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 September 30, 2000
---------------------------------
Commission file number #0-10786
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Insituform Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3032158
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
702 Spirit 40 Park Drive, Chesterfield, Missouri 63005
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(Address of Principal Executive Offices)
(636) 530-8000
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(Registrant's telephone number including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
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 November 1, 2000
-------------------------- ---------------------------------
Class A Common Stock, 24,839,996 Shares
$0.01 par value
<PAGE> INDEX
-----
Part I Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets 1
Consolidated Statements of Income 3
Consolidated Statements of Cash Flow 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
Part II Other Information and Signatures:
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
<PAGE>
<TABLE> PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. - FINANCIAL STATEMENTS
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<CAPTION>
Unaudited
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
--------------
Cash and cash equivalents $60,544 $68,183
Trade receivables, less allowance
for doubtful accounts of $2,097
and $3,096, respectively 78,703 58,546
Retainage under construction contracts 15,873
13,253
Costs and estimated earnings in excess
of billings 24,155 12,372
Inventories 12,301 12,525
Prepaid expenses and other 4,534 9,493
-------- --------
TOTAL CURRENT ASSETS 196,110 174,372
-------- --------
PROPERTY AND EQUIPMENT, less accumulated
depreciation 68,803 54,188
-------- --------
OTHER ASSETS
------------
Goodwill, less accumulated amortization
of $21,218 and $18,417, respectively 66,979
64,077
Other assets 16,643 18,988
-------- --------
TOTAL OTHER ASSETS 83,622 83,065
-------- --------
TOTAL ASSETS $348,535 $311,625
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Current maturities of long-term debt
and notes payable $29,448 $3,188
Accounts payable and accrued expenses 65,459
51,004
-------- --------
TOTAL CURRENT LIABILITIES 94,907 54,192
LONG-TERM DEBT, less current maturities 97,980
114,954
OTHER LIABILITIES 1,024 1,168
-------- --------
TOTAL LIABILITIES 193,911 170,314
-------- --------
MINORITY INTERESTS 2,205 2,708
-------- --------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, undesignated, $.10 par -
shares authorized 2,000,000; none
outstanding - -
Common stock, $.01 par - shares authorized
60,000,000; shares outstanding
28,086,347 and 27,787,862 281 278
Additional paid-in capital 78,645 74,809
Retained earnings 37,974 112,338
Treasury stock - 3,244,266 and
2,744,101 shares 58,178) (45,118)
Cumulative foreign currency translation
adjustments (6,303) (3,704)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 152,419 138,603
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $348,535
$311,625
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE> INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $111,042 $93,251 $304,696 $250,053
Cost of revenue 73,095 60,702 202,360 163,760
-------- -------- -------- --------
Gross profit 37,947 32,549 102,336 86,293
Selling, administrative and
general expenses 18,429 16,915 55,910 48,898
-------- -------- -------- --------
Operating income 19,518 15,634 46,426 37,395
Other income (expense):
----------------------
Interest expense (2,313) (2,269) (7,016) (6,713)
Other income 1,152 624 2,892 2,169
-------- -------- -------- --------
Total other income (expense) (1,161) (1,645) (4,124)
(4,544)
Income before taxes on income 18,357 13,989 42,302
32,851
Taxes on income 7,194 5,975 16,772 13,674
-------- -------- -------- --------
Income before minority interests
and equity in earnings 11,163 8,014 25,530 19,177
Minority interests in net income (211) (202) (460)
(638)
Equity in earnings of affiliated 216 174 566
90
companies -------- -------- -------- --------
Net income $11,168 $7,986 $25,636 $18,629
======== ======== ======== ========
Basic earnings per share $0.45 $0.31 $1.03 $0.73
======== ======== ======== ========
Diluted earnings per share $0.44 $0.31 $1.00 $0.71
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE> INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(in thousands)
<CAPTION>
For the Nine Months
Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities:
------------------------------------
Net income $25,636 $18,629
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 13,255 13,893
Other (1,136) 651
Translation adjustments (1,681) (872)
Deferred income taxes 168 (244)
Changes in operating assets and liabilities,
