UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 0-10786
INSITUFORM TECHNOLOGIES, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3032158
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
702 Spirit 40 Park Drive
Chesterfield, Missouri 63005
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 636-530-8000
------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
------------------------------------
(Title of class)
Indicate by a 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 as 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 (Section 229.405 of
this chapter) 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. [ X ]
State the aggregate market value of the voting and non-
voting stock held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the price
at which the common stock was sold, or the average bid and asked
prices of such common equity, as of a specified date within 60
days prior to the date of filing.
Aggregate market value as of March 1, 2000..........$600,665,663
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable
date.
Class A Common Stock, $.01 par value,
as of March 1, 2000..................24,670,268 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are
incorporated by reference herein, and the part of the Form 10-K
into which the document is incorporated: Proxy Statement to be
filed with respect to the 2000 Annual Meeting of Stockholders-Part
III.
PART I
ITEM 1. BUSINESS
General
Insituform Technologies, Inc. (the "Company") is a worldwide
provider of proprietary trenchless technologies for the
rehabilitation and improvement of pipelines. The Company's primary
technology is the Insituform(R) Process (the "Insituform
Process"), a "cured-in-place," non-disruptive pipeline
rehabilitation process that, during the Company's most recent
fiscal year, contributed approximately 76% of the Company's
revenues.
In addition to the Insituform Process, the Company offers
certain other products in trenchless pipeline system
rehabilitation. The Company's NuPipe(R) Process (the "NuPipe
Process"), which utilizes a "fold and formed" technology, is used
primarily to repair smaller or less damaged pipe. During the year
ended December 31, 1999, the Company also acquired the remaining
rights to the Thermopipe(R) System (the "Thermopipe Process"), a
process for rehabilitating potable water and other aqueous fluid
pipes previously licensed to the Company.
The Company's TiteLiner(R) Process (the "TiteLiner Process")
is used to line new and existing steel pipe. Through its
Affholder, Inc. subsidiary, the Company is engaged in trenchless
tunnelling used in the installation of new underground pipelines.
The Company was incorporated in Delaware in 1980 under the
name Insituform of North America, Inc., in order to act as the
exclusive licensee of the Insituform Process in most of the United
States, and to license other companies to market and provide
Insituform installation services in return for royalties and sales
from materials manufactured by the Company. Contemporaneously with
the consummation in 1992 of the Company's acquisition of its
licensor, the name of the Company was changed to Insituform
Technologies, Inc. As a result of its successive licensee
acquisitions, the Company has further integrated its business to
perform the entire process of manufacture and installation using
its trenchless processes.
As used in this Annual Report on Form 10-K, the term the
"Company" refers to the Company and, unless the context otherwise
requires, its direct and indirect subsidiaries. For certain
information concerning each of the Company's industry segments and
domestic and foreign operations, see Note 14 of the Notes to the
Company's Consolidated Financial Statements included in response
to "Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K," which information is incorporated herein by
reference.
This Annual Report on Form 10-K contains various forward
looking statements and information that are based on information
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.
Technologies
Pipeline System Rehabilitation. The Insituform Process for
the rehabilitation of sewers, pipelines and other conduits
utilizes a custom-manufactured tube, or liner, made of a synthetic
fiber. After the tube is saturated (impregnated) with a
thermosetting resin mixture, it is installed in the host pipe by
various processes and the resin is then hardened, usually by
heating it by various means, forming a new rigid pipe within a
pipe.
The Company's NuPipe Process entails the manufacture of a
folded replacement pipe from a thermoplastic material which is
stored on a reel in a reduced shape. The pipe is heated at the
installation site in order to make it flexible enough to be
inserted into an existing conduit, pulled into place and then
sequentially expanded to match the existing conduit by internal
heat and pressure and progressive rounding, creating a tight fit
against the conduit being repaired.
See "Patents and Licenses" below for information concerning
the Thermopipe Process, which was not material to the Company's
results of operations during the year ended December 31, 1999.
Corrosion and Abrasion Protection. The Company's TiteLiner
Process is a method of lining new and existing steel pipe with a
corrosion and abrasion resistant polyethylene pipe.
Tunnelling. Tunnelling is a trenchless, subterranean
construction process that the Company utilizes to construct new
pipes from two to fourteen-foot diameter in size.
Rehabilitation Activities
The Company conducts its rehabilitation activities
principally through direct installation and other construction
operations performed through wholly-owned and, in some cases,
majority-owned subsidiaries. In addition, in those areas of the
world in which the Company's management believes it would not be
profitable for the Company to exploit its trenchless processes
directly, the Company has granted licenses to unaffiliated
companies. As described under "Ownership Interests in Licensees"
below, the Company has also entered into joint ventures from time
to time to encourage additional royalties, sales of its products
and exploitation of its trenchless rehabilitation processes.
The Company's principal rehabilitation activities in North
America are conducted directly or through subsidiaries which hold
the Insituform Process and NuPipe Process rights for substantially
all of 44 of the 50 states, in addition to Puerto Rico and the
U.S. Virgin Islands, and the rights to the Thermopipe Process. In
July 1999, the Company withdrew from its participation in Midsouth
Partners, a joint venture that conducted Insituform Process and
NuPipe Process operations in Tennessee, Kentucky and portions of
Mississippi, and the Company expanded its activities to cover this
territory. See "Ownership Interests in Licensees" below. In
February 2000, the Company acquired the operations of Insituform
Metropolitan, Inc. and certain of its affiliates, the Company's
licensees in the states of New York and New Jersey, and has
integrated these territories into its rehabilitation activities.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources."
Outside of North America, the Company conducts Insituform
Process or NuPipe Process direct installation operations through
its subsidiaries in the United Kingdom, France, Spain and the
Netherlands. The Company's Dutch operation was acquired in June
1999 through the purchase of the stock of the Company's licensee
in the Netherlands, now named Insituform Rioolrenovatietechnieken
B.V. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and
Capital Resources." Through the operations of its French
subsidiary, Video Injection S.A. ("Video Injection"), acquired in
1998, the Company utilizes multifunctional robotic devices
developed by Video Injection in connection with the inspection and
repair of pipelines.
North American rehabilitation operations are headquartered in
Chesterfield, Missouri, with principal operations facilities
maintained in approximately 13 locations geographically dispersed
through all major regions. European operations are headquartered
in La Courneuve, France, with regional operations facilities
located in the United Kingdom and the Netherlands.
The worldwide rights to the TiteLiner Process are applied by
the Company through its United Pipeline System division, which
offers corrosion and abrasion protection work worldwide.
The Company's Affholder, Inc. subsidiary, in addition to
tunnelling, offers a range of pipe system rehabilitation services.
The direct installation business of the Company is
project-oriented, and contracts may be obtained through
competitive bidding, usually requiring performance at a fixed
price. The profitability of these operations to the Company
depends upon the ability to estimate costs accurately, and such
estimates may prove to be inaccurate as a result of unforeseen
conditions or events. A substantial proportion of the work on any
given project may be subcontracted out to third parties by the
Company.
Proper trenchless installation requires certain expertise
that is acquired on the job and through training, and, if an
installation is improperly performed, the Company may be required
to repair the defect, which may involve excavation. The Company,
accordingly, has incurred significant costs in establishing new
field installation crews, in training new operations personnel and
in equipping its direct installation staff. The Company generally
invoices installation revenues on a percentage-of-completion
basis. Under ordinary circumstances, collection from governmental
agencies in the United States is made within 60 to 90 days of
billing. In some cases, five to 15 percent of the contract value
is withheld by the owner until testing is completed or the
warranty period has expired.
The Company is required to carry insurance and bonding in
connection with certain direct installation projects and,
accordingly, maintains comprehensive insurance policies, including
workers' compensation, general and automobile liability, and
property coverage. The Company believes that it presently
maintains adequate insurance coverage for all direct installation
activities. The Company has also arranged bonding capacity for
bid, performance and payment bonds. Typically, the cost of a
performance bond is less than approximately 1% of the contract
value. The Company is required to indemnify surety companies for
any payments the sureties are required to make under the bonds.
The Company's principal rehabilitation activities are
conducted through subsidiaries that are less than wholly-owned as
follows:
Subsidiary Interest
---------- --------
Insituform France 66-2/3% of stock(1)
S.A.
United Pipeline 55% of stock (2)
de Mexico, S.A.
Video Injection 80% of stock (3)
S.A.
- ----------------------
(1) The remaining interest is held by a subsidiary of Suez-Lyonnaise des Eaux
S.A.
(2) The remaining interest is held by a subsidiary of Produtos y Servicios
Miller de Mexico, S.A.
(3) The remaining interest is held by the subsidiary's principal employees
and is subject to purchase by the Company in September 2003 (or earlier
in specified events).
The Company's rehabilitation activities also extend to the
grant of licenses for the Insituform Process and the NuPipe
Process, covering exclusive and non-exclusive territories, to
licensees who provide pipeline repair and rehabilitation services
throughout their respective licensed territories. The licenses
generally grant to the licensee the right to utilize the know-how
and practice the invention of the patent rights (where they exist)
relating to the subject process, and to use the Company's
copyrights and trademarks. At present, the Insituform Process is
commercialized under license by an aggregate of 31 unaffiliated
licensees and sublicensees, and the NuPipe Process is commercial-
ized under license by an aggregate of six unaffiliated licensees.
The Company's licensees generally are obligated to pay a
royalty at a specified rate, which in many cases is subject to a
minimum royalty payment. Domestic licensees are also obligated to
pay specified royalty surcharges on their sales and contracts
outside of their licensed territories, which are then paid by the
Company to the domestic licensee in whose territory the
installation was performed. Any improvements or modifications a
licensee may make in the subject process during the term of the
license agreement becomes the property of the Company or are
licensed to the Company. Should a licensee fail to meet its
royalty obligations or other material obligations, the Company may
terminate the license. Many licensees (including the domestic
licensees), upon prior notice to the Company, may also terminate
the license for any reason. The Company may vary the agreement
used with new licensees according to prevailing conditions.
As a result of the Company's acquisition of the remaining
rights to the Thermopipe Process in December 1999, the Company
assumed the obligations as licensor under arrangements relating to
the use of the system in Germany, on an exclusive basis, and in
the United Kingdom, on a non-exclusive basis.
Ownership Interests in Licensees
The Company, through its subsidiary, Insituform Holdings (UK)
Limited, holds one-half of the equity interest in Insituform
Rohrsanierungstechniken GmbH ("IRT"), the Company's licensee of
the Insituform and NuPipe Processes in Germany. The remaining
interest is held by Per Aarsleff A/S, a Danish contractor ("Per
Aarsleff"). The joint venture partners have rights--
of-first-refusal in the event either party determines to divest
its interest.
The Company holds additional ownership interests in licensees
as follows:
Licensee Processes Territory Interest
- -------- --------- --------- --------
N.V. Kumpen-Insituform Insituform Belgium, 50% joint venture
Luxembourg interest(1)
Ka-Te Insituform A.G. Insituform Switzerland, 50% joint venture
Liechtenstein and interest(2)
Voralberg, Austria
_____________________
(1) The remaining interest is held by N.V. Kumpen.
(2) The remaining interest is held by Ka-Te Holding A.G.
The Company has also entered into several contractual joint
ventures in order to develop joint bids on contracts for its
direct installation business, and for tunnelling operations. The
Company continues to investigate opportunities for expanding its
business through such arrangements.
