 0
Principal payments under capital lease obligations (9,777) (8,008)
Net cash provided by (used in) financing activities 1,990,223 (8,008)
Net increase (decrease) in cash and cash equivalents 15,888 (766,970)
Cash and cash equivalents at beginning of period 793,187 2,148,511
Cash and cash equivalents at end of period $ 809,075 $ 1,381,541
Supplemental disclosure of cash flow information:
Interest paid $ 58,221 $ 12,705
Income taxes paid (refunded) $ (5,855) $ (87,598)
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
INSITUFORM EAST, INCORPORATED
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheet as of September 30, 1999, the
Condensed Consolidated Statements of Operations for the three months ended
September 30, 1999 and 1998, and the Condensed Consolidated Statements of Cash
Flows for the three months ended September 30, 1999 and 1998 have been prepared
by the Company without audit. The Condensed Consolidated Balance Sheet as of
June 30, 1999 (unaudited) has been derived from the Company's June 30, 1999
audited financial statements. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at September 30,
1999 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's June 30, 1999 audited financial statements.
The results of operations for the period ended September 30, 1999 are not
necessarily indicative of full year operating results.
2. Principles of Consolidation
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Insituform Ohio, Inc.; Insitu, Inc.;
Try Tek Machine Works, Inc.; Insituform of Pennsylvania, Inc.; Midsouth L.L.C.
and Midsouth Partners (majority-controlled prior to July 20, 1999). All
significant intercompany accounts and transactions have been eliminated.
3. Computation of Net Earnings Per Share
Basic earnings per share were computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Weighted
average shares of 4,356,862 were used in computing basic earnings per share for
the three months ended September 30, 1999 and 1998.
Diluted earnings per share were computed by dividing net earnings by the
weighted average number of common shares outstanding during the period including
common stock equivalents from dilutive stock options. Weighted average shares of
4,372,000 and 4,356,862 were used in computing diluted earnings per share for
the three months ended September 30, 1999 and 1998, respectively.
4. Acquisition of Remaining Interests in Midsouth Partners
Midsouth Partners was organized as Insituform Midsouth, a Tennessee general
partnership, on December 23, 1985, with the Company as a general partner.
Midsouth Partners was the exclusive licensee for the Insituform process and
NuPipe process in Tennessee, Kentucky (excluding Boone, Kenton and Campbell
counties) and northern Mississippi from December 2, 1985 through July 20,1999.
The Partnership's general partners through July 20, 1999 were Insitu, Inc., a
wholly-owned subsidiary of the Company; Insituform Technologies, Inc. ("ITI")
and Insituform Southwest, Inc., an affiliate of ITI.
Partnership profits and losses were allocated through July 20, 1999 to the
partners as follows:
Insitu, Inc. 42.5%
Insituform Technologies, Inc. 42.5%
Insituform Southwest, Inc. 15.0%
In March 1999, ITI gave notice of a purported termination of the Midsouth
Partners partnership, purportedly terminated Midsouth Partners' Insituform
License Agreement and simultaneously commenced litigation in the Chancery Court
of Delaware to deny Midsouth Partners any rights to further utilize
cured-in-place pipe ("CIPP") rehabilitation processes as previously practiced
under such license. In April 1999, Midsouth Partners responded to the Delaware
Chancery Court litigation and filed a demand for arbitration with the American
Arbitration Association.
The Company settled its disputes with ITI concerning Midsouth Partners
under the terms of an agreement executed July 20, 1999 (the "Midsouth Settlement
Agreement") and actions before the Delaware Chancery Court and the American
Arbitration Association were dismissed. Under the terms of the Midsouth
Settlement Agreement, a wholly-owned subsidiary of the Company purchased ITI's
interests in the Midsouth Partners partnership at book value and Midsouth
Partners remained entitled to continue the business of the partnership under its
present name. The Insituform(R) License Agreement and its requirement to pay
royalties were relinquished under the settlement, henceforth permitting direct
competition between ITI and Midsouth Partners. The Midsouth Settlement Agreement
expressly provides that Midsouth Partners may utilize processes other than the
Insituform process to perform pipe rehabilitation services, and Midsouth
Partners also obtained a royalty-free non-exclusive right, without limitation in
time and within the partnership's previously licensed territory, to continued
use of the cured-in-place pipe processes, technique and inventions that it
formerly practiced pursuant to its since-terminated Insituform(R) License
Agreement as the same existed on July 20, 1999.
