FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31,June 30, 2000
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Commission file number #0-10786
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Insituform Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3032158
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
702 Spirit 40 Park Drive, Chesterfield, Missouri 63005
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(Address of Principal Executive Offices)
(636) 530-8000
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(Registrant's telephone number including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at MayAugust 1, 2000
- -------------------------- ---------------------------------
Class A Common Stock, 24,826,67324,817,519 Shares
$0.01 par value
INDEX
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Part I Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Part II Other Information and Signatures:
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
PART I. - FINANCIAL INFORMATION
----------------------------------------------------
ITEM 1. - FINANCIAL STATEMENTS
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Unaudited
March 31,June 30, 2000 December 31, 1999
--------------------------- -----------------
ASSETS
- ------
ASSETS
- ------
CURRENT ASSETS
--------------
Cash and cash equivalents $51,371$59,329 $68,183
Trade receivables, less allowance
for doubtful accounts of $2,970$2,600
and $3,096, respectively 60,52951,776 58,546
Retainage under construction contracts 13,50313,586 13,253
Costs and estimated earnings in excess
of billings 18,72430,458 12,372
Inventories 11,81013,566 12,525
Prepaid expenses and other 8,4783,753 9,493
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TOTAL CURRENT ASSETS 164,415172,468 174,372
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PROPERTY AND EQUIPMENT, less accumulated
depreciation 59,94163,664 54,188
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OTHER ASSETS
------------
Goodwill, less accumulated amortization of
$19,322$20,262 and $18,417, respectively 67,50367,144 64,077
Other assets 18,46717,196 18,988
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TOTAL OTHER ASSETS 85,97084,340 83,065
-------- --------
TOTAL ASSETS $310,326$320,472 $311,625
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
-------------------
Current maturities of long-term debt and
notes payable $23,715$18,753 $3,188
Accounts payable and accrued expenses 50,32955,319 51,004
-------- --------
TOTAL CURRENT LIABILITIES 74,04474,072 54,192
LONG-TERM DEBT, less current maturities 98,97298,947 114,954
OTHER LIABILITIES 1,1631,079 1,168
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TOTAL LIABILITIES 174,179174,098 170,314
-------- --------
MINORITY INTERESTS 2,6842,800 2,708
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STOCKHOLDERS' EQUITY -------- --------
--------------------
Preferred stock, undesignated, $.10 par -
shares authorized 2,000,000; none
outstanding - -
Common stock, $.01 par - shares authorized
40,000,000; shares outstanding 27,839,13928,059,610
and 27,787,862 278281 278
Additional paid-in capital 75,42678,364 74,809
Retained earnings 118,431126,806 112,338
Treasury stock - 3,128,2663,204,266 and 2,744,101
shares (55,254)(55,908) (45,118)
Cumulative foreign currency translation
adjustments (5,418)(5,973) (3,704)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 133,463143,574 138,603
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $310,326$320,472 $311,625
======== ========
See accompanying notes to consolidated financial statements.