In July 1999, following the Company's notice of termination
of its joint venture with Insituform East Inc. ("Insituform
East"), an unaffiliated licensee, the Company entered into a
settlement agreement with Insituform East providing for dismissal
of pending actions before the Delaware Chancery Court and the
American Arbitration Association. Under the settlement, the
Company and its subsidiary withdrew from the joint venture, which
does business under the name Midsouth Partners ("Midsouth"), and
the licenses from the Company to Midsouth with respect to the
Insituform Process and the NuPipe Process were terminated. Until
settlement, Midsouth had operated under its licenses from the
Company in a territory consisting of Tennessee and portions of
Mississippi and Kentucky. Pursuant to the settlement, Insituform
East paid the amount of $1,200,000 to the Company, equal to the
book value of the interests of the Company and its subsidiary in
Midsouth, and repaid to the Company outstanding loans to Midsouth
in the amount of $400,000.
The settlement expressly provides that the Company and its
affiliates and licensees may operate in Midsouth's former
exclusive territory without any obligation to Insituform East or
its affiliates. Under the settlement, a subsidiary of Insituform
East retains a non-exclusive right in Midsouth's former territory
to utilize the cured-in-place process and technology in the
condition and state as commercially practiced under Midsouth's
license on the date of settlement. The settlement further provides
that such subsidiary: (i) retains no rights to use the trademark
"Insituform"; (ii) is not entitled to receive from the Company any
further improvements or modifications to the cured-in-place
process or technology, nor any technical or marketing support; and
(iii) may not use any of the rights granted outside of such
territory unless such use is inadvertent and de minimis. Any
breach of the foregoing limitations results in immediate
abrogation of the rights granted. See "Item 3. Legal Proceedings"
for information describing subsequent litigation initiated by the
Company alleging breaches by Insituform East of the settlement.
Marketing
The Company has focused the marketing of its rehabilitation
technologies primarily on the municipal wastewater markets
worldwide, which the Company expects to remain the largest part of
its business for the foreseeable future. The Company produces
sales literature and presentations, participates in trade shows,
conducts national advertising and executes other marketing
programs for the Company's own sales force and those of
unaffiliated licensees.
As a result of its acquisitions, the Company's distribution
efforts are implemented predominantly through the direct
installation activities of its subsidiaries. See "Rehabilitation
Activities" above for a description of the Company's licensing
operations and "Ownership Interests in Licensees" for a
description of investments in licensees. The Company's
unaffiliated licensees are responsible for marketing and sales
activities in their respective territories, and each has a staff
for that purpose.
The Company offers its corrosion and abrasion protection
technologies worldwide to line new and existing steel pipelines.
No customer accounted for more than ten percent of the
Company's consolidated revenues during the years ended December
31, 1999, 1998 and 1997, respectively.
Backlog
At December 31, 1999 and 1998, respectively, the Company
recorded backlog from construction operations (excluding projects
where the Company has been advised that it is the low bidder) in
the amounts of approximately $132.3 million and $109.3 million,
respectively. The Company anticipates that substantially all
construction backlog recorded at December 31, 1999 will be
completed in 2000.
Product Development
The Company, by utilizing its own laboratories and test
facilities and outside consulting organizations and academic
institutions, continues to develop improvements to its proprietary
processes, including the materials used and the methods of
manufacturing and installing pipe. During the years ended December
31, 1999, 1998 and 1997, the Company spent approximately $2.4
million, $2.2 million and $2.2 million, respectively, on all
research and development activities.
Manufacturing and Suppliers
The Company maintains its principal North American liner
manufacturing facility in Batesville, Mississippi, with an
additional facility located in Memphis, Tennessee. In Europe,
Insituform Linings Plc ("Linings"), a majority-owned subsidiary,
manufactures and sells linings from its plant located in
Wellingborough, United Kingdom. As a result of the Company's
acquisition in June 1999 of its Dutch licensee and of certain
share repurchases effectuated by Linings in November 1999, the
Company now holds 75% of the interest in Linings and Per Aarsleff
the remainder, all of which remain subject to rights-of-first
refusal held by the Company and the other shareholder in the event
of any proposed disposition. The Company also maintains a liner
manufacturing facility in Matsubuse, Japan.
While raw materials used in the Company's Insituform products
are typically available from multiple sources, the Company's
historical practice has been to purchase materials from a limited
number of suppliers. The Company maintains its own felt
manufacturing facility contiguous to its Insitutube manufacturing
facility in Batesville, and purchases substantially all of its
fiber requirements from one source, alternate vendors of which the
Company believes are readily available. Although it has worked
with one vendor to develop a uniform and standard resin to source
substantially all of its resin requirements in North America, the
Company believes that resins are also readily available from a
number of major corporations should there be a need for
alternative resin sourcing. The Company believes that the sources
of supply in connection with its Insituform operations are
adequate for its needs.
The Company purchases the thermoplastic pipe to satisfy the
substantial portion of its NuPipe requirements from an
unaffiliated party. The Company believes that alternative sources
of supply for its pipe requirements in connection with the NuPipe
Process are available. If the Company were unable to obtain its
NuPipe requirements under its existing third party arrangements,
the Company might be adversely affected until arrangements with
alternative sources are formulated.
Under its arrangements for the acquisition of the Thermopipe
Process, the seller will to continue to manufacture and supply
Thermopipe products to the Company over a period of five years.
The Company sells liners and related products utilized in the
Insituform Process, and the thermoplastic pipe utilized in the
application of the NuPipe Process, to its licensees, when
appropriate pursuant to fixed-term supply contracts. Under the
arrangements assumed in connection with the acquisition of the
Thermopipe Process, the Company also furnishes Thermopipe products
to its approved contractors and licensees.
The Company manufactures certain equipment used in its
corrosion and abrasion protection operations, and, in connection
with any licenses to unaffiliated parties, will sell such
equipment to its licensees.
Patents and Licenses
The Company currently holds 67 patents in the United States
relating to the Insituform Process, the last to expire of which
will remain in effect until 2017, and has obtained patent
protection in its principal overseas markets covering aspects of
the Insituform Process. These patents cover certain aspects of the
Insituform Process including the manufacture of liners, the resin
saturation process and the process of reconstructing the pipeline.
Two of the significant patents relating to the Insituform Process,
covering, respectively, the curing of a resin-impregnated tube and
material aspects of the inversion process, have expired where
previously in effect.
The specifications and/or rights granted in relation to each
patent will vary from jurisdiction to jurisdiction. In addition,
as a result of differences in the nature of the work performed and
in the climate of the countries in which the work is carried out,
not every licensee uses each patent, and the Company does not
necessarily seek patent protection for all of its inventions in
every jurisdiction in which it does business.
There can be no assurance that the validity of the Company's
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. The Company's
business could be adversely affected 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
or upon expiration of the patents. The Company believes, however,
that while the Company has relied on the strength and validity of
its patents, the Company's long experience with the Insituform
Process, its continued commitment to support and develop the
Insituform Process, the strength of its trademarks, and its degree
of market penetration, should enable the Company to continue to
compete effectively in the pipeline rehabilitation market.
Ten patents covering the NuPipe Process or the materials used
in connection with the NuPipe Process have been issued in the
United States. The Company holds patents in connection with the
NuPipe Process in 16 other countries.
The Company believes that the success of its corrosion and
abrasion protection operations will depend primarily upon its
proprietary know-how and its marketing and sales skills.
In December 1999, the Company completed the acquisition from
Angus Fire Armour Limited ("Angus") of the Thermopipe Process for
rehabilitating potable water and other aqueous fluid pipes, to
which the Company previously held the exclusive rights to the
United States and Canada and non-exclusive rights in Mexico and
certain territories in the eastern hemisphere. The acquisition
included one patent relating to the Thermopipe Process issued in
the United States and one patent and two patent applications
outside of the United States, in addition to trademarks, know-how
and related assets. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Result of Operating-Liquidity
and Capital Resources."
Pursuant to a license from Ashimori Industry Co., Ltd.
("Ashimori"), the Company holds the exclusive rights to use the
patents, trademarks and know-how related to the Paltem-HL system,
a process for rehabilitating pressure pipes, for substantially all
of North America and, on a non-exclusive basis, additional
territories in the eastern hemisphere and Latin America. In May
1999, the license was amended so as not to cover certain other
products under development, except that the license continues to
cover the Paltem-Frepp system (see "Government Regulation" below).
Ashimori is entitled to receive ongoing royalties at specified
rates on installations and sales of liners. During the year ended
December 31, 1999, the Company did not have any material
operations under the Ashimori license.
Competition
The pipeline reconstruction, rehabilitation and repair
business is highly competitive, and the Company competes against
many companies, some of which have far greater financial resources
and experience than the Company. Accordingly, there can be no
assurance as to the success of the Company's processes in
competition with such companies and alternative technologies for
pipeline rehabilitation.
In each of its rehabilitation markets, the Company currently
faces competition from more conventional methods, including: (i)
total replacement, which is the excavation and replacement of an
entire section of pipe; (ii) point repair, which is the
replacement of cracked or structurally failed sections of pipes by
actual excavation and replacement; (iii) sliplining, which is the
insertion of a smaller pipe within an existing deteriorated pipe;
and (iv) the placement of gelatinous material, hydraulic cement,
or other acceptable material in defective pipes to repair leaks
and prevent infiltration in gravity sewers.
In addition, the Company faces competition from other
trenchless processes throughout the world. In the United States,
the Company faces competition from several cured-in-place
processes and, outside of the United States, from additional
cured-in-place processes currently in regional use. The Company
also faces competition from several fold and formed thermoplastic
processes. Several companies offer in-place polyethylene lining
systems which compete with the Company's abrasion and corrosion
protection technologies. The Company's trenchless processes may
also encounter competition from alternative trenchless approaches
such as pipe bursting and other methods.
The Company's tunnelling operation competes with utility
contracting firms throughout North America.
Seasonality
Although the Company's operations can be affected by severe
weather, for the past five years seasonal variation in work
performed has not had a material effect on the Company's
consolidated results of operations.
Employees
As of December 31, 1999, the Company employed 1,520
individuals. Certain of the Company's contracting operations are
parties to collective bargaining agreements covering an aggregate
of 174 employees. The Company generally considers its relations
with its employees to be good.
Government Regulation
The Company and its licensees are required to comply with all
national, state and local statutes, regulations and ordinances,
including those disclosure and filing requirements relating to the
grant of licenses. In addition, the Company's direct installation
and other construction operations, and those of its licensees, may
have to comply with relevant code specifications, permit
requirements, and bonding and insurance requirements as well as
with fire regulations relating to the storage, handling and
transporting of flammable materials. The Company's manufacturing
facilities, as well as its direct installation operations and
those of its licensees, are subject to state and national
environmental protection regulations, none of which presently has
any material effect on the Company's capital expenditures,
earnings or competitive position in connection with the Company's
present business. However, while the Company's direct installation
operations have established monitoring programs relating to the
use of solvents, further restrictions could be imposed on the use
of solvents or the thermosetting resins used in the Insituform
Process. The Company believes that it is in material compliance
with environmental laws and regulations applicable to it.
The use of both thermoplastics and thermosetting resin
materials in contact with drinking water is strictly regulated in
most countries. In the United States, a consortium led by NSF
International ("NSF"), under arrangements with the United States
Environmental Protection Agency (the "EPA"), establishes minimum
requirements for the control of potential human health effects
from substances added indirectly to water via contact with
treatment, storage, transmission and distribution system
components, by defining the maximum permissible concentration of
materials which may be leached from such components into drinking
water, and methods for testing them. In February 1996, the Paltem-
HL and Frepp processes under license from Ashimori were certified
by the NSF for use in drinking water systems. In April 1997, the
Insituform PPL(R) liner was certified by the NSF for use in drinking
water systems, followed in April 1999 by NSF certification of the
Insituform RPP(R) liner for such use. The Thermopipe product also
has NSF approval. The NSF assumes no liability for use of any
products, and the NSF's arrangements with the EPA do not
constitute the EPA's endorsement of the NSF, the NSF's policies or
its standards. Because of the need for dedicated equipment in
connection with use of these products in drinking water
applications, and the time required for the marketing process, the
Company does not expect meaningful revenues from drinking water
rehabilitation at least through 2000.