Effective July 20, 1999, the Company; through its wholly-owned subsidiary,
Midsouth, L.L.C.; acquired the remaining 57.5% interests in Midsouth Partners
previously held by ITI and Insituform Southwest, Inc. for $948,707, the book
value of their respective partnership accounts on July 20, 1999. The acquisition
was accounted for as a purchase. Partnership pretax earnings and losses
attributable to these interests, previously allocated to non-owned interests in
consolidation, have been allocated to the Company subsequent to July 20, 1999.
Unaudited pro forma results of operations, assuming acquisition of the
remaining interests in Midsouth Partners had occurred as of July 1, 1998, are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
<S> <C> <C>
Sales $7,314,454 $6,047,942
Net Earnings $45,728 $15,305
Net Earnings per Share:
Basic $0.01 $0.00
Diluted $0.01 $0.00
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been recognized if the operations had been combined
during the periods presented and is not intended to be a projection of future
results.
5. Segment Reporting Information
In connection with the Company's acquisition of the remaining interests in
Midsouth Partners, the Company has determined that, subsequent to July 20, 1999,
the Company's operating activities consist of one reportable operating segment,
the trenchless rehabilitation of deteriorated sewers and other underground
pipelines principally using cured-in-place pipe ("CIPP") rehabilitation
processes. Prior to July 20, 1999, the Company's operating activities consisted
of two reportable operating segments, (i) Insituform East, Incorporated and its
wholly-owned subsidiary corporations (collectively, "East") and (ii) its
majority-controlled subsidiary partnership, Midsouth Partners. Since July 20,
1999, management and financial activities previously reported separately for
Midsouth Partners have been consolidated under East's management. In addition,
the former geographic segregation of rehabilitation services related to
separately licensed geographic territories for East and Midsouth Partners is no
longer applicable to the Company's consolidated rehabilitation activities.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview and Outlook
The Company reported consolidated net earnings of $58,617 ($0.01 per share)
on sales of $7.3 million for the first quarter of fiscal 2000 ended September
30, 1999. The Company recognized net earnings of $52,928 ($0.01 per share) on
sales of $6.0 million for the first quarter of fiscal 1999 ended September 30,
1998. The Company attributed the small increase in its modestly positive first
quarter fiscal 2000 results to the gain in gross profit contribution from
increased comparable period sales exceeding certain unbudgeted additions in
legal and other expenses during the quarter.
With respect to forward-looking information, and while there can be no
assurances regarding the Company's future operating performance, based on the
volume and mix of the Company's present and expected workable backlog of
customer orders, the Company presently anticipates that a combination of
additional sales at normal margins and increased production levels will be
required to sustain positive operating results through the remainder of fiscal
2000.
The Company's total backlog value of all uncompleted and multi-year
contract awards was approximately $31.1 million at September 30, 1999 as
compared to $23.2 million at September 30, 1998. The twelve-month backlog at
September 30, 1999 was approximately $10.8 million as compared to $9.8 million
at September 30, 1998. The total backlog value of all uncompleted and multi-year
contracts at September 30, 1999 and 1998 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. While potentially helpful as a possible trend indicator, backlog
figures at specific dates are not necessarily indicative of sales and earnings
for future periods due to the irregular timing and receipt of major project
awards including large, multi-year, menu-priced contracts with estimated but
uncertain order quantities further subject to the specifics of individual work
releases.
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
contractors with limited cured-in-place pipe ("CIPP") installation experience or
inferior products hoping that cheap price alone might permit them to succeed
against the Company's quality and time tested CIPP rehabilitation capability. In
that segment of the market where technical risk and the lowest priced product
may be deemed "good enough," the Company is at a disadvantage and market share
participation strategically undertaken by the Company in such segment, at levels
materially below normal margins, necessarily dilutes the Company`s overall
margin performance. Conversely, in the "best value" and quality-based market
segment, the Company's quality CIPP rehabilitation capability continues to
provide a distinct advantage. While both the Federal Government and industry
routinely use best value and quality-weighted contract award criteria in
technical procurements, municipalities and local governments are often
politically reluctant to modernize from simply "low bid" buying to "best value"
buying. In the face of mounting technical failures from awards based upon lowest
price, municipalities also are expected over time to reevaluate traditional
"low-bid" award criteria - in favor of "best value" award criteria - when
procuring trenchless technology for the rehabilitation of older pipelines.
<PAGE>
Results of Operations
Three Months Ended September 30, 1999 Compared with Three Months Ended
September 30, 1998
The Company recognized consolidated net earnings of $58,617 ($0.01 per
share) on sales of $7.3 million for the first quarter of fiscal 2000 ended
September 30, 1999 as compared to consolidated net earnings of $52,928 ($0.01
per share) on sales of $6.0 million for the first quarter of fiscal 1999 ended
September 30, 1998. The Company attributed the small increase in its modestly
positive first quarter fiscal 2000 results to the gain in gross profit
contribution from increased comparable period sales exceeding certain unbudgeted
additions in legal and other expenses during the quarter.