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
For the Three Months For the Six Months
Ended March 31,June 30, Ended June 30,
--------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenue $94,283 $71,162$99,371 $85,640 $193,654 $156,802
Cost of revenue 63,913 47,01265,351 56,046 129,265 103,058
-------- -------- -------- --------
Gross profit 30,370 24,15034,020 29,594 64,389 53,744
Operating expenses 18,751 15,22218,730 16,761 37,481 31,983
-------- -------- -------- --------
Operating income 11,619 8,92815,290 12,833 26,908 21,761
Other expense:income (expense):
- --------------
Interest expense (2,400) (2,214)(2,303) (2,230) (4,703) (4,444)
Other income 1,102 927637 618 1,740 1,545
-------- -------- -------- --------
Total other expense (1,298) (1,287)income (expense) (1,666) (1,612) (2,963) (2,899)
Income before taxes on income 10,321 7,64113,624 11,221 23,945 18,862
Taxes on income 4,128 3,0925,450 4,607 9,578 7,699
-------- -------- -------- --------
Income before minority interests
and equity in earnings 6,193 4,5498,174 6,614 14,367 11,163
Minority interests in net income (135) (199)(114) (237) (249) (436)
Equity in earnings of affiliated
companies 35 (100)315 16 350 (84)
-------- -------- -------- --------
Net income $6,093 $4,250$8,375 $6,393 $14,468 $10,643
======== ======== ======== ========
Basic earnings per share $0.34 $0.25 $0.16$0.58 $0.41
======== ======== ======== ========
Diluted earnings per share $0.24 $0.16$0.33 $0.25 $0.57 $0.41
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(in thousands)
For the ThreeSix Months
Ended March 31,June 30,
2000 1999
---- ----
Cash flow from operating activities:
- ------------------------------------
Net income $6,093 $4,250$14,468 $10,643
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 4,515 4,6458,789 9,443
Other (367) 21613 266
Translation adjustments (1,582) 118(1,375) (1,170)
Deferred income taxes 214 (173)154 (166)
Changes in operating assets and liabilities,
net of assets acquired:
Receivables (8,957) 4,350(11,071) (327)
Inventories 657 1,395(1,171) 1,899
Prepaid expenses and other assets 971 (1,350)5,131 (1,384)
Accounts payable and accrued expenses (513) (8,489)4,566 1,402
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Net cash provided by operating activities 1,031 4,96219,504 20,606
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Cash flow from investing activities:
- ------------------------------------
Capital expenditures (9,196) (1,924)(16,402) (4,682)
Purchase of business, net of cash acquired (4,335) -(5,159) (11,771)
Other investing activities 559 3321,215 1,541
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Net cash used in investing activities (12,972) (1,592)(20,346) (14,912)
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Cash flow from financing activities:
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Proceeds from issuance of common stock 617 1,7963,558 2,734
Purchases of treasury stock (10,137) (13,858)(10,790) (18,287)
Repayments of long-term debt (532) (700)(569) (824)
Increase (decrease) in short-term borrowings 5,367 (466)414 (662)
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Net cash used in financing activities (4,685) (13,228)(7,387) (17,039)
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Effect of exchange rates changes on cash (186) (212)(625) (301)
-------- --------
Net decrease in cash and cash equivalents for
the period (16,812) (10,070)(8,854) (11,646)
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Cash and cash equivalents, beginning of period 68,183 76,904
-------- --------
Cash and cash equivalents, end of period $51,371 $66,834$59,329 $65,258
======== ========
Supplemental disclosures of cash flow information:
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2000 1999
---- ----
Cash paid during threesix months ended March 31,June 30, for:
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Interest $4,513 $4,351$4,639 $4,381
Income taxes $2,447 $2,520$8,301 $7,129
See accompanying notes to consolidated financial statements.
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31,June 30, 2000
1. GENERAL
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly
the financial position as of March 31,June 30, 2000 (unaudited), and the
unaudited results of operations for the
three months ended March 31, 2000 and 1999, and the cash flows for the threesix
months ended March 31,June 30, 2000 and 1999. The financial statements
have been prepared in accordance with the requirements of Form
10-Q and consequently do not include all the disclosures
normally made in an Annual Report on Form 10-K. Accordingly,
the consolidated financial statements included herein should
be reviewed in conjunction with the financial statements and
the footnotes thereto included in the Company's 1999 Annual
Report on Form 10-K.
The results of operations for the threesix months ended March
31,June 30,
2000 and 1999 are not necessarily indicative of the results to
be expected for the full year.
Certain prior year amounts in the consolidated financial
statements have been reclassed to conform to the current
year presentation.
2. COMPREHENSIVE INCOME
For both the quarters ended March 31,June 30, 2000 and 1999, comprehensive
income was $4.4 million.$7.8 million and $5.1 million, respectively. For
the six months ended June 30, 2000 and 1999, comprehensive
income was $12.2 million and $9.5 million, respectively. The
Company's adjustment to comprehensive income consists solely
of cumulative foreign currency translation adjustments.
