FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
---------------------------------
Commission file number #0-10786
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Insituform Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3032158
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
702 Spirit 40 Park Drive, Chesterfield, Missouri 63005
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(Address of Principal Executive Offices)
(314) 530-8000
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(Registrant's telephone number including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at May 1, 1999
- -------------------------- ---------------------------------
Class A, Common Stock, 25,484,837 Shares
$0.01 par value<PAGE>
<PAGE>
INDEX
-----
Part I Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Part II Other Information and Signatures:
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits<PAGE>
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
-------------------------------
ITEM 1. - FINANCIAL STATEMENTS
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
Unaudited
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
--------------
Cash and cash equivalents $66,834 $76,904
Trade receivables, less allowance
for doubtful accounts of $2,957
and $2,909, respectively 43,868 52,280
Retainage under construction contracts 10,684 12,368
Costs and estimated earnings in excess
of billings 15,475 9,792
Inventories 9,954 11,282
Prepaid expenses and other 7,311 7,479
-------- --------
TOTAL CURRENT ASSETS 154,126 170,105
-------- --------
PROPERTY AND EQUIPMENT, less accumulated
depreciation 54,579 56,421
-------- --------
OTHER ASSETS
- ------------
Goodwill, less accumulated amortization of
$15,866 and $15,078, respectively 55,770 56,504
Patents and patent applications, less
accumulated amortization of $6,030 and
$5,663, respectively 10,867 11,172
Investments in licensees and affiliated
companies 5,127 5,234
Other 5,153 5,172
-------- --------
TOTAL OTHER ASSETS 76,917 78,082
-------- --------
TOTAL ASSETS $285,622 $304,608
======== ========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
Unaudited
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $34,994 $45,231
Current maturities of long-term debt
and notes payable 2,210 2,918
-------- --------
TOTAL CURRENT LIABILITIES 37,204 48,149
LONG-TERM DEBT, less current maturities 111,632 112,131
OTHER LIABILITIES 1,069 1,115
-------- --------
TOTAL LIABILITIES 149,905 161,395
-------- --------
MINORITY INTERESTS 3,905 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 27,455,043
and 27,302,304 275 273
Additional paid-in capital 70,726 68,931
Retained earnings 90,605 86,355
-------- --------
161,606 155,559
Treasury stock - 1,893,801 and 991,701
shares (26,955) (13,097)
Cumulative foreign currency translation
adjustments (2,839) (2,957)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 131,812 139,505
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $285,622 $304,608
======== ========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except share amounts)
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Rehabilitation revenue $71,162 $63,760
Cost of rehabilitation 47,012 41,866
-------- --------
Gross profit 24,150 21,894
Selling, administrative and general 15,222 14,877
-------- --------
Operating income 8,928 7,017
Other expense:
- --------------
Interest expense (2,214) (2,313)
Other income 927 541
-------- --------
Total other expense (1,287) (1,772)
-------- --------
Income before taxes on income 7,641 5,245
Taxes on income 3,092 2,081
-------- --------
Income before minority interests and
equity in earnings 4,549 3,164
Minority interests in net income (199) (77)
Equity in earnings of affiliated companies (100) (41)
-------- --------
Net income $4,250 $3,046
======== ========
Basic and diluted earnings per share $0.16 $0.11
======== ========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net income $4,250 $3,046
Adjustments to reconcile net income to cash used by
operating activities:
Depreciation and amortization 4,645 4,585
Miscellaneous 35 (452)
Equity in earnings of affiliated companies 100 41
Minority interests 199 77
Deferred income taxes (173) (41)
Changes in operating assets and liabilities, net
of assets acquired:
Receivables 10,033 11,977
Costs in excess of billings under construction (5,683) (3,757)
Inventories 1,395 586
Prepaid expenses and other (1,307) 571
Other assets (43) (240)
Accounts payable and accruals (8,594) (8,445)
Income taxes payable 105 (354)
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Net cash provided by operating activities 4,962 7,594
------- ------
Cash flows from investing activities:
- -------------------------------------
Capital expenditures (1,924) (3,229)
Proceeds on disposal of property and equipment 356 968
Patents and patent applications (24) (156)
------- ------
Net cash used by investing activities (1,592) (2,417)
------- ------
(continued)
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from financing activities:
- -------------------------------------
Proceeds from issuance of common stock 1,796 33
Purchases of treasury stock (13,858) -
Decrease in short-term borrowings (466) (403)
Repayments of long-term debt (700) (295)
------- -------
Net cash used by financing activities (13,228) (655)
------- -------
Effect of exchange rates changes on cash (212) 35
------- -------
Net increase (decrease) in cash and cash
equivalents for the period (10,070) 4,547
------- -------
Cash and cash equivalents, beginning of period 76,904 45,734
------- -------
Cash and cash equivalents, end of period $66,834 $50,281
======= =======
Supplemental disclosures of cash flows information:
- ---------------------------------------------------
1999 1998
---- ----
Cash paid during three months ended March 31, for:
--------------------------------------------------
Interest $4,351 $4,469
Income taxes $2,520 $2,268
Non-cash investing and financing activities:
--------------------------------------------
Deferred consideration for business acquired - $1,005
See accompanying summary of accounting policies and notes to consolidated
financial statements.