Sales increased $1.3 million (21%) from $6.0 million for the three months
ended September 30, 1998 to $7.3 million for the three months ended September
30, 1999, due primarily to increased sales in Company's licensed Insituform
territory.
Cost of sales increased 21% in the first quarter of fiscal 2000 as compared
to the first quarter of fiscal 1999. As a result, gross profit as a percentage
of sales was 16% of sales for both the first quarter of fiscal 1999 and the
first quarter of fiscal 2000. The consistent comparable period gross profit as a
percentage of sales figures are due in part to increased semi-fixed costs
incurred during the first quarter of fiscal 2000 to support increased
installation activities, to include support costs associated with the Company's
Ohio branch office reestablished in March 1999.
Selling, general and administrative expenses increased $70,277 (7%) for the
first quarter of fiscal 2000 as compared to the first quarter of fiscal 1999,
primarily as a result of additional legal costs associated with the future of
Midsouth Partners.
Financial Condition
During the three months ended September 30, 1999, the Company used $235,734
in cash in operating activities, due primarily to a $1.28 million increase in
Accounts Receivable that more than offset the impact of $579,000 in Depreciation
and Amortization expense included in net earnings that did not require the
outlay of cash. The increase in Accounts Receivable is due primarily to a
$940,000 increase in sales from the three months ended June 30, 1999 to the
three months ended September 30, 1999.
The Company maintains an unsecured intercompany line of credit with CERBCO,
Inc. This line of credit was increased from $3,000,000 to $4,500,000 on August
12, 1999 to finance the Company's purchase of the remaining partnership
interests in Midsouth Partners in connection with the Midsouth Settlement
Agreement. The Company received $2.4 million in proceeds from line of credit
advances from CERBCO, Inc. during the three months ended September 30, 1999.
During the first quarter of fiscal 2000, the Company expended $948,707 to
purchase remaining interests in Midsouth Partners, $400,000 to repay partner
loans to Midsouth Partners by former partners and $694,489 for installation
equipment and other capital additions. The Company's financial liquidity
remained adequate with working capital of $3.0 million and a current ratio of
1.4 at September 30, 1999.
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 remaining commitment available from the Company's
intercompany line of credit and the unencumbered real and personal property
owned by the Company provide adequate resources to finance cash requirements for
future capital expenditures.
Year 2000 Issues
The inability of present computerized systems to process dates beyond
December 31, 1999 and the potential impact on businesses and governments in the
future are generally referred to as "Year 2000 Issues."
The Company has implemented plans to address Year 2000 issues. Primary
areas of focus include the Company's information technology systems, the
Company's non-information technology systems, the Year 2000 readiness of the
Company's vendors and suppliers and the Year 2000 readiness of the Company's
major customers. Because the Company's primary products and services neither
include nor rely upon computerized components, the Company believes that there
are no additional contingencies associated with actual or implied warranties
related to its products and services resulting from Year 2000 issues.
With respect to the Company's information technology systems, the Company's
primary accounting and information processing system is Year 2000 ready and will
recognize years 2000 through 2029 in the proper century. The Company's
preliminary assessment of supporting information systems was that these systems
either were Year 2000 ready, could be modified to become Year 2000 ready, or
would not have a significant impact on either the primary accounting and
information system or the Company's operating activities should non-compliant
systems not be properly modified. Vendor-supplied modifications for supporting
information systems were implemented and tested prior to June 30, 1999, and are
believed to be Year 2000 ready.
With respect to the Company's non-information technology systems, the
Company is dependent on information from vendors and suppliers in assessing and
evaluating these systems. As potential Year 2000 issues were identified during
the preliminary assessment stage, implementation plans were developed and
executed. The Company initiated and completed corrective action for its office
telephone system and headquarters facility security system, two systems that
were identified as not being Year 2000 ready.
With respect to the Company's suppliers and customers, the Company has
initiated correspondence with selected critical suppliers and customers.
Responses received to date indicate that responding suppliers and customers
either are currently Year 2000 ready or expect to be Year 2000 ready by December
31, 1999. The Company will continue to seek to obtain responses from suppliers
and customers who have not as yet responded to inquiries and is monitoring Year
2000 readiness from respondents not as yet Year 2000 ready.
The Company currently estimates that the cost of implementing its Year 2000
Plan will not exceed $50,000. This estimate is based on presently available
information and may require future reassessment. Specifically, this estimate
would change if, after receipt of additional information from key suppliers or
customers, a modified contingency plan requires development and implementation.
The Company has incurred $27,000 in implementation costs through September 30,
1999.