3. EARNINGS PER SHARE
Earnings per share have been calculated using the following
share information:
Three Months Ended March 31,
2000 1999
---- ----
Weighted average number of common
shares used for basic EPS 24,768,553 25,967,417
Effect of dilutive stock options and
warrants 716,464 385,039
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Weighted average number of common
shares and dilutive potential
common stock 25,485,017 26,352,456
Three Months Ended June 30,
2000 1999
---- ----
Weighted average number of common
shares used for basic EPS 24,860,034 25,435,941
Effect of dilutive stock options and
warrants 775,311 551,949
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Weighted average number of common
shares and dilutive potential
common stock 25,635,345 25,987,890
========== ==========
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31,
Six Months Ended June 30,
2000 1999
---- ----
Weighted average number of common
shares used for basic EPS 24,814,062 25,700,211
Effect of dilutive stock options and
warrants 733,920 470,778
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Weighted average number of common
shares and dilutive potential
common stock 25,547,982 26,170,989
========== ==========
4. SEGMENT REPORTING
The Company has principally three operating segments:
rehabilitation, tunneling, and corrosion and abrasion
("TiteLiner(R)"). These operating units represent strategic
business units that offer distinct products and services and
serve different markets.correspond with the current organization structure.
The following disaggregated financial results have been
prepared using a management approach, which is consistent with
the basis and manner with which management internally
disaggregates financial information for purposes of assisting
in making internal operating decisions.
Financial information by segment is as follows (in thousands):
Three Months Ended March 31,June 30,
2000 1999
---- ----
Revenues
Rehabilitation $76,208 $55,431$76,502 $67,279
Tunneling 9,236 9,57312,930 11,005
TiteLiner(R) 8,839 6,1589,939 7,356
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Total Revenues $94,283 $71,162$99,371 $85,640
======= =======
Operating Income
Rehabilitation $8,384 $8,201$10,794 $11,929
Tunneling 1,173 1,0141,631 1,647
TiteLiner(R) 2,062 (287)2,865 (743)
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Total Operating Income $11,619 $8,928$15,290 $12,833
======= ======
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31,
Six Months Ended June 30,
2000 1999
---- ----
Revenues
Rehabilitation $152,710 $122,710
Tunneling 22,165 20,578
TiteLiner(R) 18,779 13,514
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Total Revenues $193,654 $156,802
======= =======
Operating Income
Rehabilitation $19,178 $20,130
Tunneling 2,804 2,661
TiteLiner(R) 4,926 (1,030)
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Total Operating Income $26,908 $21,761
======= ======
5. ACQUISITION
In February 2000, the Company acquired the rights to the
Insituform(R) Process and NuPipe(R) Process for the states of
New York and New Jersey, through the purchase of all of the
shares of the capital stock of Insituform(R) Metropolitan,
Inc. and the operating assets of certain of its affiliates.
The purchase price is estimated at $5.2 million, inclusive of
the closing payments. At closing, the Company paid the
sellers or delivered into escrow an aggregate of $4.3 million
in cash, in addition to assuming operating liabilities of the
acquired business. The remaining balance will be paid after
adjustments for net assets to be shown in a closing balance
sheet of the acquired business, which is expected during the
secondthird quarter of 2000.
6. LITIGATION
The Company is involved in certain litigation incidental to
the conduct of its business. In the Company's opinion, none
of these proceedings will have a material adverse effect on
the Company's financial position, results of operations and
liquidity. The financial statements include the estimated
amounts of liabilities that are likely to be incurred from
these and various other pending litigation and claims.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included in
the accompanying consolidated financial statements.
GENERAL
- -------
The Company's rehabilitation revenues are derived primarily from
direct installation and other contracting activities generated by
the Company's subsidiaries operating in the United States, Canada,
France, the United Kingdom, the Netherlands, Japan, Spain, Chile, and
Peru, and include product sales to, and royalties and license fees
paid by, the Company's unaffiliated
Insituform(R) licensees and sub-licensees
and its unaffiliated NuPipe(R) licensees. During the three years ended
December 31, 1999, 1998 and 1997, approximately 76.4%, 63.8% and
62.5%, respectively, of the Company's consolidated revenues
related to the Insituform(R) Process.
Statements contained in and preceding management's discussion and
analysis include various forward-looking information that is based
on data currently available to management and management's beliefs
and assumptions. When used in this document, the words
"anticipate," "estimate," "believes," "plans," and similar
expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements.