/TABLE
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
1. GENERAL
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present
fairly the financial position as of March 31, 1999
(unaudited) and the unaudited results of operations and cash
flows for the three months ended March 31, 1999 and 1998.
The financial statements have been prepared in accordance
with the requirements of Form 10-Q and consequently do not
include all the disclosures normally made in an Annual
Report on Form 10-K. Accordingly, the consolidated
financial statements included herein should be reviewed in
conjunction with the financial statements and the footnotes
thereto included in the Company's 1998 Annual Report on Form
10-K.
The results of operations for the three months ended March
31, 1999 and 1998 are not necessarily indicative of the
results to be expected for the full year.
2. COMPREHENSIVE INCOME
For the quarters ended March 31, 1999 and 1998,
comprehensive income was $4.4 million and $2.4 million,
respectively. The Company's adjustment to comprehensive
income consists solely of cumulative foreign currency
translation adjustments.
3. EARNINGS PER SHARE
Earnings per share has been calculated using the following
share information:
Three Months Ended March 31,
1999 1998
---- ----
Weighted average number of
common shares used for
basic EPS 25,967,417 26,959,238
Effect of dilutive stock
options and warrants 385,039 56,597
---------- ----------
Weighted average number of
common shares and dilutive
potential common stock 26,352,456 27,015,835
========== ==========
<PAGE>
4. SEGMENT REPORTING
The Company has principally three operating segments:
rehabilitation, tunneling and corrosion and abrasion ("Tite
Liner(R)"). These operating units represent strategic
business units that offer distinct products and services and
serve different markets.
The following disaggregated financial results have been
prepared using a management approach, which is consistent
with the basis and manner with which management internally
disaggregates financial information for purposes of
assisting in making internal operating decisions.
Financial information by segment is as follows (in
thousands):
Three Months Ended March 31,
1999 1998
---- ----
Revenues
Rehabilitation $55,431 $49,157
Tunneling 9,573 6,789
Tite Liner 6,158 7,814
------- -------
Total Revenues $71,162 $63,760
======= =======
Operating Income
Rehabilitation $8,201 $6,228
Tunneling 1,014 658
Tite Liner (287) 131
------ ------
$8,928 $7,017
====== ======
5. CURRENT EVENTS
The Company has delivered notice of termination of its joint
venture with Insituform East, Inc. (an unaffiliated
licensee) which does business under the name of Midsouth
Partners and has terminated Midsouth's Insituform(R)
license, both of which Insituform East has disputed. The
Company does not expect a material impact on its results of
operations as a result of this event.
6. LITIGATION
The Company is involved in certain litigation incidental to
the conduct of its business. In the Company's opinion, none
of these proceedings will have a material adverse effect on
the Company's financial position, results of operations and<PAGE>
<PAGE>
liquidity. The financial statements include the estimated
amounts of liabilities that are likely to be incurred from
these and various other pending litigation and claims.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included
in the accompanying consolidated financial statements.
GENERAL
- -------
The Company's revenues derive primarily from rehabilitation,
tunneling and corrosion and abrasion operations, generated by
the Company's subsidiaries conducting business in the United
States, Canada, France, the United Kingdom, Chile, Argentina and
Mexico, and include product sales to, and royalties and license
fees paid by, the Company's 35 unaffiliated Insituform(R)
licensees and sub-licensees and its seven unaffiliated NuPipe(R)
licensees. During the three years ended December 31, 1998, 1997
and 1996, approximately 63.8%, 62.5% and 69.7%, respectively, of
the Company's consolidated revenues related to the Insituform(R)
Process.