Executive Officers
The executive officers of the Company, and their respective
ages and positions with the Company, are as follows:
Age at Position with
Name March 1, 2000 the Company
---- -------------- -------------
Anthony W. Hooper 52 Chairman of the Board,
President and Chief
Executive Officer
Robert W. Affholder 64 Senior Executive Vice
President
Robert L. Kelley 54 Vice President-General
Counsel
Joseph A. White 46 Vice President-Chief
Financial Officer
Carroll W. Slusher 51 Vice President-North
America
Antoine Menard 49 Vice President-Europe
Anthony W. Hooper has been Chairman of the Board of the
Company since 1997, and has been President of the Company since
1996. Mr. Hooper was previously, since prior to 1995, Senior Vice
President-Marketing and Technology of the Company.
Robert W. Affholder has been Senior Executive Vice President
of the Company since 1996. Mr. Affholder was previously, since
1995, Senior Vice President-Chief Operating Officer of North
American Contracting Operations of the Company. Mr. Affholder was
President of Insituform Mid-America, Inc. ("IMA") from 1994 until
its acquisition by the Company in 1995, and was Vice Chairman of
IMA from 1993 to 1995.
Robert L. Kelley has been Vice President and General Counsel
of the Company since 1996. Mr. Kelley was Assistant General
Counsel of Monsanto Company from prior to 1995 until joining the
Company.
Joseph A. White has been Vice President and Chief Financial
Officer of the Company since August 1999. Mr. White was
previously, from 1998 until joining the Company, Vice President
and Chief Financial Officer of Key Plastics, an automotive parts
manufacturer. From 1997 until 1998, Mr. White was Vice President-
Finance (North America) for the Becker Group, a manufacturer of
automotive interiors. From 1996 until 1997, Mr. White was Director
of Finance in Asia of the Vickers Division of Aeroquip Vickers, a
hydraulics supplier, where he held several other senior finance
positions since prior to 1995.
Carroll W. Slusher has been Vice President-North America of
the Company since February 1999, having served as the Company's
Director of North American Pipe Rehabilitation from 1997 to 1998
and Divisional Vice President-North American Operations from 1998
until February 1999. From prior to 1995 until joining the Company,
Mr. Slusher was a regional manager with General Electric Company.
Antoine Menard has been Vice President-Europe of the Company
since February 1999, having served as the Company's Managing
Director-Europe from 1995 until that date. Prior to joining the
Company, Mr. Menard was a general manager with the French oil
group TOTAL.
ITEM 2. PROPERTIES
The Company's executive offices, located in Chesterfield,
Missouri, a suburb of St. Louis, at 702 Spirit 40 Park Drive, are
leased from an unaffiliated party through May 31, 2002. The
Company owns its research and development facility in
Chesterfield, where operations commenced in 1998.
The Company maintains a liner fabrication facility and
contiguous felt manufacturing facility in Batesville, Mississippi.
Since prepayment in 1997 of the industrial development bond used
to finance such facilities, the property remains leased to the
Company under arrangements that provide for the Company's purchase
option at (subsequent to such prepayment) nominal value. The
Company's manufacturing facilities in Memphis, Tennessee are
located on land sub-leased from an unaffiliated entity for an
initial term of 40 years expiring on December 31, 2020.
Linings (a majority-owned subsidiary) owns certain premises
comprising its liner manufacturing facility, located in
Wellingborough, England. The Company leases additional
manufacturing space in Matsubuse, Japan.
In support of its direct installation operations, the Company
owns or leases facilities in the United States, Europe and Latin
America, the principal sites of which currently are in
Chesterfield, Missouri; Charlton, Massachusetts; Jacksonville,
Florida; Birmingham, Alabama; Hammond, Louisiana; Lemont,
Illinois; Owosso, Michigan; Houston and Dallas, Texas; Wichita,
Kansas; Benecia and Santa Fe Springs, California; Nashville,
Tennessee; Brooks, Oregon; Edmonton, Alberta; Surrey, British
Columbia; Ossett, United Kingdom; Mitry Mory, France; Delft,
Netherlands; and Antofagasta, Chile. The Ossett property is
subject to a mortgage.
The foregoing facilities are regarded by management as
adequate for the current requirements of the Company's business.
In connection with anticipated future requirements, the Company
intends within the current fiscal year to acquire a facility in
the New York metropolitan area in support of its direct
installation operations and to expand its Chesterfield facilities.
ITEM 3. LEGAL PROCEEDINGS
Cat Proceeding. The Company, in 1990, initiated proceedings
against Cat Contracting, Inc. ("CAT"), Michigan Sewer Construction
Company, Inc. and Inliner U.S.A., Inc. (subsequently renamed
FirstLiner USA, Inc. "FirstLiner"), in the United States District
Court for the Southern District of Texas, Houston Division (Civil
Action No. H-90-1690)(the "Cat Proceeding"), alleging infringement
of certain of the Insituform patents in connection with conduit
relining work performed in Houston by licensees of Kanal Sanierung
Hans Muller GmbH & Co.
In 1991, the jury rendered its verdict finding that defendants
had infringed the Insituform patents at issue and that such
patents were not invalid. The U.S. District Court (the "District
Court"), however, granted the defendants' motion for a new trial
on the matter of whether defendants had infringed the Insituform
patents under the doctrine of equivalents, and granted defendants
judgment notwithstanding the jury verdict on the issue of literal
infringement of those patents. In October 1995, the District Court
held the mandated new trial, ruled that defendants' serial vacuum
impregnation processes infringed the Company's patent under the
doctrine of equivalents, issued a permanent injunction against
defendants' use of the processes covered by such patent and
ordered a trial on the issue of damages. Defendants filed a notice
of appeal to the United States Court of Appeals for the Federal
Circuit (the "Court of Appeals"). In November 1996, the Court of
Appeals, among other matters, vacated the District Court's finding
of infringement under the doctrine of equivalents, on the basis of
incorrect claim construction, and remanded the case.
In December 1996, the District Court found that both of the
processes employed by defendants infringed the Company's serial
vacuum impregnation patent, and defendants again appealed. In
September 1998, the District Court awarded the Company
approximately $21.9 million in damages for specified infringement,
while the Court of Appeals independently affirmed the
determination of the District Court that FirstLiner's multiple-cup
process infringed the Company's serial vacuum impregnation patent,
but reversed the lower court and ruled that FirstLiner's process
involving the use of multiple needles for impregnation of
cured-in-place tubes did not infringe the Company's patent.
In September 1999, the District Court rendered its final
judgment, awarded damages to the Company in the amount of
approximately $9.5 million and named Giulio Catallo, the owner and
chief executive officer of CAT and FirstLiner, as an individual
party defendant in the proceedings. Defendants have filed an
appeal of the District Court's September 1999 judgment and the
Company has filed a cross appeal, which are pending.
Additional Texas Proceeding. In October 1996, two of the
defendants in the Cat Proceeding filed a separate action in the
District Court against the Company and Insituform East alleging,
among other matters, that the Company had commenced the Cat
Proceeding with knowledge that the Company's serial impregnation
patent was invalid and gave false testimony in the Cat Proceeding.
The suit further alleged that the Company committed various
infractions of the antitrust laws and engaged in other anti-
competitive practices in violation of Texas state law, and sought
compensatory and punitive damages.
The Company denied the allegations, raised affirmative
defenses, and filed a motion to dismiss regarding certain of the
antitrust claims. In August 1997, the District Court granted the
Company's motion to dismiss as to claims arising out of the Cat
Proceeding, as well as Noerr-Pennington immunity for the patent
litigation in the Cat Proceeding and the obtaining of certain
product standards, among other matters, and dismissed plaintiffs'
claims that the acquisition by the Company of a number of its
licensees constituted anti-competitive practices. The court
further ordered the plaintiffs to refile an amended complaint
alleging with factual particularity any timely claims for tortious
interference with business and contractual relations and certain
antitrust injuries and other claims.
In June 1998, plaintiffs refiled, as a new suit, their third
amended complaint (Inliner U.S.A. and CAT Contracting, Inc. v.
Insituform Technologies, Inc., Insituform Gulf South, Inc. and
Insituform East, Inc. [Civil Action H-98-20651] in the United
States District Court for the Southern District of Texas, Houston
Division), and repeated their previous antitrust and unfair
competition claims. In November 1999, plaintiffs dismissed with
prejudice all proceedings which had been pending. No payments or
other concessions were made by the Company.
Ultraliner Proceeding. In May 1999, the Company commenced an
action against Ultraliner, Inc. ("Ultraliner") and its licensee,
HydroTech, Inc. ("HydroTech"), in the United States District Court
for the Northern District of California (Civil Action No.
C-99-2429 CAL), alleging infringement by the defendants of six of
the Company's NuPipe patents in connection with Ultraliner's
manufacture and sale of its fold and formed pipe liner and its
installation by HydroTech. Ultraliner has subsequently served its
summons and complaint on the Company with respect to an action in
the Central District of Tennessee for a declaration of invalidity
of the Company's U.S. patent no. 4,867,921 covering the NuPipe
installation process. Pursuant to the Company's motion, in July
1999 the court ruled that the action should be transferred to the
Northern District of California. The parties are now engaged in
pretrial motions and discovery.
Insituform East Proceeding. In December 1999, the Company and
its subsidiary, Insituform (Netherlands) B.V., initiated
proceedings against Insituform East, Midsouth and certain of their
affiliates in the United States District Court for the Middle
District of Tennessee (Civil Action No. 3-99-1130), alleging,
among other matters, trademark violations and a non-curable breach
of the Settlement Agreement dated July 20, 1999 (the "Settlement
Agreement") relating to the Company's withdrawal from Midsouth.
The Company seeks a declaration that it may terminate its grant
under the Settlement Agreement to a subsidiary of Insituform East
of the non-exclusive right in Midsouth's prior assigned territory
to utilize the Company's cured-in-place process and technology, in
the condition and state it was commercially practiced on the date
of settlement, under Midsouth's prior Insituform Process license
that was then terminated.
In addition, the Company seeks a declaratory judgment and
injunctive relief regarding, among other things: (i) the inability
of Insituform East to practice the Insituform Process outside the
territories assigned to Insituform East under its licenses from
the Company, (ii) the inability of Insituform East or its
affiliates to practice cured-in-place pipe rehabilitation
techniques other than the Insituform Process, and (iii) the
obligation of Insituform East to pay cross-over royalties to the
Company on Insituform Process and other cured-in-place work
permitted by the Company and performed within the scope of the
subject matter of Insituform East's licenses from the Company and
outside Insituform East's assigned territories. The Company
further seeks a declaration that, as a result of the termination
of certain Insituform 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 complaint and seek, among
other things, declarations and injunctions essentially the
opposite of those requested by the Company.
Other. The Company is involved in certain additional
litigation incidental to the conduct of its business and affairs.
Management does not believe that the outcome of any such
litigation will have a material adverse effect on the financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) The Company's class A common stock, $.01 par value
("Common Stock"), is traded in the over-the-counter market under
the symbol "INSUA." The following table sets forth the range of
quarterly high and low sales prices commencing after December 31,
1997, as reported on The Nasdaq Stock Market. Quotations represent
prices between dealers and do not include retail mark-ups,
mark-downs or commissions.
Period High Low
------ ---- ---
1999
First Quarter $17.50 $14.00
Second Quarter 21.63 16.00
Third Quarter 25.25 19.13
Fourth Quarter 32.44 20.63
Period High Low
------ ---- ---
1998
First Quarter $11.50 $ 7.75
Second Quarter 14.25 10.63
Third Quarter 15.75 11.88
Fourth Quarter 14.50 9.25
As of March 1, 2000, the number of record holders of the
Company's Common Stock was 1,256.