Such statements are subject to risks and uncertainties, and the
Company's actual results may vary materially from those
anticipated, estimated or projected due to a number of factors,
including, without limitation, the competitive environment for the
Company's products and services, the geographical distribution and
mix of the Company's work, and other factors set forth in reports
and other documents filed by the Company with the Securities and
Exchange Commission from time to time.
RESULTS OF OPERATIONS
- ---------------------
Three and Six Months Ended March 31,June 30, 2000 and 1999
Total revenues for the second quarter increased 32.5%16.0% to $94.3$99.4
million from $71.2$85.6 million in 1999. This contributed to an
increase in total revenues for the first half of 2000 of 23.5% to
$193.6 million from $156.8 million in the first half of 1999. The
principal reason for the increaseincreased volume in the second quarter
was strong underlyingthe continued growth in the Company's rehabilitation
operations which grew $20.8 million or 37.5% compared to the
same quarter in the prior year, of which most of the growth came
from the Company's North American
installation and tunneling operations. In addition, the Company's
TiteLiner(R) revenues increased $2.735.1% or $2.6 million over the
prior year's second quarter, and increased 38.9% or 43.5%
over last year's$5.3 million
for the first quarter.half of 2000 compared to the first half of 1999.
The Company's gross profit during the second quarter increased
25.8%15.0% to $30.4$34.0 million for
first quarter 2000 from $24.2$29.6 million in the firstsecond quarter of
1999, and during the first half of 2000 increased 19.8% to $64.4
million from $53.7 million during the first half of 1999. This
increase was primarily due to improved gross profitincreased revenues as well as
increased profitability from the Company's North American
rehabilitation operations, as well as from the
Company'sand TiteLiner(R) operations. The majority of the gross
profit improvement was due to the 32.5% growth in revenue. The overall gross
profit margin for firstthe second quarter of 2000 was 32.2%34.2% compared to
33.9%34.6% in the firstsecond quarter of 1999. The lower gross
profit margin1999, and for the first half of
2000 was primarily due33.2% compared to lower margins achieved34.3% in the Company's North American rehabilitation operations due to two
projects that accounted for approximately $8 million in revenues
with relatively lower margin work. These projects were
substantially completed atprior year.
In the end of the first quarter of 2000.
In firstsecond quarter 2000, operating costs and expenses increased
23.2%11.7% to $18.8$18.7 million from $15.2$16.8 million in the same quarter of
the prior year, and during the first half of 2000 increased 17.2%
to $37.5 million from $32.0 million in the priorsame period of last
year. Although operatingThis increase was primarily due to increased legal expense,
compensation costs increased, asand the additions of the New York, New Jersey,
Dutch and Spanish operations to expense in 2000.
As a percentage of revenues, operating costs decreased in the
firstsecond quarter of 2000 to 19.9%18.8% from 21.4%19.6% in the comparable
quarter of the prior year, as a resultand for the first half of revenues2000
decreased to 19.4% from 20.4% in the first half of 1999. This
decrease is primarily attributable to revenue volume increasing at
a higherfaster rate than operating expenses. The increased operating expenses
were primarily due to increases in North American rehabilitation
personnel to support and maintain the Company's growth
strategies. To a lesser extent, operating expenses increased
due to higher corporate legal expenses and the acquisition of
the licensees in New York and the Netherlands.costs.
Interest expense in firstthe second quarter of 2000 increased 8.4%3.3% to
$2.4$2.3 million from $2.2 million in the second quarter of 1999, and
for the first half of 2000 increased 5.8% to $4.7 million from
$4.4 million for the same period in the prior year. This increase
was primarily due to additional debt from the acquisition in June
1999 of the Company's Dutch licensee.
Other income in the second quarter of 2000 remained relatively
unchanged compared to second quarter 1999, due primarily
toand increased borrowings in the
Company's subsidiaries. Other
income increased in first quarterhalf of 2000 to $1.1$1.7 million from $0.9$1.5 million in the first
quarter 1999, due principallyhalf of 1999. This change was primarily related to increased
investment income resulting from investingan increased rate of return on
invested cash and cash equivalents atand a higher rate of return and gain from the sale of
equipment in the Company's TiteLiner(R) operations in Latin
America.