Statements contained in and preceding management's discussion
and analysis include various forward-looking information that is
based on data currently available to management and management's
beliefs and assumptions. When used in this document, the words
"anticipate," "estimate," "believes," "plans," and similar
expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements.
Such statements are subject to risks and uncertainties, and the
Company's actual results may vary materially from those
anticipated, estimated or projected due to a number of factors,
including, without limitation, the competitive environment for
the Company's products and services, the geographical
distribution and mix of the Company's work, and other factors
set forth in reports and other documents filed by the Company
with the Securities and Exchange Commission from time to time.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 1999 Compared to Three Months Ended
March 31, 1998
Total rehabilitation revenues increased 11.6% to $71.2 million
from $63.8 million in 1998. The principal reason for the
increase was increased volume from the Company's rehabilitation
operations in North America and Europe, as well as the Company's
tunneling operations, which posted a 41.0% gain compared to the<PAGE>
<PAGE>
same quarter in the prior year. The Company's corrosion and
abrasion operations' revenues for the first quarter 1999
decreased 24.5% compared to the same quarter in the prior year
principally due to lower volume in Canada and Chile.
The Company's gross profit from rehabilitation activities
increased 10.5% to $24.2 million for first quarter 1999 from
$21.9 million in the first quarter of 1998, primarily due to
improved gross profit from the Company's North American and
European 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 and contracting difficulties in Chile. The overall
gross profit margin for first quarter 1999 was 33.9% compared to
34.3% in the first quarter of 1998, primarily due to lower
margins achieved in the Company's corrosion and abrasion
operations.
In first quarter 1999, selling, administrative and general
expenses increased 2.0% to $15.2 million from $14.9 million in
the same quarter in the prior year. This increase was due to
modest increases in compensation, legal fees, and ongoing costs
related to the Company's management information system's
improvements. These increases were offset somewhat by cost
savings obtained from the reorganization of the Company's
corrosion and abrasion operations through elimination of
personnel. As a percentage of revenues, selling, administrative
and general expenses decreased in the first quarter of 1999 to
19.4% from 21.2% in the comparable quarter of the prior year,
reflecting increased revenue volume in 1999.
Interest expense in first quarter 1999 decreased 4.3% to $2.2
million from $2.3 million in first quarter 1998, due primarily
to lower revolving credit borrowings in the Company's
subsidiaries.
Other income increased in first quarter 1999 to $0.9 million
from $0.5 million in first quarter 1998, due principally to
increased investment income resulting from more invested cash
and cash equivalents in 1999.
The Company's 1999 effective tax rate was 40.5%, as compared to
39.7% in 1998. This increase was principally due to a slightly
less favorable mix of income generated in jurisdictions with
lower tax rates in 1999 compared to 1998.
As a result of the foregoing, net income for first quarter 1999
increased 43.3% to $4.3 million, representing a 6.0% return on
revenue, compared to $3.0 million for first quarter 1998, when a
4.8% return on revenue was achieved.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1999, the balance of cash, U.S. Treasury bills, and
short-term investments was $66.8 million, compared to $76.9
million at December 31, 1998. The decrease in cash and cash
equivalents in 1999 resulted from operation of the Company's
previously reported stock repurchase program, which used cash in
the amount of $13.9 million in the first quarter of 1999, along
with capital spending of $1.9 million, offset somewhat by the
Company's continued strong positive generation of cash from
operating activities of $5.0 million. Working capital was
$116.9 million at March 31, 1999, compared to $122.0 million at
December 31, 1998.
While operating activities generated cash of $5.0 million during
the first quarter of 1999, $7.6 million was generated in the
first quarter of 1998. The principal reason for the decrease
was an unfavorable change in operating assets of $4.1 million
during the first quarter of 1999, as compared to a favorable
change of $0.3 million during the first quarter of 1998. The
unfavorable change in the first quarter of 1999 was due to
increases in costs in excess of billings on construction
contracts resulting from increased installation activity in
March, and decreases in accounts payable and accrued expenses
resulting from seasonal payments of interest and compensation
expenses.