net of assets acquired:
Receivables (33,863) (2,866)
Inventories 51 1,158
Prepaid expenses and other assets 5,509 (1,885)
Accounts payable and accrued expenses 14,661 5,865
------- ------
Net cash provided by operating activities 22,600 34,329
------- ------
Cash flow from investing activities:
------------------------------------
Capital expenditures (24,635) (7,957)
Purchase of business, net of cash acquired (6,440) (11,775)
Other investing activities 1,409 4,052
------- ------
Net cash used in investing activities (29,666) (15,680)
------- ------
Cash flow from financing activities:
------------------------------------
Proceeds from issuance of common stock 3,839 3,422
Purchases of treasury stock (13,060) (22,872)
Proceeds from long-term debt 67 6,128
Repayments of long-term debt (2,550) (2,186)
Increase (decrease) in short-term borrowings 12,167
(659)
-------- --------
Net cash provided by (used in) financing activities 463
(16,167)
-------- --------
Effect of exchange rate changes on cash (1,036) 417
-------- --------
Net increase (decrease) in cash and cash equivalents
for the period (7,639) 2,899
-------- --------
Cash and cash equivalents, beginning of period 68,183
76,904
-------- --------
Cash and cash equivalents, end of period $60,544 $79,803
======== ========
Supplemental disclosures of cash flow information:
--------------------------------------------------
2000 1999
---- ----
Cash paid during nine months ended September 30, for:
-----------------------------------------------------
Interest $9,103 $8,730
Income taxes $12,225 $10,984
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
1. GENERAL
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present
fairly the financial position as of September 30, 2000
(unaudited) and the unaudited results of operations and cash
flows for the three and nine months ended September 30, 2000
and 1999. The financial statements have been prepared in
accordance with the requirements of Form 10-Q and
consequently do not include all the disclosures normally
made in an Annual Report on Form 10-K. Accordingly, the
consolidated financial statements included herein should be
reviewed in conjunction with the financial statements and
the footnotes thereto included in the Company's 1999 Annual
Report on Form 10-K.
The results of operations for the nine months ended
September 30, 2000 and 1999 are not necessarily indicative
of the results to be expected for the full year.
In December 1999, the SEC issued Staff Accounting Bulletin
No. 101 (SAB 101), Revenue Recognition in Financial
Statements, which summarizes certain of the SEC staff's
views on applying generally accepted accounting principles
to revenue recognition in financial statements. The Company
will adopt the accounting provisions of SAB 101 in the
fourth quarter of 2000. Management believes that the
implementation of SAB 101 will not have a significant effect
on the Company's financial condition or results of
operations.
2. COMPREHENSIVE INCOME
For the quarters ended September 30, 2000 and 1999,
comprehensive income was $10.8 million and $8.3 million,
respectively. For the nine months ended September 30, 2000
and 1999, comprehensive income was $23.0 million and $17.8
million, respectively. The Company's adjustment to
comprehensive income consists solely of cumulative foreign
currency translation adjustments.
3. EARNINGS PER SHARE
Earnings per share have been calculated using the following
share information:
<PAGE>
<TABLE>
<PAGE> INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
<CAPTION>
Three Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Weighted average number of common
shares used for basic EPS 24,826,245 25,365,394
Effect of dilutive stock options and
warrants 701,348 689,026
---------- ----------
Weighted average number of common
shares and dilutive potential
common stock 25,527,593 26,054,420
========== ==========
Nine Months Ended September 30,
2000 1999
---- ----
Weighted average number of common
shares used for basic EPS 24,818,153 25,587,396
Effect of dilutive stock options and
warrants 798,150 579,899
---------- ----------
Weighted average number of common
shares and dilutive potential
common stock 25,616,303 26,167,295
========== ==========
</TABLE>
4. SEGMENT REPORTING
The Company has principally three operating segments:
rehabilitation, tunneling and corrosion and abrasion
("TiteLiner(R)"). These operating units represent strategic
business units that offer distinct products and services and
correspond with the current organization structure.
The following disaggregated financial results have been
prepared using a management approach, which is consistent
with the basis and manner with which management internally
disaggregates financial information for purposes of
assisting in making internal operating decisions.