In the firstsecond quarter of 2000, taxes on income increased 33.5%18.3% to
$4.1$5.5 million from $3.1$4.6 million in 1999 due principally to a 35.1%21.4%
increase in income before taxes. In the first half of 2000, taxes
on income increased 24.4% to $9.6 million from $7.7 million in the
first half of 1999 due primarily to a 27.0% increase in income
before taxes. The Company's 2000 effective tax rate decreased to
40.0%40%, as compared to 40.5%40.8% in 1999.
In the firstsecond quarter of 2000, minority interest in net income
decreased 32.2% to $0.1 million from $0.2 million in 1999, and for the
first half of 2000 decreased to $0.2 million from $0.4 million for
the first half of 1999. This decrease was due primarily to the
Company acquiring a larger portion ofCompany's increased ownership in Insituform Linings Plc, the
Company's manufacturing operation in Europe. Equity earnings of
affiliated companies were $35,000$315,000 in the firstsecond quarter of 2000
as compared to $16,000 in earningsthe same period of 1999, and were
$350,000 for the first half of 2000 as opposed to a $100,000an $84,000 loss
infor the first quarterhalf of 1999,1999. This increase is due primarily to eliminating
the
earnings generated by the Company's contracting joint ventures in
the United States and Germany and the elimination of losses infrom
the Midsouth partnership from which the Company withdrew in the
third quarter of 1999.
As a result of the foregoing,above, net income for firstthe second quarter of
2000 increased 43.4%31% to $6.1$8.4 million, representing a 6.5%an 8.4% return on
revenue, compared to $4.3$6.4 million for firstthe second quarter of 1999,
when a 6.0%7.5% return on revenue was achieved. For the first half of
2000, net income increased 36% to $14.5 million, or a 7.5% return
on revenue, compared to $10.6 million in the first half of 1999,
when a 6.8% return on revenue was achieved.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31,June 30, 2000, the balance of cash, U.S. Treasury bills, and
short-term investments was $51.4$59.3 million, compared to $68.2
million at December 31, 1999. The decrease in cash and cash
equivalents in 2000 resulted primarily from operation of the
Company's previously reported stock repurchase program, which used
cash in the amount of $10.1$10.8 million in the first quarterhalf of 2000,
along with capital spending of $9.2$16.4 million. In addition, $4.3$5.2
million was used to acquire the Company's licensee in New York and
New Jersey. These cash outlays were partially offset somewhat by the
Company's continued strong positive generation of cash from
operating activities of $1.0$19.5 million and an increase in short-term borrowingsproceeds from the
issuance of $5.4
million, used primarily to fund acquisitions for real estate and
other capital requirements.common stock upon exercise of stock options of $3.6
million. Working capital was $90.4$98.4 million at March 31,June 30, 2000,
compared to $120.2 million at December 31, 1999. The decrease was
partiallyprimarily due to recording an increase in current maturities of
debt of $15.7$15.6 million relatedequal to the first principal payment, due
February 2001, on the Company's Senior Notes, (first installment dueSeries A (final
maturity February 2001)14, 2007) (the "Senior Notes").
Trade receivables, together with costs and estimated earnings in
excess of billings and retainage under construction contracts,
increased 10.2%13.8% to $92.8$95.8 million from $84.2 million at December
1999, while revenues grew at 5.0% compared to fourth quarter of
last year.1999. The collection of installation receivables involves
contractual provisions for retainage by the project owner, often
5% to 15% of the contract amount, which extends the collection
process. Collections are also sometimes further prolonged by the
slow review processes often employed by the Company's municipal
customers. In the United States, retainage receivables are
generally received within 60 to 90 days after the completion of a
contract.
Capital expenditures were $9.2$16.4 million in the first quarterhalf of 2000,
compared to $1.9$4.7 million in the first quarterhalf of 1999. The majority
of the increase in capital expenditures represents acquisitions ofadditional
equipment and real estate in the St. Louis area, totaling
approximately $3.0 million, and additional equipment to implement the Company's growth
strategies and improvements in
productivity. Routine capital expenditures generally reflect
replacement equipment required by the Company's contracting
operations.
productivity improvements.