Trade receivables, together with costs and estimated earnings in
excess of billings and retainage under construction contracts,
decreased 5.9% to $70.0 million from $74.4 million at December
1998, primarily attributable to stronger management control over
collections. The collection cycle for construction receivables
is generally longer than that of the Company's manufacturing and
royalty operations due to provisions for retainage, often 5% to
15% of the contract amount, as well as the slow internal review
processes often employed by the construction subsidiaries'
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 $1.9 million in the first quarter of
1999, compared to $3.2 million in the first quarter of 1998.
Capital expenditures generally reflect replacement equipment
required by the Company's contracting operations. During the
first quarter of 1998, capital expenditures also reflected
approximately $0.5 million related to the completion of the
Company's new research and development center.
While the Company expects that routine capital spending will
continue at the current level in the foreseeable future, the
Company has several information system improvement initiatives
underway that will require increased expenditures during the
next several years. These initiatives, which began principally<PAGE>
<PAGE>
in 1997, include 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 during the course of 1999, of which
$0.2 million was spent during the first quarter of 1999. See
"Year 2000" below for information concerning the impact of year
2000 issues on the Company's operations.
Financing activities used $13.2 million in the first quarter of
1999, as compared to cash used of $0.7 million in the first
quarter of 1998. In July 1998, the Company announced that its
Board of Directors had authorized the repurchase of up to
2,700,000 shares of the Company's class A common stock, $.01 par
value, to be made from time to time over five years in open
market transactions. The amount and timing of purchases will be
dependent upon a number of factors, including the price and
availability of the Company's shares, general market conditions
and competing alternative uses of funds, and may be discontinued
at any time. During the three months ended March 31, 1999, the
Company used cash in the amount of $13.9 million for the
repurchase of 902,100 shares. The Company has used cash in the
cumulative amount of $23.7 million for the repurchase of
1,638,000 shares through March 31, 1999 since inception of the
stock repurchase program. The repurchased shares will be held
as treasury stock.
In the first quarter of 1999, the Company made principal
payments totaling $0.7 million relating to the Company's
existing debt, as compared to $0.3 million in the first quarter
of 1998. The Company generated $1.8 million from the issuance
of common stock from stock options granted to employees, as
compared to $33,000 in the first quarter of 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<PAGE>
<PAGE>
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 March 1998, the Company completed the acquisition of the
entire minority interest in its Chilean subsidiary for an
aggregate purchase price of approximately $2.1 million, $1.0
million of which was paid in connection with closing, $0.6
million of which is paid in March 1999, the first anniversary of
closing, and the remainder of which is due on the second
anniversary of closing. In September 1998, the Company
completed its acquisition of 80% of the shares of Video
Injection S.A. The purchase price for the these shares was $5.0
million, $2.4 million of which was paid at closing, $1.3 million
of which is due on the first anniversary of closing, and $1.3
million of which is due on the second anniversary of closing,
such additional installments secured by the Company's letter of
credit arrangements. On the fifth anniversary of closing (or
earlier, in specified events), the Company will purchase the
remaining 20% of the shares of Video Injection pursuant to a
formula based on Video Injection's results of operations.
In February 1999, the Company offered $2.50 for each share of
outstanding common stock and Class B common stock of Insituform
East, Inc. (an aggregate of 4,356,862 shares of which were
outstanding on February 1, 1999). In March 1999, the Company
withdrew its offer after not receiving any substantive response
from Insituform East. The Company has delivered notice of
termination of its joint venture with Insituform East which does
business under the name Midsouth Partners and has terminated
Midsouth's Insituform(R) license, both of which Insituform East
has disputed. Various legal proceedings concerning these
matters continue.
<PAGE>
<PAGE>
Management believes its current working capital 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, the Company is reviewing its internal computer
programs and systems to ensure year 2000 compliance. In 1998,
the Company established a project team to address year 2000
risks facing the Company, and its customers and suppliers, and
engaged an internationally-recognized consulting firm to assist
the team with implementing programs addressing preparedness of
the Company. The project team continues to coordinate the
identification and implementation of changes to computer
hardware and software applications that will attempt to ensure
the availability and integrity of the Company's information
systems. The project team is also reviewing and analyzing 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.
The project team has identified the Company sites and entities
that may harbor assets at risk, collecting pertinent
information, establishing year 2000 disposition strategies and
assessing and reporting risks. The Company's manufacturing
system has been modified so as to achieve year 2000 compliance
in all material respects, and the Company has identified
additional systems that will be replaced by year end. The
Company's project team provides consulting services where needed
in the areas of project planning and estimating, testing and
technical issues, and runs remedial projects as appropriate.