There can be no assurances that the Company's Year 2000 Plan will be
successful. The Company is dependent on vendors to identify and correct Year
2000 issues related to the Company's utilities and equipment using computerized
components. In addition, if key vendors fail to provide materials critical to
its operations, or with sufficient electrical power or other utilities, or if
transportation of the Company's personnel and equipment is seriously impeded;
then any such failure or impedance could have a material adverse effect on the
operational performance and financial condition of the Company.
In addition, if major municipal, industrial or Federal government customers
are seriously affected, directly or indirectly, by Year 2000 issues such that
pipeline rehabilitation programs are delayed or abandoned, this too could have a
material adverse effect on the operational performance and financial condition
of the Company.
The Company established a contingency plan, effective June 30, 1999, based
primarily on potential actions that would be required if key vendors or
customers are unable to address and resolve Year 2000 issues that would directly
or indirectly impact the Company's ability to conduct normal business operations
in the Year 2000 and beyond. Specifically, the Company has identified potential
alternate vendors for critical installation materials, tube and resin, in case
primary tube and resin suppliers fail to provide materials critical to the
Company's operations. In addition, the Company intends to rely on the geographic
separation of its operations facilities and reallocate resources as necessary
should vendors fail to supply sufficient electrical power or other utilities to
an operations facility, or if transportation of the Company's personnel and
equipment is seriously impeded in a particular geographic area.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, on June 30, 1998, Inliner U.S.A. and CAT
Contracting, Inc. (collectively, "Plaintiffs") filed an antitrust suit against
Insituform Technologies, Inc. ("ITI"), Insituform East, Inc. and Insituform Gulf
South, Inc. (collectively, "Defendants") in United States District Court for the
Southern District of Texas, Houston Division, alleging violations by ITI
(including all of its subsidiary licensees), Insituform Gulf South, Inc. and the
Company of Sections 1 and 2 of the Sherman Act, Section 2 of the Clayton Act, as
amended by the Robinson-Patman Act, Section 43(a) of the Lanham Act, business
disparagement, tortious interference with contracts and prospective business
relationships, and unfair competition. Plaintiffs are seeking from the
Defendants an unspecified amount of compensatory damages, treble damages and
attorneys' fees, as well as punitive damages of $50 million. Plaintiffs'
allegations were consistent with the allegations contained in the Third Amended
Complaint of earlier litigation initiated October 23, 1996 and dismissed without
prejudice on June 18, 1998.
The Company believes it has strong defenses to, and is vigorously
contesting, the suit. On November 1, 1999, in response to a Court Order of
October 21, 1999, Plaintiffs responded by indicating that this case will be
dismissed with prejudice by Plaintiffs. In the October 21, 1999 Order, the Court
granted the Company's motion to compel the Plaintiffs to respond to its
discovery, ordering Plaintiffs to respond within ten days; and the Court denied
Plaintiff's counsel's motion to withdraw at this time, ordering Plaintiffs to
file a status report concerning their search for new counsel within ten days.
Although the ultimate outcome and consequences of the suit cannot be
ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of the management of the Company
that the suit is meritless and will not have a material adverse effect on the
financial condition or the results of operations of the Company.
The Company is a party to other 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 adverse effect on the financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed one Report on Form 8-K during the three months ended
September 30, 1999. This Report on Form 8-K, filed July 26, 1999, reported on
Item 5. Other Events. This report includes a copy of the Midsouth Settlement
Agreement effective as of July 20, 1999, and a related press release dated July
23, 1999. No financial statements were filed with this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSITUFORM EAST, INCORPORATED
(Registrant)
Date November 11, 1999 /s/ Robert W. Erikson
Robert W. Erikson
President
Date November 11, 1999 /s/ Raymond T. Verrey
Raymond T. Verrey
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED BALANCE SHEET AS OF SEPTEMBER 30, 1999, AND THE COMPANY'S UNAUDITED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 809,075
<SECURITIES> 0
<RECEIVABLES> 7,868,183
<ALLOWANCES> 0
<INVENTORY> 1,149,239
<CURRENT-ASSETS> 10,182,625
<PP&E> 27,383,921
<DEPRECIATION> 15,841,810
<TOTAL-ASSETS> 21,918,371
<CURRENT-LIABILITIES> 7,196,325
<BONDS> 0
<COMMON> 187,390
0
0
<OTHER-SE> 14,157,580
<TOTAL-LIABILITY-AND-EQUITY> 21,918,371
<SALES> 7,314,454
<TOTAL-REVENUES> 7,314,454
<CGS> 6,119,386
<TOTAL-COSTS> 6,119,386
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</TABLE>