In February 2000, the Company acquired the rights to the
Insituform(R) Process and NuPipe(R) Process for the states of New
York and New Jersey, through the purchase of all of the shares of
the capital stock of InsituformInsituform(R) Metropolitan, Inc. and the
operating assets of certain of its affiliates. At closing, the
Company paid the sellers or delivered into escrow an aggregate of
$4.3 million in cash, in addition to assuming operating
liabilities of the acquired business. The remainder of the
purchase price (which is estimated at $5.2 million, inclusive of
the closing payments) will be paid after adjustments for net
assets to be shown in a closing balance sheet of the acquired
business, which is expected during the secondthird quarter of 2000. In
July 2000, Insituform Italia s.r.l., a newly formed joint venture
of the Company and Per Aarsleff A/S, acquired Italcontrolli Nord
s.r.l., the Insituform(R) Process licensee in Italy.
Financing activities used $4.7$7.4 million in the first quarterhalf of 1999,2000,
as compared to cash used of $13.2$17.0 million in the first quarterhalf of
1999. In mid-1998, the Company authorized the repurchase of up to
2,700,000 shares of the Company's class A common stock, $.01 par
value ("Common Stock"), to be made from time to time over five
years in open market transactions. The amount and timing of
purchases will be dependent upon a number of factors, including
the price and availability of the Company's shares, general market
conditions and competing alternative uses of funds, and may be
discontinued at any time. In October 1999, the Company increased
the original authorization by an additional 2,000,000 shares of
Common Stock through the period ending June 2003. During the threesix
months ended March 31,June 30, 2000, the Company used cash in the amount of
$10.1$10.8 million for the repurchase of 384,165460,165 shares. The Company
has used cash in the cumulative amount of $52.0$53.9 million for the
repurchase of 2,872,4652,948,465 shares through March 31,June 30, 2000 since
inception of the stock repurchase program. The repurchased shares
will be held as treasury stock.
In the first quarterhalf of 2000, the Company made principal payments
totaling $0.5$0.6 million relating to the Company's existing debt, as
compared to $0.7$0.8 million in the first quarterhalf of 1999. The Company
generated $0.6$3.6 million from the issuance of Common Stock from
stock options granted to employees and directors, as compared to
$1.8$2.7 million in the first quarterhalf of 1999.
The Company's $110 million principal amount of Senior Notes
Series A, due February 14, 2007 (the "Senior Notes") bear
interest, payable semi-annually in August and February of each
year, at the rate per annum of 7.88%. Each year, from February
2001 to February 2006, inclusive, the Company will be required to
make principal payments of $15.7 million, together with an
equivalent payment at maturity. The Senior Notes may be prepaid
at the Company's option, in whole or in part, at any time,
together with a make whole premium, and upon specified change in
control events each holder has the right to require the Company to
purchase its Senior Note without any premium thereon.
In March 2000, the Company entered into a new credit agreement
(the "Credit Agreement") whereby the lender will make available to
the Company up to $50,000,000 aggregate principal amount for
working capital and permitted acquisitions, including $30,000,000
available for standby and commercial letters of credit, on a
revolving basis through March 30, 2003, at which time principal
will be repayable. Interest on outstanding advances accrues, at
the election of the Company, at either the lender's prime rate,
the federal funds rate plus .5% or the lender's offshore rate plus
a margin ranging from .5% to 1.5% depending on the maintenance of
certain financial ratios, and beis payable quarterly. Upon
specified change in control events, the lender has the right to
require the Company to repay outstanding amounts without any
premium thereon. At the end of the firstsecond quarter of 2000, the
Company had $5.0 millionno amounts outstanding under the Credit Agreement. The proceeds were used to fund real
estate acquisitions and certain capital requirements during the
quarter.
The note purchase agreements pursuant to which the Senior Notes
were acquired, and the Credit Agreement, obligate the Company to
comply with certain financial ratios and restrictive covenants
that, among other things, place limitations on operations and
sales of assets by the Company or its subsidiaries, and limit the
ability of the Company to incur further secured indebtedness and
liens and of subsidiaries to incur indebtedness, and, in the event
of default, limit the ability of the Company to pay cash dividends
or make other distributions to the holders of its capital stock or
to redeem such stock. The Credit Agreement also obligates certain
of the Company's domestic subsidiaries to guaranty the Company's
obligations, as a result of which the same subsidiaries have also
delivered their guaranty with respect to the Senior Notes.