Holders of Common Stock are entitled to receive dividends
as and when they may be declared by the Company's Board of
Directors. The Company has never paid a cash dividend on the
Common Stock. The Company's present policy is to retain earnings
to provide for the operation and expansion of its business.
However, the Company's Board of Directors will review the
Company's dividend policy from time to time and will consider the
Company's earnings, financial condition, cash flows, financing
agreements and other relevant factors in making determinations
regarding future dividends, if any. Under the terms of certain
debt arrangements to which the Company is a party, the Company is
subject to certain limitations in paying dividends. See Note 8 of
the Notes to the Company's Consolidated Financial Statements
included in response to "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity," which information is incorporated herein by
reference.
(b) Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below have been
derived from the Company's consolidated financial statements
referred to under "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K" of this Annual Report on Form
10-K, and previously published historical financial statements not
included in this Annual Report on Form 10-K. In October 1995, the
Company consummated the acquisition of IMA, which the Company has
accounted for as a pooling-of-interests and, accordingly, the
historical financial statements of the combining companies have
been retroactively combined (after adjustments to eliminate
intercompany balances and transactions, and to conform reporting
periods and accounting methods) as if the companies had operated
as a single entity for the periods presented. Certain historical
financial data of IMA have been reclassified to conform to the
Company's accounting policies. The selected financial data set
forth below should be read in connection with "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's consolidated financial
statements, including the notes thereto, referred to herein.
Unaudited
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(1)
----- ---- ---- ----- -------
(in thousands, except per share amounts)
INCOME STATEMENT DATA:
Revenues.................. $339,883 $300,958 $320,640 $289,933 $272,203
Operating income.......... 50,669 38,688 25,030 14,346 11,750(2)
Income (loss) from
continuing operations.... 25,983 17,887 9,644 4,492 (966)(3)
Net income (loss)......... 25,983 17,887 9,419 4,492 (966)
Basic earnings (loss)
per share:
Income (loss) from
continuing operations... 1.02 .67 .36 .17 (.04)
Net income (loss)........ 1.02 .67 .35 .17 (.04)
Dilutive earnings (loss)
per share:
Income (loss) from con-
tinuing operations....... 1.00 .66 .36 .17 (.04)
Net income (loss)......... 1.00 .66 .35 .17 (.04)
BALANCE SHEET DATA:
Working capital........... 120,180 121,956 114,283 78,876 69,538
Current assets............ 174,372 170,105 161,273 130,372 120,711
Property and equipment.... 54,188 56,421 57,983 57,266 59,773
Total assets.............. 311,625 304,608 297,852 265,502 260,300
Long-term debt............ 114,954 112,131 111,440 82,384 82,813
Total liabilities......... 170,314 161,395 162,705 136,664 137,845
Total common stock and
other stockholders'
equity.................. 138,603 139,505 131,502 123,203 116,810
___________________
(1) The Company has completed various acquisitions which have been accounted for under
the purchase method of accounting, including the pipeline rehabilitation business of
Enviroq Corporation and two-thirds of Insituform France S.A. in 1995, Video Injection
S.A. in 1998 and Insituform Rioolrenovatietechnieken B.V. in 1999.
(2) Reflects $6.5 million in costs associated with the acquisition of IMA, which have been
charged to operations primarily in the fourth quarter of 1995, and a pre-tax charge
in the amount of $8.1 million for restructuring costs, primarily for consolidation
of corrosion and abrasion protection operations, rationalization of Canadian
operations to one facility, elimination of duplicative management positions,
relocation of certain domestic employees and functions, and termination of
construction of proposed manufacturing capacity.
(3) In 1995 the Company settled certain outstanding litigation for a cash payment of $3.2
million and issuance of 30,000 shares of its Common Stock, resulting in an after-tax
charge against earnings of approximately $2.2 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, Argentina and Mexico, and include product
sales to, and royalties and license fees paid by, the Company's
unaffiliated Insituform licensees and sub-licensees and its
unaffiliated NuPipe 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 Process.
RESULTS OF OPERATIONS
Year Ended December 31, 1999, Compared to Year Ended
December 31, 1998
Total revenues increased 12.9% to $339.9 million from $301.0
million in 1998. The principal reason for the growth was increased
volume from the Company's rehabilitation operations within North
America and Europe and its tunneling operations. The majority of
growth in Europe came from the June 1999 acquisition of the
Company's Dutch licensee. Revenues of the Company's TiteLiner
operations (consisting of corrosion and abrasion protection
activities primarily in the United States, Canada and Latin
America) decreased $20.0 million, or 46.1%, compared to 1998,
primarily due to realigning the business to its core lining work
and exiting from lower margin steel contracting work. Fluctuations
in currency exchange rates did not have a material impact on
revenues in 1999.
The Company's gross profit increased 18.8% to $118.7 million
from $99.9 million in 1998, primarily due to increased revenues as
well as increased profitability from the Company's North American
and European rehabilitation operations and the Company's tunneling
operations. The overall gross profit margin for 1999 was 34.9%
compared to 33.2% in 1998. This improved profitability was due to
improved productivity and efficiencies in the North American
rehabilitation and tunneling operations, offset partially by a
decrease in gross profit from the Company's TiteLiner operations,
due to the revenue volume decrease, together with decreased
profitability caused by difficulties in Chile on a major project.
In 1999, operating costs and expenses increased 11.1% to
$68.0 million from $61.2 million in 1998. The change was primarily
due to increased North American rehabilitation administration
costs to meet current and future growth demands, increased legal
costs and ongoing costs related to the Company's information
systems improvements. As a percentage of revenues, operating costs
and expenses decreased slightly compared to the prior year, to
20.0% in 1999 compared to 20.3% in 1998, primarily as a result of
the increase in revenues at a higher rate than operating expenses.
Interest expense in 1999 decreased 0.7% to $9.0 million from
$9.1 million in 1998. The relatively flat interest expense is due
to the fixed rate on the Company's principal long-term debt, with
a slight decrease in interest rates on revolving credit borrowings
in the Company's subsidiaries.
Other income increased in 1999 to $3.8 million from $2.3
million in 1998. The change was due to increased investment income
resulting from the higher average invested cash balances and
improved returns compared to 1998, and gains from selling excess
equipment that related to steel contracting work in North American
TiteLiner operations.
In 1999, taxes on income increased 44.3% to $18.9 million
from $13.1 million in 1998, due principally to a $13.6 million
increase in income before taxes. The Company's effective tax rate
was 41.6% in 1999 compared to 41.1% in 1998, primarily due to the
higher state income taxes in resulting from larger United States
income. As indicated in Note 12 of the Notes to Consolidated
Financial Statements included in response to "Item. 14 Exhibits,
Financial Statement Schedules and reports on Form 8-K", the 1999
and 1998 effective tax rates were higher than the United States
federal statutory rate, primarily due to non-deductibility of
goodwill amortization associated with acquisitions, which is
generally not deductible for tax purposes, and the effect of
higher tax rates on foreign income earned.
Since July 1999, the Company ceased recording losses on its
equity position in Midsouth as a result of the withdrawal from
Midsouth.
As a result of the foregoing, net income for 1999 increased
45.3% to $26.0 million, representing a 7.6% return on revenue,
compared to $17.9 million for 1998, when a 5.9% return on revenue
was achieved. Also, return on average stockholders' equity
increased to 18.7% compared to 13.2% in 1998.
Year Ended December 31, 1998, Compared to Year Ended
December 31, 1997
Total revenues decreased 6.1% to $301.0 million from $320.6
million in 1997. The principal reason for the decline was
decreased volume from the Company's TiteLiner operations in the
United States and Latin America of $18.9 million. The Company's
pipe rehabilitation operations also experienced an overall decline
in revenues due to the elimination of non-core projects, such as
cleaning and inspection. For the year ended December 31, 1998, as
a result of the management committee composition of Midsouth, the
Company accounted for its investment therein on an equity basis,
which resulted in revenue of $0.5 million in 1998, compared to
$2.1 million in 1997, during which Midsouth's results were
consolidated with the Company prior to April 1997. The Company's
revenues were bolstered by increased Insituform product sales and
steel pipe sales from the Company's corrosion and abrasion
operations. Fluctuations in currency exchange rates did not have
a material impact on revenues in 1998.
The Company's gross profit increased 5.7% to $99.9 million
from $94.5 million in 1997, primarily due to improved gross profit
from the Company's North American and European pipeline
rehabilitation operations. This improvement was offset somewhat by
a decrease in gross profit from the Company's corrosion and
abrasion operations due to the revenue volume decrease. The
overall gross profit margin for 1998 was 33.2% compared to 29.5%
in 1997, primarily due to improvements made in productivity and
efficiency in the Company's pipeline rehabilitation operations.
Much of this improvement came as a result of extensive
reorganization during 1997, where management rationalized field
crews and equipment throughout the organization. In addition, in
1998 proportionately more projects with favorable margins were
undertaken, as a result of the elimination of lower margin non-
core projects such as cleaning and inspection, which was coupled
with improved pricing on core pipeline rehabilitation projects.
In 1998, operating costs and expenses decreased 11.9% to
$61.2 million from $69.5 million in 1997. This decrease was due to
cost savings gained from the reorganization of the Company's
pipeline rehabilitation operations through elimination of
positions, facilities, and realignment of responsibilities, along
with the consolidation of the Company's headquarters in
Chesterfield. These decreases were offset by increases in spending
related to information systems, research and development and
patent related activities. As a percentage of revenues, operating
costs and expenses decreased in 1998 to 20.3% from 21.7% in 1997.
In 1997, the Company recorded in operating expense an unusual
item of $4.0 million for employee severance and costs of moving
employees and offices related to the restructuring of its
corporate headquarters and other facilities, which did not recur
in the current year. The Company also recorded $0.6 million (prior
to any effect of taxes) in operating costs and expenses in
settling a proxy contest attendant to the annual stockholders
meeting. The contest was initiated by a group that included two
directors of the Company.
Interest expense in 1998 increased 3.4% to $9.1 million from
$8.8 million in 1997, due primarily to the effect of borrowings
resulting from the senior note financing completed in February
1997. See "Liquidity and Capital Resources" below.
Other income increased in 1998 to $2.3 million from $0.6
million in 1997, due principally to increased investment income of
$1.3 million, resulting from more invested cash and cash
equivalents in 1998.
In 1998, taxes on income increased 84.5% to $13.1 million
from $7.1 million in 1997, due principally to an increase of $14.9
million in income before taxes. The Company's 1998 effective tax
rate was 41.1%, as compared to 41.7% in 1997. This decrease was
principally due to a more favorable mix of income generated in
jurisdictions with lower tax rates in 1998 compared to 1997.
In February 1997, as a result of the closing of the Company's
senior note financing, certain previous debt facilities were
retired. Costs of $0.4 million ($0.2 million after-tax benefits)
associated with these debt facilities which were capitalized, such
as commitment fees and legal costs, were written off. This expense
was classified as extraordinary in the Company's results of
operations for 1997.
As a result of the foregoing, net income for 1998 increased
90% to $17.9 million, representing a 5.9% return on revenue,
compared to $9.4 million for 1997 when a 2.9% return on revenue
was achieved. The Company also achieved a substantial improvement
in return on average stockholders' equity of 13.2% for 1998, as
compared to 7.4% for 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the balance of cash, U.S. Treasury
bills, and short-term investments was $68.2 million, compared to
$76.9 million at December 31, 1998. The decrease in cash and cash
equivalents resulted primarily from the Company's previously
reported stock repurchase program, which used cash in the amount
of $32.0 million in 1999. In addition, there were cash outlays for
capital spending of $11.7 million, and $11.8 million for the
acquisition of the Company's Dutch licensee. These cash outlays
were partially offset by a positive generation of cash from
operating activities of $34.4 million and proceeds from long-term
debt of $6.1 million incurred to finance the Dutch acquisition.