Financial information by segment is as follows (in
thousands):
<PAGE> INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
Three Months Ended September 30,
2000 1999
---- ----
Revenues
Rehabilitation $87,482 $78,176
Tunneling 13,317 10,059
TiteLiner(R) 10,243 5,016
------- -------
Total Revenues $111,042 $93,251
======== =======
Operating Income
Rehabilitation $16,039 $15,013
Tunneling 1,594 1,332
TiteLiner(R) 1,885 (711)
------- ------
Total Operating Income $19,518 $15,634
======= =======
Nine Months Ended September 30,
2000 1999
---- ----
Revenues
Rehabilitation $240,192 $200,886
Tunneling 35,482 30,637
TiteLiner(R) 29,022 18,530
-------- --------
Total Revenues $304,696 $250,053
======= =======
Operating Income
Rehabilitation $35,217 $35,143
Tunneling 4,398 3,993
TiteLiner(R) 6,811 (1,741)
------- ------
Total Operating Income $46,426 $37,395
======= =======
5. ACQUISITIONS
During the third quarter, the Company acquired the remaining
50% ownership of K-Insituform, N.V., its joint venture in
Belgium, for approximately $0.3 million, along with the
remaining 33% ownership of Insituform France, S.A., for
approximately $0.8 million. In addition, in July, the
Company completed its acquisition of 50% of Italcontrolli
Nord, its licensee in Italy, for approximately $1.1 million.
None of the aforementioned acquisitions were considered to
be material.
In February 2000, the Company acquired the rights to the
Insituform(R) Process and NuPipe(R) Process for the states
of New York and New Jersey, through the purchase of all of
the shares of the capital stock of Insituform(R)
<PAGE> INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
Metropolitan, Inc. and the operating assets of certain of
its affiliates. The Company paid the sellers or delivered
into escrow an aggregate of $5.0 million in cash, in
addition to assuming operating liabilities of the acquired
business.
6. LITIGATION
The Company is involved in certain litigation incidental to
the conduct of its business. In the Company's opinion, none
of these proceedings will have a material adverse effect on
the Company's financial position, results of operations and
liquidity. The financial statements include the estimated
amounts of liabilities that are likely to be incurred from
these and various other pending litigation and claims.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included
in the accompanying consolidated financial statements.
GENERAL
-------
The Company's rehabilitation revenues are derived primarily from
direct installation and other contracting activities generated
by the Company's subsidiaries operating in the United States,
Canada, United Kingdom, Belgium, Spain, France, Netherlands,
Chile, and Peru, and include product sales to, and royalties and
license fees paid by, the Company's Insituform(R) licensees and
sub-licensees and its NuPipe(R) licensees. During the three
years ended December 31, 1999, 1998 and 1997, approximately
76.4%, 63.8% and 62.5%, respectively, of the Company's
consolidated revenues related to the Insituform(R) Process.
Statements contained in and preceding management's discussion
and analysis include various forward-looking information that is
based on data currently available to management and management's
beliefs and assumptions. When used in this document, the words
"anticipate," "estimate," "believes," "plans," and similar
expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements.
Such statements are subject to risks and uncertainties, and the
Company's actual results may vary materially from those
anticipated, estimated or projected due to a number of factors,
including, without limitation, the competitive environment for
the Company's products and services, the geographical
distribution and mix of the Company's work, and other factors
set forth in reports and other documents filed by the Company
with the Securities and Exchange Commission from time to time.
RESULTS OF OPERATIONS - Three and Nine Months Ended
--------------------- September 30, 2000 and 1999
Total revenues for the third quarter increased 19.1% to $111.0
million from $93.3 million in 1999. This contributed to an
increase in total revenues for the first nine months of 2000 of
21.9% to $304.7 million from $250.1 million in the first nine
months of 1999. The principal reason for the Company's
increased revenues for the third quarter continued to be growth
in the Company's North American installation and tunneling
operations. In addition, the Company's TiteLiner(R) revenues
increased 104.2% or $5.2 million over the prior year's third
quarter, and increased 56.6% or $10.5 million for the first nine
months of 2000 compared to the same period last year.
<PAGE>
The Company's gross profit during the third quarter increased
16.6% to $37.9 million from $32.5 million in the third quarter
of 1999, and during the first nine months of 2000 increased
18.6% to $102.3 million from $86.3 million during the first nine
months of 1999. This increase was primarily due to increased
revenues as well as increased profitability from the Company's
North American rehabilitation and TiteLiner(R) operations. The
overall gross profit margin for the third quarter of 2000 was
34.2% compared to 34.9% in the third quarter of 1999, and for
the first nine months of 2000 was 33.6% compared to 34.5% in the
prior year. The principal reason for the lower gross profit
margin for the third quarter and first nine months of 2000 was
weaker margins in Europe resulting from lower revenue, as well
as an increased contribution from the Company's tunneling
operations, which traditionally achieve a lower margin base.