The Credit Agreement replaced an existing facility with the same
lender, under which the Company, until September 2001, had
access to a revolving line of up to $20,000,000 aggregate
principal amount, repayable on such date and accruing interest,
at the election of the Company, at either the lender's prime
rate or its LIBOR rate plus a margin ranging from .5% to 1.5%
depending on the maintenance of certain financial ratios.
In July 1999, the Company borrowed EUR 5,672,000 in order to
refinance a portion of the purchase price for its Dutch licensee.
Such amount is repayable in seven equal installments annually on
each July 31 beginning in 2000, and accrues interest, payable
quarterly, at the rate of 5.5% per annum.
Management believes its current working capital will be adequate
to meet its requirements for the foreseeable future.
MARKET RISK
- -----------
The Company conducts its rehabilitation activities on a worldwide
basis, giving rise to exposures related to changes in foreign
currency exchange rates. For example, foreign currency exchange
rate movements may create a degree of risk to the Company's
operations by affecting: (i) the U.S. dollar value of sales made
in foreign currencies, and (ii) the U.S. dollar value of costs
incurred in foreign currencies. In addition, the Company is
exposed to market risks related to changes in interest rates. The
Company's objective is to minimize the volatility in earnings and
cash flow from these risks.
The Company has selectively used, and will continue to use,
forward exchange contracts in order to manage its currency
exposure. Forward exchange contracts are executed by the Company
only with large, reputable banks and financial institutions and
are denominated in currencies of major industrial countries.
Given its assessment of such risk, the Company has not deemed it
necessary to offset any interest rate exposure. Furthermore, the
Company does not enter into transactions involving derivative
financial instruments for speculative trading purposes.
Based on the Company's overall currency exchange rate and interest
rate exposure at March 31,June 30, 2000, a 10% weakening in the U.S. dollar
across all currencies or 10% increase in interest rates would not
have a material impact on the financial position, results of
operations or cash flows of the Company. These effects of
hypothetical changes in currency exchange rates and in interest
rates, however, ignore other effects the same movement may have
arising from other variables, and actual results could differ from
the sensitivity calculations of the Company. The Company
regularly assesses these variables, establishes policies and
business practices to protect against the adverse effects of
foreign currency and interest rate fluctuations and does not
anticipate any material losses generated by these risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
For information concerning this item, see "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk," which information is incorporated
herein by reference.
PART II. - OTHER INFORMATION
----------------------------
ITEM 1. LEGAL PROCEEDINGS
In previously reported proceedings initiated by the
Company and its subsidiary, Insituform (Netherlands) B.V., against
Insituform East, Inc. ("Insituform East"), Midsouth Partners
("Midsouth") and certain of their affiliates in the United States
District Court for the Middle District of Tennessee (Civil Action
No. 3-99-1130), plaintiffs in June 2000 amended their complaint to
seek: (i) a declaration that, as a consequence of non-curable
breaches thereof, the Company may terminate the non-exclusive
grant to an Insituform East subsidiary of the right to utilize the
Company's cured-in-place process and technology, in the condition
and state and limited to the assigned territory in which it was
commercially practiced under Midsouth's terminated Insituform(R)
Process license; (ii) the affirmation of cross-over payments under
Insituform East's licenses from the Company for any installation
work performed outside of the territory assigned, and within the
subject matter covered under such licenses; and (iii) a
declaration that, as a result of the termination of certain
Insituform Process licenses previously granted to companies that
have since been acquired by, and merged into, the Company, the
Company is not obligated to continue payment of certain finder's
fees to Insituform East that were to continue while the subject
licenses remained in effect. Defendants have filed an answer and
counterclaim denying the material allegations of the Company's
amended complaint and seek, among other things, declarations and
injunctions essentially the opposite of those requested by the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 25, 2000, the Company convened its Annual
Meeting of Stockholders (the "Annual Meeting").
(b) Not applicable because (i) proxies for the Annual
Meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934 together with the Company's Proxy
Statement dated April 17, 2000 (the "Proxy Statement"); (ii) there
was no solicitation in opposition to management's nominees as
listed in the Proxy Statement and (iii) all of such nominees were
elected.