Working capital was $120.2 million at December 31, 1999, compared
to $122.0 million at December 31, 1998.
Trade receivables, together with costs and estimated earnings
in excess of billings and retainage under construction contracts,
increased 13.1%, to $84.2 million, from $74.4 million at December
1998, while revenues grew 12.9% compared to last year, which
contributed to the small change in working capital. 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 $11.7 million in 1999, compared to
$13.4 million in 1998. Capital expenditures generally reflect
replacement equipment required by the Company's installation
operations. In 1999, capital expenditures also reflect $0.5
million related to the completion of the Company's new training
center.
While the Company expects that routine capital spending will
continue at the current level in the foreseeable future, the
Company is pursuing several information system improvement
initiatives that will require increased expenditures during the
next several years. These initiatives, which began principally in
1997, include anticipated expenditures of approximately $1.6
million in connection with the installation of an electronic data
collection system in each of the Company's North American
rehabilitation operations, of which $0.9 million was expended
during 1999. In addition, the Company intends to implement new
information systems in its European subsidiaries. The Company
plans to increase expenditures to meet rising volume demands,
which relate to expansion of field crew capacity as well as
production improvements to manufacturing facilities.
In June 1999, the Company completed its acquisition of all
the shares of its exclusive licensee of the Insituform Process in
the Netherlands, now named Insituform Rioolrenovatietechnieken
B.V. The purchase price was NGL 25 million (approximately US
$11.8 million), which was paid in cash at closing. Included in the
acquisition was a 10% stockholding owned by the licensee in
Linings. In November 1999, the Company's share of Linings
increased to 75% as a result of share redemptions effectuated by
Linings, for an approximate redemption price of $1.5 million. In
January 2000, the Company acquired the rights to the Thermopipe
Process not previously licensed to it for approximately $0.7
million.
During 1999, the Company paid an installment of $0.6 million
on the purchase price of the minority interest in the Company's
Chilean subsidiary acquired in the prior year, and will pay the
remaining installment of $0.5 million during the current year.
During 1999, the Company paid an installment of $1.3 million on
the purchase price of the majority interest in Video Injection
acquired in the prior year, and will pay the remaining installment
of $1.3 million in the current year. The Company remains obligated
to purchase the remaining 20% of the shares of Video Injection
pursuant to a formula based on Video Injection's results of
operations. In connection with its settlement relating to
Midsouth, during 1999 the Company also received an aggregate of
$1.7 million, consisting of the book value of its investment in
Midsouth and repayments of amounts advanced.
In February 2000, the Company acquired the rights to the
Insituform Process and NuPipe Process for the states of New York
and New Jersey, through the purchase of all of the shares of the
capital stock of Insituform 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 closing payments) will be
paid after adjustments for net assets to be shown in a closing
balance sheet of the acquired business.
Financing activities used $23.6 million in 1999, as compared
to cash used of $11.2 million in 1998. In mid-1998, the Company
authorized the repurchase of up to 2,700,000 shares of the
Company's Common Stock to be made from time to time over five
years in open market transactions. The amount and timing of
purchases are 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 1999, the
Company used cash in the amount of $32.0 million for the
repurchase of 1,752,400 shares. The Company has used cash in the
cumulative amount of $41.8 million for the repurchase of 2,488,300
shares through December 31, 1999, since inception of the stock
repurchase program. The repurchased shares will be held as
treasury stock.
In 1999, the Company made principal payments on debt totaling
$2.3 million, compared to $1.8 million in 1998. The Company, in
1999, generated $5.0 million from the issuance of common stock
from stock options granted to employees, as compared to $0.8
million in 1998.
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.
The Company has a credit agreement (the "Credit Agreement")
whereby the lender will make available to the Company, until
September 1, 2001 (the "Maturity Date"), a revolving credit line
of up to $20,000,000 aggregate principal amount for working
capital and permitted acquisitions, including $10,000,000
available for standby and commercial letters of credit. Interest
on outstanding advances accrues, at the election of the Company,
at either the lender's prime rate, payable monthly, or its LIBOR
rate, plus a margin ranging from .5% to 1.5% depending on the
maintenance of certain financial ratios, payable at the end of
selected interest periods (from one to six months). Outstanding
principal is subject to repayment on the Maturity Date, except
that advances for permitted acquisitions must be repaid within six
months after disbursement.
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.
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, and accrues interest, payable quarterly, at the rate
of 5.5% per annum.
The Company anticipates replacement of the Credit Agreement
with a new facility with the same lender, providing for advances
to the Company of 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 2004, at which time principal will be
repayable). Interest on outstanding advances will accrue, 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 be payable quarterly. The new
facility will be guaranteed by the Company's domestic subsidiaries
under arrangements similar to those required by the Credit
Facility.
Management believes its current working capital and
additional facilities will be adequate to meet its requirements
for the foreseeable future.
YEAR 2000
The "year 2000" problem relates to computer systems that have
time and date-sensitive programs that were designed to read years
beginning with "19," but may not properly recognize the year 2000.
If a computer system or software application used by the Company
or a third party dealing with the Company fails because of the
inability of the system or application to properly read the year
"2000," the results may adversely affect the Company.
Accordingly, prior to December 31, 1999, the Company reviewed
its internal computer programs and systems, and reviewed and
analyzed voice and data communications systems, building systems,
manufacturing and operations equipment with embedded components
(including HVAC, security and fire protection), and field
operations equipment to ensure the reliability of operational
systems and manufacturing processes, both in North America and in
Europe. As a result, the Company formulated a year 2000 compliance
program so as to address any significant issues in a timely
manner. The Company's plan included formal communications with
representatives from significant outside parties that transact
with the Company to determine the extent of vulnerability of the
Company to any failure to remediate their own year 2000 issues.
The Company has addressed any internal year 2000 issues
through either replacement of old systems with new year 2000
compliant systems or modifications to existing systems. The
Company has not identified any material difficulties presented by
its major customers or suppliers, has not experienced any material
business interruption in connection with year 2000 difficulties
and has not incurred any material expense in connection with its
year 2000 compliance plan.
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 December 31, 1999, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
For information concerning this item, see "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations-Market Risk," which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information concerning this item, see "Item 14.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K,"
which information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1.
Business-Executive Officers" and the Proxy Statement to be filed
with respect to the 2000 Annual Meeting of Stockholders (the "2000
Proxy Statement"), which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this item, see the 2000 Proxy
Statement, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
For information concerning this item, see the 2000 Proxy
Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the 2000 Proxy
Statement, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The consolidated financial statements filed in this
Annual Report on Form 10-K are listed in the attached Index to
Consolidated Financial Statements and Schedules.
2. Financial Statement Schedules:
No Financial Statement Schedules are included herein
because they are not required or are not applicable or the
required information is contained in the consolidated financial
statements or notes thereto.
3. Exhibits:
The exhibits required to be filed as part of this Annual
Report on Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K:
During the quarter ended December 31, 1999, the Company
filed a Current Report on Form 8-K dated October 6, 1999 which,
under "Item 5. Other Events" thereunder, reported the settlement
of certain litigation, and a Current Report on Form 8-K dated
October 21, 1999 which, under "Item 5. Other Events" thereunder,
announced the expansion of its existing stock repurchase program.
The Company also filed a Current Report on Form 8-K dated February
2, 2000 reporting its acquisition of the rights to the Insituform
Process and the NuPipe Process for the States of New York and New
Jersey. No financial statements were filed as part of any such
report.
POWER OF ATTORNEY
The registrant and each person whose signature appears
below hereby appoint Anthony W. Hooper, Robert L. Kelley and
Joseph A. White as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of
the registrant and each such person, individually and in each
capacity stated below, one or more amendments to the annual report
which amendments may make such changes in the report as the
attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange
Commission.
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.
Dated: March 24, 2000 INSITUFORM TECHNOLOGIES, INC.
By s/Anthony W. Hooper
--------------------------------
Anthony W. Hooper
President and Chief Executive
Officer
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 Date
s/Anthony W. Hooper
- -----------------------
Anthony W. Hooper Principal Executive March 24, 2000
Officer and Director
s/Joseph A. White
- -----------------------
Joseph A. White Principal Financial March 24, 2000
and Accounting Officer
s/Robert W. Affholder
- -----------------------
Robert W. Affholder Director March 24, 2000
s/Paul A. Biddelman
- -----------------------
Paul A. Biddelman Director March 24, 2000
s/Stephen P. Cortinovis
- -----------------------
Stephen P. Cortinovis Director March 24, 2000
s/Juanita Hinshaw
- -----------------------
Juanita Hinshaw Director March 24, 2000
s/Thomas Kalishman
- -----------------------
Thomas Kalishman Director March 24, 2000
s/Sheldon Weinig
- -----------------------
Sheldon Weinig Director March 24, 2000
s/Russell B. Wight, Jr.
- -----------------------
Russell B. Wight, Jr. Director March 24, 2000
s/Alfred L. Woods
- -----------------------
Alfred L. Woods Director March 24, 2000
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants............ F-2
Report of Management................................. F-3
Consolidated Statements of Operations for
each of the three years in the period
ended December 31, 1999............................ F-4
Consolidated Balance Sheets, December 31,
1999 and 1998...................................... F-5
Consolidated Statements of Stockholders'
Equity for each of the three years in
the period ended December 31, 1999................. F-6
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1999..................... F-7
Notes to Consolidated Financial Statements........... F-8
No Financial Statement Schedules are included herein because
they are not required or not applicable or the required information
is contained in the consolidated financial statements or notes
thereto.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders of
Insituform Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of
Insituform Technologies, Inc. and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flow for each of the three years in
the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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, the financial statements referred to above present
fairly, in all material respects, the financial position of
Insituform Technologies, Inc. and subsidiaries as of December 31,
1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 15, 2000
F-2
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of financial information included in this annual
report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States applied on a consistent basis.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts. Although the financial statements
reflect all available information and management's judgment and
estimates of current conditions and circumstances, and are
prepared with the assistance of specialists within and outside
the Company, actual results could differ from those estimates.
Management has established and maintains an internal control
structure to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition,
that the accounting records provide a reliable basis for the
preparation of financial statements and that such financial
statements are not misstated due to material fraud or error.
Internal controls include the careful selection of associates,
the proper segregation of duties and the communication and
application of formal policies and procedures that are
consistent with high standards of accounting and administrative
practices. An important element of this system is a
comprehensive internal audit program.
Management continually reviews, modifies and improves its
systems of accounting and controls in response to changes in
business conditions and operations and in response to
recommendations in the reports prepared by the independent
public accountants and internal auditors.
Management believes that it is essential for the Company to
conduct its business affairs in accordance with the highest
ethical standards and in conformity with the law. This standard
is described in the Company's policies on business conduct,
which are publicized throughout the Company.