The Company also faces risk to the extent that suppliers of
products, services and systems purchased by the Company and
others with whom the Company transacts business on a worldwide
basis do not comply with year 2000 requirements. Principal
areas of the Company's review are banking systems (and the
effects on receivables, payables and payroll),
telecommunications, suppliers to the Company's manufacturing and
operating units (such as felt and resin), transportation systems
(both inbound and outbound), and customer information systems
for order placement and release and payment of invoices. The
Company's project team has initiated formal communications with<PAGE>
<PAGE>
representatives from significant outside parties that transact
with the Company to determine the extent to which the Company is
vulnerable to failure by them to remediate their own year 2000
issues. In the case of suppliers to the Company's manufacturing
and operating units, verification will include site visits. The
Company's strategy will entail proactive compliance assessment
in the case of these parties when appropriate, as well as
maintaining paper records of transactions when advisable and
inventory stocks of key materials.
The Company expects to complete its year 2000 compliance program
during 1999 and, based on information collected, presently
believes that any significant issues within its own operations
and facilities will be addressed in a timely manner. However,
while the Company has not identified material difficulties
presented by its suppliers or in its financial or communications
support that are not being addressed, and while the estimated
cost of the Company's efforts is not expected to be material to
the Company's financial position or any year's results of
operations, there can be no assurance to this effect.
Based on management's current assessment that no material
exposure to significant business interruption exists, the
Company has not adopted any formal contingency plan in the event
its year 2000 project is not completed in a timely manner, or in
the event unforeseen difficulties arise. The Company will
appropriately modify its strategy as additional circumstances
come to its attention, but there can be no assurance that the
Company will timely identify and remediate all significant year
2000 problems, and that remedial efforts will not involve
significant time and expense, or that such problems will not
have a material adverse effect on the Company's business,
results of operations or financial position.
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<PAGE>
<PAGE>
Company has not deemed it necessary to offset any interest rate
exposure. Furthermore, the Company does not enter into
transactions involving derivative financial instruments for
speculative trading purposes.
Based on the Company's overall currency exchange rate and
interest rate exposure at March 31, 1999, a ten percent
weakening in the U.S. dollar across all currencies or ten
percent increase in interest rates would not have a material
impact on the financial position, results of operations or cash
flows of the Company. These effects of hypothetical changes in
currency exchange rates and in interest rates, however, ignore
other effects the same movement may have arising from other
variables, and actual results could differ from the sensitivity
calculations of the Company. The Company regularly assesses
these variables, establishes policies and business practices to
protect against the adverse effects of foreign currency and
interest rate fluctuations and does not anticipate any material
losses generated by these risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
For information concerning this item, see "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk," which information is incorporated
herein by reference.<PAGE>
<PAGE>
PART II. - OTHER INFORMATION
----------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this Quarterly
Report on Form 10-Q are listed on the annexed Index to Exhibits.
(b) During the quarter ended March 31, 1999, the
Company filed Current Reports on Form 8-K dated, respectively,
February 16, 1999, March 2, 1999 and March 10, 1999 reporting
its subsequently withdrawn offer to acquire Insituform East,
Inc. and its termination of the license to Midsouth Partners,
which Insituform East has disputed. No financial statements
were filed as part of any such report.<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INSITUFORM TECHNOLOGIES, INC.
May 13, 1999 By: s/William A. Martin
---------------------------------
William A. Martin
Senior Vice President and
Principal Financial and
Accounting Officer<PAGE>
<PAGE>
INDEX TO EXHIBITS
------------------
27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and is not filed.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 66,834
<SECURITIES> 1
<RECEIVABLES> 43,868
<ALLOWANCES> 2,957
<INVENTORY> 9,954
<CURRENT-ASSETS> 154,126
<PP&E> 54,579
<DEPRECIATION> 67,571
<TOTAL-ASSETS> 285,622
<CURRENT-LIABILITIES> 37,204
<BONDS> 0
0
0
<COMMON> 275
<OTHER-SE> 131,537
<TOTAL-LIABILITY-AND-EQUITY> 285,622
<SALES> 5,379
<TOTAL-REVENUES> 71,162
<CGS> 3,348
<TOTAL-COSTS> 43,664
<OTHER-EXPENSES> 15,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,214
<INCOME-PRETAX> 7,641
<INCOME-TAX> 3,092
<INCOME-CONTINUING> 4,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,250
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