(c) At the Annual Meeting, the stockholders voted in
favor of a proposal to approve an amendment to the Company's
Restated Certificate of Incorporation to increase the number of
authorized shares of the Common Stock of the Company from
40,000,000 shares to 60,000,000 shares. The holders of 21,241,243
shares voted in favor of, the holders of 1,464,640 shares voted
against, the holders of 77,689 shares abstained and there were no
broker non-votes with respect to approval of such proposal.
At the Annual Meeting, the stockholders voted in favor of
a proposal to approve and adopt an amendment to the Company's 1992
Employee Stock Option Plan to increase the number of shares of the
Company's Common Stock, issuable pursuant to the exercise of
options from 1,850,000 shares to 2,850,000 shares of Common Stock.
The holders of 16,680,692 shares voted in favor of, the holders of
2,766,930 shares voted against, the holders of 87,494 shares
abstained and there were 3,248,456 broker non-votes with respect
to approval and adoption of such proposal.
At the Annual Meeting, the stockholders voted in favor of
a proposal to approve and adopt an amendment to the Company's 1992
Director Stock Option Plan to increase the number of shares of
Common Stock issuable pursuant to the exercise of options from
1,000,000 shares to 1,500,000 shares of Common Stock. The holders
of 17,751,737 shares voted in favor of, the holders of 1,691,974
shares voted against, the holders of 91,405 shares abstained and
there were 3,248,456 broker non-votes with respect to approval and
adoption of such proposal.
At the Annual Meeting, the stockholders voted in favor of
management's nominees for election as directors of the Company.
The holders of 21, 963,209 shares voted in favor of, and holders
of 820,363 shares withheld their vote for, the election of Robert
W. Affholder; the holders of 21,963,309 shares voted in favor of,
and holders of 820,263 shares withheld their vote for, the
election of Paul A. Biddelman; the holders of 21,962,964 shares
voted in favor of, and holders of 820,608 shares withheld their
vote for, the election of Stephen P. Cortinovis; the holders of
21,963,194 shares voted in favor of, and holders of 820,378 shares
withheld their vote for the election of Juanita H. Hinshaw; the
holders of 21,963,309 shares voted in favor of, and holders of
820,263 shares withheld their vote for, the election of Anthony W.
Hooper; the holders of 21,942,209 shares voted in favor of, and
holders of 841,363 shares withheld their vote for, the election of
Thomas N. Kalishman; the holders of 21,963,009 shares voted in
favor of, and holders of 820,563 shares withheld their vote for,
the election of Sheldon Weinig; the holders of 21,963,309 shares
voted in favor of, and holders of 820,263 shares withheld their
vote for, the election of Russell B. Wight, Jr.; and the holders
of 21,962,964 shares voted in favor of, and holders of 820,608
shares withheld their vote for, the election of Alfred L. Woods.
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this Quarterly Report
on Form 10-Q are listed on the annexed Index to Exhibits.
(b) During the quarter ended March 31,June 30, 2000, the Company
filed adid not file any Current ReportReports on Form 8-K dated February 2,
2000, which, under "Item 5. Other Events" thereunder, reported
its acquisition of the rights to the Insituform(R) Process and
NuPipe(R) Process for the states of New York and New Jersey. No
financial statements were filed as part of such report.8-K.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INSITUFORM TECHNOLOGIES, INC.
May 11,August 3, 2000 By: s/Joseph A. White
---------------------------------
Joseph A. White
Vice President - Chief Financial Officer
Principal Financial and
Accounting Officer
INDEX TO EXHIBITS
------------------
10.13.1 - Multicurrency Credit Agreement datedRestated Certificate of Incorporation, as of March 30,
2000 between the Company and Bank of America, N.A.
10.2 - Master Guaranty dated March 30, 2000 executed by the
Company and those subsidiaries of the Company party
thereto to Bank of America, N.A.
10.3 - Second Amendment dated as of March 30, 2000 to the
Note Purchase Agreements, each dated as of February
14, 1997, between the Company and the purchasers
parties thereto (the "Noteholders").
10.4 - Amended and Restated Intercreditor Agreement dated as
of March 30, 2000 between the Noteholders and Bank of
America, N.A.amended.
27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and is not filed.