Anthony W. Hooper Joseph A. White
Chairman, President and Vice President and
Chief Executive Officer Chief Financial
Officer
F-3
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands, except per share amounts)
1999 1998 1997
------ ------ ------
REVENUES $339,883 $300,958 $320,640
COST OF REVENUES 221,232 201,056 226,152
-------- -------- --------
GROSS PROFIT 118,651 99,902 94,488
OPERATING COSTS AND EXPENSES 67,982 61,214 69,458
-------- -------- --------
OPERATING INCOME 50,669 38,688 25,030
-------- -------- --------
OTHER (EXPENSE) INCOME:
Interest expense (9,031) (9,099) (8,750)
Other 3,797 2,270 647
-------- -------- --------
TOTAL OTHER EXPENSE (5,234) (6,829) (8,103)
-------- -------- --------
INCOME BEFORE TAXES ON INCOME 45,435 31,859 16,927
TAXES ON INCOME 18,879 13,079 7,067
-------- -------- --------
INCOME BEFORE MINORITY INTERESTS
AND EQUITY IN EARNINGS 26,556 18,780 9,860
MINORITY INTERESTS (837) (849) (519)
EQUITY IN EARNINGS (LOSSES) OF
AFFILIATED COMPANIES 264 (44) 303
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 25,983 17,887 9,644
EXTRAORDINARY ITEM-Loss on early
retirement of debt (net of income
tax benefits of $142) - - (225)
-------- -------- --------
NET INCOME $ 25,983 $ 17,887 $ 9,419
======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS:
Net income per common share- basic-
Income before extraordinary item $ 1.02 $ .67 $ .36
Extraordinary loss, net
of income tax benefits - - (.01)
-------- -------- --------
Net income per common share-basic $ 1.02 $ .67 $ .35
======== ======== ========
Net income per common share-dilutive-
Income before extraordinary item $ 1.00 $ .66 $ .36
Extraordinary loss, net of income tax benefits - - (.01)
-------- -------- --------
Net income per common share - dilutive $ 1.00 $ .66 $ .35
======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-4
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS -- AS OF DECEMBER 31, 1999 AND 1998
(In thousands, except share information)
1999 1998
------ ------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 68,183 $ 76,904
Receivables, net 58,546 52,280
Retainage 13,253 12,368
Costs and estimated earnings in excess of billings 12,372 9,792
Inventories 12,525 11,282
Prepaid expenses and other 9,493 7,479
-------- --------
Total current assets 174,372 170,105
-------- --------
PROPERTY AND EQUIPMENT, less accumulated depreciation 54,188 56,421
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$18,417 and $15,078, respectively 64,077 56,504
Other assets 18,988 21,578
-------- --------
Total other assets 83,065 78,082
-------- --------
Total assets $311,625 $304,608
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 3,188 $ 2,918
Accounts payable and accruals 51,004 45,231
-------- --------
Total current liabilities 54,192 48,149
LONG-TERM DEBT, less current maturities 114,954 112,131
OTHER LIABILITIES 1,168 1,115
-------- --------
Total liabilities 170,314 161,395
-------- --------
MINORITY INTERESTS 2,708 3,708
-------- --------
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 27,787,862
and 27,302,304 278 273
Additional paid-in capital 74,809 68,931
Retained earnings 112,338 86,355
Treasury stock2,744,101 and 991,701 shares (45,118) (13,097)
Cumulative foreign currency translation adjustments (3,704) (2,957)
-------- --------
Total stockholders' equity 138,603 139,505
-------- --------
Total liabilities and stockholders' equity $311,625 $304,608
======== ========
The accompanying notes are an integral part of the financial statements.
F-5
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands, except number of shares)
Common Stock Additional
----------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
------ ------ ---------- -------- --------
BALANCE, December 31, 1996 27,144,331 $271 $ 67,824 $ 59,049 $ (3,269)
Net income - - - 9,419 -
Issuance of common stock upon
exercise of options 70,387 1 295 - -
Foreign currency translation
adjustment - - - - -
---------- ---- -------- -------- --------
BALANCE, December 31, 1997 27,214,718 272 68,119 68,468 (3,269)
Net income - - - 17,887 -
Issuance of common stock upon
exercise of options 87,586 1 812 - -
Common stock repurchased - - - - (9,828)
Foreign currency translation
adjustment - - - - -
---------- ---- -------- -------- --------
BALANCE, December 31, 1998 27,302,304 273 68,931 86,355 (13,097)
Net income - - 25,983 -
Issuance of common stock upon
exercise of options, including
income tax benefit of $907 485,558 5 5,878 - -
Common stock repurchased - - - - (32,021)
Foreign currency translation
adjustment - - - - -
---------- ---- -------- -------- --------
BALANCE, December 31, 1999 27,787,862 $278 $ 74,809 $112,338 $(45,118)
========== ==== ======== ======== ========
Table continued on next page.
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands, except number of shares)
Cumulative
Foreign Currency Total
Translation Stockholders' Comprehensive
Adjustments Equity Income
---------------- ------------- -------------
BALANCE, December 31, 1996 $ (672) $123,203
Net income - 9,419 $ 9,419
Issuance of common stock upon
exercise of options - 296 -
Foreign currency translation
adjustment (1,416) (1,416) (1,416)
------- -------- --------
BALANCE, December 31, 1997 (2,088) 131,502 $ 8,003
========
Net income - 17,887 $ 17,887
Issuance of common stock upon
exercise of options - 813 -
Common stock repurchased - (9,828) -
Foreign currency translation
adjustment (869) (869) (869)
------- -------- --------
BALANCE, December 31, 1998 (2,957) 139,505 $ 17,018
========
Net income - 25,983 $ 25,983
Issuance of common stock upon
exercise of options, including
income tax benefit of $907 - 5,883 -
Common stock repurchased - (32,021) -
Foreign currency translation
adjustment (747) (747) (747)
------- -------- --------
BALANCE, December 31, 1999 $(3,704) $138,603 $ 25,236
======= ======== ========
The accompanying notes are an integral part of the financial statements.
F-6
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
1999 1998 1997
---- ---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 25,983 $ 17,887 $ 9,419
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 18,244 19,095 19,240
Other (475) 266 1,311
Deferred income taxes 1,689 1,174 728
Changes in operating assets and liabilities,
net of effects of businesses purchased-
Receivables (9,718) 13,247 (5,805)
Inventories (1,125) 1,049 2,766
Prepaid expenses and other assets (3,703) 2,769 506
Accounts payable and accruals 3,484 69 (993)
------- ------- -------
Net cash provided by operating activities 34,379 55,556 27,172
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (11,746) (13,416) (16,552)
Purchases of businesses, net of cash acquired (11,325) (1,451) -
Other investing activities 3,304 1,549 (1,661)
------- ------- -------
Net cash used in investing activities (19,767) (13,318) (18,213)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 4,976 813 296
Purchases of treasury stock (32,021) (9,828) -
Proceeds from long-term debt 6,050 124 110,515
Principal payments on long-term debt (2,288) (1,776) (87,105)
Minority interests - - (178)
Repayment of short-term borrowings (276) (565) (124)
------- ------- -------
Net cash (used in) provided by financing activities (23,559) (11,232) 23,404
-------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 226 164 (105)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,721) 31,170 32,258
CASH AND CASH EQUIVALENTS, beginning of year 76,904 45,734 13,476
-------- ------- -------
CASH AND CASH EQUIVALENTS, end of year $ 68,183 $76,904 $45,734
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 8,852 $ 9,115 $ 5,849
Income taxes 17,593 13,223 1,686
NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred consideration for businesses acquired $ - $ 3,671 $ -
The accompanying notes are an integral part of the financial statements.
F-7
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. DESCRIPTION OF BUSINESS:
-----------------------
Insituform Technologies(R), Inc. (a Delaware corporation) and
subsidiaries (collectively, the "Company" or "ITI") is a
worldwide provider of proprietary trenchless technologies for
the rehabilitation and improvement of sewer, water, gas and
industrial pipes. The Company's primary technology is the
Insituform(R) process, a "cured-in-place" pipeline
rehabilitation process. The Company's TiteLiner(R) (TiteLiner)
process is a method of lining steel lines with a corrosion and
abrasion resistant pipe. Through its Affholder(SM), Inc.
subsidiary, the Company is engaged in trenchless tunneling used
in the installation of new underground services.
2. SUMMARY OF ACCOUNTING POLICIES:
------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries, including a
75%-owned United Kingdom subsidiary, Insituform(R) Linings Plc.;
a 55%-owned Mexican subsidiary, United Pipeline de Mexico, S.A.;
a 66 2/3%-owned French subsidiary, Insituform(R) France, S.A.
and an 80%-owned French subsidiary, Video Injection SA. All
intercompany transactions and balances have been eliminated.
Investments in entities in which the Company has 20% to 50%
ownership are accounted for by the equity method.
Accounting Estimates
- --------------------
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 and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Taxes on Income
- ---------------
The Company provides for estimated income taxes payable or
refundable on current year income tax returns as well as the
estimated future tax effects attributable to temporary
differences and carryforwards, based upon enacted tax laws and
tax rates.
F-8
Foreign Currency Translation
- ----------------------------
Results of operations for foreign entities are translated using
the average exchange rates during the period. Assets and
liabilities are translated to U.S. dollars using the exchange
rates in effect at the balance sheet date, and the related
translation adjustments are reported as a separate component of
stockholders' equity.
Cash and Cash Equivalents
- -------------------------
The Company classifies highly liquid investments with original
maturities of 90 days or less as cash equivalents. Recorded
book values are reasonable estimates of fair value for cash and
cash equivalents.
Inventories
- -----------
Inventories are valued at the lower of cost (first-in,
first-out) or market.
Property, Equipment and Depreciation
- ------------------------------------
Property and equipment are stated at cost. Depreciation on
property and equipment is computed using the straight-line
method over the following estimated useful lives:
Years
-----
Land improvements 15-20
Buildings and improvements 5-40
Machinery and equipment 4-10
Furniture and fixtures 3-10
Autos and trucks 3-10
Intangibles
- -----------
The Company amortizes goodwill over periods not in excess of 25
years on the straight-line basis.
Long-Lived Assets
- -----------------
The Company reviews for impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recovered from its undiscounted
future cash flows.
F-9
Revenues
- --------
Revenues include construction and installation revenues which
are recognized using the percentage-of-completion method.
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as
indirect labor, supplies, tools and equipment costs. Changes in
estimated total contract costs are recognized in the period they
are determined. Where a contract loss is forecasted, the full
amount of the anticipated loss is recognized in the period the
loss is determined.
Earnings Per Share
- ------------------
Earnings per share has been calculated using the following share
information:
1999 1998 1997
---- ---- ----
Weighted average number of common
shares used for basic EPS 25,460,287 26,777,879 26,926,148
Effect of dilutive stock options
and warrants 619,245 280,180 46,900
---------- ---------- ----------
Weighted average number of common
shares and dilutive potential
common stock used in dilutive EPS 26,079,532 27,058,059 26,973,048
========== ========== ==========
New Accounting Pronouncement
- ----------------------------
The Company intends to adopt SFAS 133, "Accounting for
Derivative Instrument and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments
and hedging activities in 2001. The Company believes that
SFAS 133 will not have a material impact on its results of
operations or financial position.
Reclassifications
- -----------------
Certain prior year amounts in the consolidated financial
statements have been reclassified to conform to the current year
presentation.
3. BUSINESS ACQUISITIONS:
---------------------
On June 1, 1999, the Company completed its acquisition of all of
the shares of its exclusive licensee of the Insituform Process
F-10
in the Netherlands, now named Insituform(R) Rioolrenova-
tietechnieken B.V., from BFI Holdings B.V. The purchase price
was NGL 25 million (approximately US $11.8 million), which was
paid in cash at closing. The acquisition was accounted for by
the purchase method and resulted in goodwill of $10.8 million.
During the year ended December 31, 1998, the Company made
acquisitions which have been accounted for as purchases. The
purchase prices totaling $7.1 million were allocated to tangible
assets and goodwill.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
-------------------------------
Activity in the allowance for doubtful accounts is summarized as
follows for the years ended December 31 (in thousands):
1999 1998 1997
---- ---- ----
Balance, at beginning of period $ 2,909 $ 2,587 $ 1,031
Charged to expense 590 1,679 1,658
Uncollected balances written off,
net of recoveries (403) (1,357) (102)
------- ------- -------
Balance, at end of period $ 3,096 $ 2,909 $ 2,587
======= ======= =======
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:
-----------------------------------------------------
Costs and estimated earnings on uncompleted contracts consist of
the following at December 31 (in thousands):
1999 1998
---- ----
Costs incurred on uncompleted contracts $ 125,167 $ 111,204
Estimated earnings 46,861 38,460
--------- ---------
172,028 149,664
Less- Billings to date (166,904) (145,278)
--------- ---------
$ 5,124 $ 4,386
========= =========
Included in the accompanying
balance sheets:
Costs and estimated earnings in
excess of billings $ 12,372 $ 9,792
Billings in excess of costs and
estimated earnings (Note 9) (7,248) (5,406)
--------- ---------
$ 5,124 $ 4,386
========= =========
F-11
Costs and estimated earnings in excess of billings represent
work performed which either due to contract stipulations or
lacking contractual documentation needed, could not be billed.
Substantially all unbilled amounts are expected to be billed and
collected within one year.
6. INVENTORIES:
-----------
Inventories are summarized as follows at December 31 (in
thousands):
1999 1998
---- ----
Raw materials $ 1,827 $ 1,542
Work-in-process 3,750 2,959
Finished products 1,594 1,144
Construction materials 5,354 5,637
-------- --------
$ 12,525 $ 11,282
======== ========
7. PROPERTY AND EQUIPMENT:
----------------------
Property and equipment consists of the following at December 31
(in thousands):
1999 1998
---- ----
Land and land improvements $ 2,800 $ 2,621
Buildings and improvements 22,679 21,928
Machinery and equipment 83,143 81,283
Furniture and fixtures 8,126 8,883
Autos and trucks 5,925 4,822
Construction in progress 4,997 3,731
-------- --------
127,670 123,268
Less- Accumulated depreciation (73,482) (66,847)
-------- --------
$ 54,188 $ 56,421
======== ========
8. LONG-TERM DEBT AND NOTES PAYABLE:
--------------------------------
Long-term debt consists of the following at December 31 (in
thousands):
F-12
1999 1998
---- ----
LONG-TERM DEBT:
7.88% senior notes, payable in $15,715 annual
installments beginning February 2001 through
2007, with interest payable semiannually $110,000 $110,000
5.5% bank term loan, EUR5.7 million, payable
in seven equal annual installments through
July 2006, with interest payable quarterly 5,711 -
Other notes, interest rates from 8.5% to
9.6% 2,431 5,049
-------- --------
118,142 115,049
Less- Current maturities (3,188) (2,918)
-------- --------
$114,954 $112,131
======== ========
The 7.88% 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
notes without any premium thereon. The agreements 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. Such agreements also
obligate the Company's subsidiaries to provide guarantees to the
holders of the senior notes if guarantees are given by them to
certain other lenders.
At December 31, 1999 and 1998, the estimated fair value of the
Company's long-term debt was approximately $112.4 million and
$111.6 million, respectively.
Principal payments required to be made for each of the next five
years and thereafter are summarized as follows (in thousands):
Years ending December 31 Amount
- ------------------------ ------
2000 $ 3,188
2001 16,590
2002 16,531
2003 16,531
2004 16,531
After 2004 48,771
--------
Total $118,142
========
F-13
The Company has the capacity to borrow up to $20,000,000 under
domestic committed lines of credit. The line of credit facility
expires September 1, 2001. There were no amounts outstanding on
the line of credit during 1999 or 1998.
9. ACCOUNTS PAYABLE AND ACCRUALS:
-----------------------------
Accounts payable and accruals consist of the following at
December 31 (in thousands):
1999 1998
---- ----
Accounts payable - trade $ 13,902 $ 13,471
Compensation and profit sharing 12,288 10,515
Billings in excess of costs and
estimated earnings 7,248 5,406
Interest 3,318 3,219
Other 14,248 12,620
-------- --------
$ 51,004 $ 45,231
======== ========
10. STOCKHOLDERS' EQUITY:
--------------------
Stock Option Plan
- -----------------
Under the 1992 Employee Stock Option Plan (the "Employee Plan")
and Director Stock Option Plan (the "Director Plan"), the
Company may grant options to its employees and directors not to
exceed 1,850,000 and 1,000,000 shares of common stock,
respectively. The plans are administered by the Board of
Directors, which determines the timing of awards, individuals to
be granted awards, the number of options to be awarded and the
price, vesting schedule and other conditions of the options.
The exercise price of each option typically equals the closing
market price of the Company's stock on the date of grant and,
therefore, the Company generally makes no charge to earnings
with respect to these options. Options generally vest over four
or five years and have an expiration date of up to five or ten
years after grant. In February 2000, the Company's Board of
Directors, subject to stockholder approval, increased the number
of shares authorized for issuance under the Employee Plan and
the Director Plan to 2,850,000 and 1,500,000 shares,
respectively.
The Company applies APB Opinion No. 25, in accounting for stock
option grants. In accordance with SFAS No. 123, the Company has
estimated the fair value of each option grant using the
Black-Scholes option-pricing model. The following weighted
average assumptions were used for the grants in 1999, 1998 and
1997, respectively: expected volatility of 41%, 46% and 45%;
risk-free interest rates of 6.4%, 5.1% and 5.8%; expected lives
F-14
of five years and no dividends. Had compensation cost for the
stock options granted been determined based on their fair value
at the grant dates, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share amounts):
1999 1998 1997
Net income: ---- ---- ----
As reported $25,983 $17,887 $9,419
Pro forma 24,404 16,833 8,867
Basic earnings per share:
As reported 1.02 .67 .35
Pro forma .96 .63 .33
Dilutive earnings per share:
As reported 1.00 .66 .35
Pro forma .94 .62 .33
The following tables summarize information about options
outstanding at December 31, 1999:
Options Outstanding Options Exercisable
-------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
- -------------- ----------- ----------- -------- ----------- --------
$4.00 to $10.00 531,913 6.5 years $ 8.47 338,953 $ 8.49
$10.00 to $15.00 880,604 4.7 years $ 13.78 420,393 $ 13.26
$15.00 and above 66,312 4.5 years $ 19.76 16,437 $ 19.74
--------- -------
1,478,829 5.3 years $ 12.14 775,783 $ 11.32
========= =======
1999 1998 1997
------------------- ----------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Options outstanding,
beginning of year 1,508,998 $10.51 1,864,265 $11.59 1,597,379 $12.22
Granted 493,000 15.16 306,000 13.68 568,900 8.75
Exercised (485,558) 10.18 (87,586) 9.28 (70,387) 4.24
Forfeited (37,611) 11.56 (573,681) 15.89 (231,627) 11.18
--------- --------- ---------
Options outstanding,
end of year 1,478,829 $12.14 1,508,998 $10.51 1,864,265 $11.59
========= ========= =========
Options exercisable,
end of year 775,783 $11.32 983,362 $10.48 1,316,429 $12.53
========= ========= =========
Weighted average fair
value of options
granted $6.98 $6.47 $4.16
F-15
At December 31, 1999, 2,850,000 shares of common stock were
reserved pursuant to stock option plans.
11. OTHER INCOME (EXPENSE):
----------------------
Other income (expense) is comprised of the following at December
31 (in thousands):
1999 1998 1997
---- ---- ----
Investment income $ 3,464 $ 3,130 $ 1,842
Other 333 (860) (1,195)
------- ------- -------
$ 3,797 $ 2,270 $ 647
======= ======= =======
12. TAXES ON INCOME:
---------------
Income from continuing operations before taxes on income is as
follows for the years ended December 31 (in thousands):
1999 1998 1997
---- ---- ----
Domestic $ 39,463 $ 25,803 $ 9,432
Foreign 5,972 6,056 7,495
-------- -------- --------
Total $ 45,435 $ 31,859 $ 16,927
======== ======== ========
Provisions for taxes on income from continuing operations
consist of the following components for the years ended
December 31 (in thousands):
1999 1998 1997
---- ---- ----
Current:
Federal $ 12,670 $ 6,730 $ 2,498
Foreign 2,491 3,848 3,519
State 2,029 1,327 280
-------- -------- -------
17,190 11,905 6,297
-------- -------- -------
Deferred:
Federal 1,682 1,031 900
Foreign (180) (76) (302)
State 187 219 172
-------- -------- -------
1,689 1,174 770
-------- -------- -------
Total taxes on income $ 18,879 $ 13,079 $ 7,067
======== ======== =======
A reconciliation between the U.S. federal statutory tax rate and
the effective tax rate follows:
F-16
1999 1998 1997
---- ---- ----
Income taxes at U.S. federal
statutory tax rate 35.0% 35.0% 34.0%
Increase in taxes resulting from:
State income taxes, net of federal
income tax benefit 3.6 3.2 1.1
Tax amortization of intangibles (1.8) (2.6) (4.7)
Goodwill amortization 1.6 2.3 3.2
Effect of foreign income taxed
at foreign rates .2 .3 3.0
Other 3.0 2.9 5.1
---- ---- ----
Total taxes on income 41.6% 41.1% 41.7%
==== ==== ====
Net deferred taxes consist of the following at December 31 (in
thousands):
1999 1998
------ ------
DEFERRED INCOME TAX ASSETS:
Foreign tax credits and net operating
loss carryforwards $ 2,986 $ 3,057
Accrued losses and nondeductible
reserves 1,776 2,160
Accrued compensation 1,264 1,799
Other 1,852 2,137
------- -------
Total deferred income tax assets 7,878 9,153
------- -------
DEFERRED INCOME TAX LIABILITIES:
Depreciation (3,121) (5,268)
Patent defense cost (1,317) (1,833)
Other (4,121) (1,044)
------- -------
Total deferred income tax liabilities (8,559) (8,145)
------- -------
Net deferred income tax (liabilities) assets $ (681) $ 1,008
======= =======
Subject to the future taxable income on certain of the Company's
subsidiaries, the Company's various foreign tax credits and tax
operating loss carryforwards have varying expiration dates, some
ranging from 2004-2010 while others have indefinite lives.
13. COMMITMENTS AND CONTINGENCIES:
-----------------------------
Leases
- ------
The Company leases a number of its administrative operations
facilities under noncancellable operating leases expiring at
various dates through 2020. In addition, the Company leases
F-17
certain construction and automotive equipment on a multiyear
monthly or daily basis. Rent expense under all operating leases
for 1999, 1998 and 1997 was $6,408,000, $6,135,000 and
$9,960,000, respectively.
At December 31, 1999, the future minimum lease payments required
under the noncancellable operating leases were as follows (in
thousands):
Year Ending December 31 Minimum Lease Payments
----------------------- ----------------------
2000 $ 5,127
2001 4,067
2002 3,151
2003 2,344
2004 1,356
After 2004 654
--------
Total $ 16,699
========
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.
Retirement Plans
- ----------------
The Company maintains profit sharing/401(k) plans which cover
substantially all eligible domestic employees. Company profit
sharing contributions are discretionary. Under the terms of its
401(k) features, the plan also provides for the Company to
contribute 100% of the participating employee's contribution up
to 3% of the employee's salary, and 50% of the next 2% of the
employee's salary. Total contributions to the domestic plans
were $3,457,000, $2,885,000 and $2,496,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
In addition, certain foreign subsidiaries maintain various other
defined contribution retirement plans. Company contributions to
such plans for the years ended December 31, 1999, 1998 and 1997,
were $138,000, $103,000 and $132,000, respectively.
14. SEGMENT AND GEOGRAPHIC INFORMATION:
----------------------------------
The Company has principally three operating segments:
rehabilitation, tunnelling and corrosion and abrasion operations
(TiteLiner). These operating units represent strategic business
units that offer distinct products and services and serve
different markets.
F-18
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 the purpose of assisting in making
internal operating decisions. The Company evaluates performance
based on standalone operating income.
There were no customers which accounted for more than 10% of the
Company's revenues during the three years ended December 31,
1999.
Financial information by segment is as follows at December 31
(in thousands):
1999 1998 1997
------ ------ ------
Revenues:
Rehabilitation $ 276,438 $ 225,192 $ 228,072
Tunneling 40,049 32,336 30,215
Tite Liner 23,396 43,430 62,353
--------- --------- ---------
Total revenues $ 339,883 $ 300,958 $ 320,640
========= ========= =========
Operating (loss) income:
Rehabilitation $ 47,178 $ 33,439 $ 15,206
Tunneling 4,965 3,068 1,993
Tite Liner (1,474) 2,181 7,831
--------- --------- ---------
Total operating income $ 50,669 $ 38,688 $ 25,030
========= ========= =========
Total assets:
Rehabilitation $ 197,670 $ 170,289 $ 155,118
Tunneling 14,112 15,914 14,189
Tite Liner 15,185 25,566 34,419
Corporate 84,658 92,839 94,126
--------- --------- ---------
Total assets $ 311,625 $ 304,608 $ 297,852
========= ========= =========
Financial information by geographic area is as follows at
December 31 (in thousands):
1999 1998 1997
------ ------ ------
Revenues:
United States $ 266,113 $ 220,090 $ 225,642
Europe 42,398 32,986 31,216
Canada 12,856 17,850 23,386
South America 9,693 19,033 27,205
Asia 6,400 8,899 9,842
Other 2,423 2,100 3,349
--------- --------- ---------
Total revenues $ 339,883 $ 300,958 $ 320,640
========= ========= =========
F-19
1999 1998 1997
------ ------ ------
Operating income (loss):
United States $ 46,446 $ 30,155 $ 17,227
Europe 5,461 5,473 1,355
Canada 316 1,294 3,724
South America (3,651) 736 1,909
Asia 1,472 1,395 401
Other 625 (365) 414
--------- --------- ---------
Total operating income $ 50,669 $ 38,688 $ 25,030
========= ========= =========
Total assets:
United States $ 219,619 $ 226,851 $ 228,102
Europe 70,964 45,906 33,272
Canada 13,472 16,868 20,179
South America 4,570 10,518 12,093
Asia 2,665 4,048 3,541
Other 335 417 665
--------- --------- ---------
Total assets $ 311,625 $ 304,608 $ 297,852
========= ========= =========
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
---------------------------------------------
(In thousands, except per share data)
1st 2nd 3rd 4th
-------- ------- ------- -------
Year ended December 31, 1999:
Revenues $71,162 $85,640 $93,251 $89,830
Operating income 8,928 12,833 15,634 13,274
Net income 4,250 6,393 7,986 7,354
Basic and dilutive earnings per share .16 .25 .31 .29
Year ended December 31, 1998:
Revenues $63,760 $75,501 $81,047 $80,650
Operating income 7,017 9,254 11,784 10,633
Net income 3,046 4,409 5,566 4,866
Basic and dilutive earnings per share .11 .16 .21 .18
F-20
INDEX TO EXHIBITS(1)(2)
3.1 - Certificate of Incorporation of the
Company (Incorporated by reference to
Exhibit 3.1 to the Quarterly Report
on Form 10-Q for the quarter ended
June 30, 1999).
3.2 - By-Laws of the Company (Incorporated by
reference to Exhibit 3.2 to the Quarterly
Report on Form 10-Q for the quarter
ended June 30, 1999).
10.1 - Note Purchase Agreements dated as of
February 14, 1997 among the Company
and, respectively, each of the lenders
(the "Noteholders") listed therein
(Incorporated by reference to Exhibit
10.6 to the Annual Report on Form 10-K
for the year ended December 31, 1996),
together with First Amendment dated as
of August 20, 1997, Guaranty Agreement
dated as of August 20, 1997 by each of
the subsidiaries named therein to the
Noteholders, and Intercreditor Agreement
dated as of August 20, 1997 among
NationsBank, N.A. and the Noteholders
(Incorporated by reference to Exhibit
10(a) to the Quarterly Report on Form
10-Q for the quarter ended September
30, 1997) and Supplement No. 1 dated
as of March 31, 1998 to Intercreditor
Agreement among NationsBank, N.A. and
the Noteholders, together with Guaranty
Agreement dated as of March 31, 1998 by
Insituform Southwest, Inc. to the
Noteholders (Incorporated by reference
to Exhibit 10.2 to the Annual Report on
Form 10-K for the year ended December 31,
1998).
- -----------------------------
(1) The Company's current, quarterly and annual reports are
filed with the Securities and Exchange Commission under
file no. 0-10786.
(2) Pursuant to Reg. Section 229.601, does not include certain
instruments with respect to long-term debt of the Company
and its consolidated subsidiaries not exceeding 10% of the
total assets of the Company and its subsidiaries on a
consolidated basis. The Company undertakes to furnish to
the Securities and Exchange Commission, upon request, a
copy of all long-term debt instruments not filed herewith.
E-1
INDEX TO EXHIBITS(1)(2) (Continued)
10.2 - Loan Agreement dated as of August 20, 1997
between NationsBank, N.A. and the Company,
together with Unlimited Guaranty dated as
of August 20, 1997 by each of the subsidiaries
named therein to NationsBank, N.A. and
Contribution Agreement dated August 20, 1997
between NationsBank, N.A. and such guarantors
(Incorporated by reference to Exhibit 10(b)
to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997), Amendment
No. 1 to Loan Agreement (Incorporated by
reference to Exhibit 10.5 to the Annual
Report on Form 10-K for the year ended
December 31, 1997), and Amendment No. 2 to
Loan Agreement dated as of September 15,
1998 between NationsBank, N.A. and the
Company, together with Joinder to Unlimited
Guaranty and Contribution Agreement dated
as of March 31, 1998 by Insituform Southwest,
Inc. to NationsBank, N.A. (Incorporated by
reference to Exhibit 10.4 to the Annual Report
on Form 10-K for the year ended December 31,
1998).
10.3 - Agreement dated July 25, 1997 among Jerome
Kalishman, Nancy F. Kalishman, Robert W.
Affholder, Xanadu Investments L.P., The
Jerome and Nancy Kalishman Family Fund,
Paul A. Biddelman, Stephen P. Cortinovis,
Anthony W. Hooper, Silas Spengler, Sheldon
Weinig and Russell B. Wight, Jr. (Incorporated
by reference to Exhibit 99.1 to the Current
Report on Form 8-K dated July 25, 1997),
together with Amendment No. 1 thereto (Incor-
porated by reference to Exhibit 10(d) to the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
- ----------------------------
(1) The Company's current, quarterly and annual reports are
filed with the Securities and Exchange Commission under
file no. 0-10786.
(2) Pursuant to Reg. Section 229.601, does not include certain
instruments with respect to long-term debt of the Company
and its consolidated subsidiaries not exceeding 10% of the
total assets of the Company and its subsidiaries on a
consolidated basis. The Company undertakes to furnish to
the Securities and Exchange Commission, upon request, a
copy of all long-term debt instruments not filed herewith.
E-2
INDEX TO EXHIBITS(1)(2) (Continued)
10.4 - Employment Letter dated July 15, 1998
between the Company and Anthony W.
Hooper (Incorporated by reference to
Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the quarter ended September
30, 1998).(3)
10.5 - Employment Agreement dated October 25,
1995 between the Company and Robert
W. Affholder (Incorporated by reference
to Exhibit 2(d) to the Current Report
on Form 8-K dated October 25, 1995), to-
gether with Amendment No. 1 dated as of
October 25, 1998 to Employment Agreement
between the Company and Robert W. Affholder
(Incorporated by reference to Exhibit 10.9
to the Annual Report on Form 10-K for the
year ended December 31, 1998).(3)
10.6 - Letter agreement dated as of February 9,
1999 between the Company and Thomas N.
Kalishman (Incorporated by reference to
Exhibit 10.10 to the Annual Report on
Form 10-K for the year ended December 31,
1998).(3)
10.7 - Letter agreement dated as of October 9,
1998 between the Company and William A.
Martin, together with notice of even
date therewith from Mr. Martin to the
Company (Incorporated by reference to
Exhibit 10.12 to the Annual Report on
Form 10-K for the year ended December
31, 1998), and Severance Agreement dated
as of June 19, 1997 between the Company
and William A. Martin (Incorporated by
reference to Exhibit 10(b) to the Quarterly
Report on Form 10-Q for the period ended
June 30, 1997).
- ----------------------------------
(1) The Company's current, quarterly and annual reports are
filed with the Securities and Exchange Commission under
file no. 0-10786.
(2) Pursuant to Reg. Section 229.601, does not include certain
instruments with respect to long-term debt of the Company
and its consolidated subsidiaries not exceeding 10% of the
total assets of the Company and its subsidiaries on a
consolidated basis. The Company undertakes to furnish to
the Securities and Exchange Commission, upon request, a
copy of all long-term debt instruments not filed herewith.
(3) Management contract or compensatory plan or arrangement.
E-3
INDEX TO EXHIBITS(1)(2) (Continued)
10.8 - Severance Agreement dated as of March 14,
1999 between the Company and Robert L.
Kelley (Incorporated by reference to
Exhibit 10.14 to the Annual Report on
Form 10-K for the year ended December
31, 1998)(3)
10.9 - Employment letter dated February 10, 1997
between the Company and Carroll Slusher.(3)
10.10 - Equipment Lease dated as of October 10,
1989 between A-Y-K-E Partnership and
Affholder, Inc. (Incorporated by reference
to Exhibit 10.20 to the Annual Report on
Form 10-K for the year ended December 31,
1995).(3)
10.11 - 1992 Employee Stock Option Plan of the
Company.(3)
10.12 - 1992 Director Stock Option Plan of the
Company.(3)
10.13 - Insituform Mid-America, Inc. Stock Option
Plan, as amended (Incorporated by reference
to Exhibit 4(i) to the Registration
Statement on Form S-8 No. 33-63953).(3)
10.14 - Senior Management Voluntary Deferred
Compensation Plan of the Company (In-
corporated by reference to Exhibit 10.19
to the Annual Report on Form 10-K for
the year ended December 31, 1998).(3)
- ----------------------------------
(1) The Company's current, quarterly and annual reports are
filed with the Securities and Exchange Commission under
file no. 0-10786.
(2) Pursuant to Reg. Section 229.601, does not include certain
instruments with respect to long-term debt of the Company
and its consolidated subsidiaries not exceeding 10% of the
total assets of the Company and its subsidiaries on a
consolidated basis. The Company undertakes to furnish to
the Securities and Exchange Commission, upon request, a
copy of all long-term debt instruments not filed herewith.
(3) Management contract or compensatory plan or arrangement.
E-4
INDEX TO EXHIBITS(1)(2) (Continued)
10.15 - Form of Directors' Indemnification
Agreement (Incorporated by reference
to Exhibit 10.47 to the Annual Report
on Form 10-K for the year ended
December 31, 1988).(3)
21 - Subsidiaries of the Company.
23 - Consent of Arthur Andersen LLP.
24 - Power of Attorney (See "Power of
Attorney" in the Annual Report on
Form 10-K).
27 - Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange Commission
for information only and not filed.
- ----------------------------------
(1) The Company's current, quarterly and annual reports are
filed with the Securities and Exchange Commission under
file no. 0-10786.
(2) Pursuant to Reg. Section 229.601, does not include certain
instruments with respect to long-term debt of the Company
and its consolidated subsidiaries not exceeding 10% of the
total assets of the Company and its subsidiaries on a
consolidated basis. The Company undertakes to furnish to
the Securities and Exchange Commission, upon request, a
copy of all long-term debt instruments not filed herewith.
(3) Management contract or compensatory plan or arrangement.
E-5