In the third quarter of 2000, selling, administrative and general
expenses increased 9.0% to $18.4 million from $16.9 million in
the same quarter of the prior year, and during the first nine
months of 2000 increased 14.3% to $55.9 million from $48.9
million in the same period of last year. The third quarter
increase was mainly due to ongoing costs related to the
Company's management information system improvements, as well as
increases in compensation from additions made to field personnel
in North America and the additions of the New York, Spanish and
Belgian operations to expense in 2000.
As a percentage of revenues, selling, administrative and general
expenses decreased in the third quarter of 2000 to 16.6% from
18.1% in the comparable quarter of the prior year, and for the
first nine months of 2000 decreased to 18.3% from 19.6% in the
first nine months of 1999. This decrease is primarily
attributable to revenue volume increasing at a faster rate than
selling, administrative and general costs, along with management
control of costs.
Interest expense in the third quarter of 2000 was unchanged at
$2.3 million compared to the third quarter of 1999, and for the
first nine months of 2000 increased 4.5% to $7.0 million from
$6.7 million for the same period in the prior year. This
increase was primarily due to additional debt from the
acquisition in June 1999 of the Company's Dutch licensee, offset
somewhat by payments of deferred consideration attributable to
the Company's 1998 acquisition of Video Injection, S.A.
Other income increased in the third quarter of 2000 to $1.2
million from $0.6 million in the third quarter of 1999, and
increased in the first nine months of 2000 to $2.9 million from
$2.2 million in the first nine months of 1999. This change was
related to increased investment income resulting from a maturity
<PAGE>
of a long-term investment during the third quarter of 2000 and
more effective management of investments.
For the nine months ended September 30, 2000, the Company's
effective income tax rate was 39.6% compared to 41.6% for the
nine-month period in 1999. This was due primarily to more
effective management over worldwide taxes, along with the
reduced effect of non-deductible goodwill amortization.
In the third quarter of 2000, taxes on income increased 20.4% to
$7.2 million from $6.0 million in 1999. In the first nine
months of 2000, taxes on income increased 22.7% to $16.8 million
from $13.7 million in the first nine months of 1999 due
primarily to a 28.8% increase in income before taxes.
In the third quarter of 2000, minority interest in net income
was relatively unchanged compared to the prior year, and for the
first nine months of 2000 decreased to $0.5 million from $0.6
million for the first nine months of 1999. This decrease was
due primarily to the Company's increased ownership in Insituform
Linings Plc, the Company's manufacturing operation in Europe.
Equity earnings of affiliated companies were $216,000 in the
third quarter of 2000 as compared to $174,000 in the same period
of 1999, and were $566,000 for the first nine months of 2000 as
compared to $90,000 for the same period last year. This
increase is due primarily to the elimination of losses from the
Midsouth partnership from which the Company withdrew in the
third quarter of 1999.
As a result of the above, net income for the third quarter of
2000 increased 39.8% to $11.2 million, representing a 10.1%
return on revenue, compared to $8.0 million for the third
quarter of 1999, when an 8.6% return on revenue was achieved.
For the first nine months of 2000, net income increased 37.6% to
$25.6 million, or an 8.4% return on revenue, compared to $18.6
million in the first nine months of 1999, when a 7.5% return on
revenue was achieved.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 2000, the balance of cash, U.S. Treasury bills,
and short-term investments was $60.5 million, compared to $68.2
million at December 31, 1999. The decrease in cash and cash
equivalents in 2000 resulted primarily from capital expenditures
of $24.6 million, along with operation of the Company's
previously reported stock repurchase program, which used cash in
the amount of $13.1 million in the first nine months of 2000.
In addition, $7.4 million was used to acquire the Company's
licensee in New York and New Jersey, one-half of the interest in
the Company's Italian licensee, and the entire equity interest
held by unaffiliated parties in the Company's French licensee
<PAGE>
(33%) and its Belgian licensee (50%). These cash outlays were
offset somewhat by generation of cash from operating activities
of $22.6 million and proceeds from the issuance of common stock
upon exercise of stock options of $3.8 million. Working capital
was $101.2 million at September 30, 2000, compared to $120.2
million at December 31, 1999. The decrease was primarily due to
an increase in current maturities of long-term debt of $15.7
million equal to the first principal payment, due February 2001,
on the Company's Senior Notes, Series A (final maturity February
14, 2007) (the "Senior Notes"), along with an increase in
borrowings on current revolving credit facilities of $12.1
million.
Trade receivables, together with costs and estimated earnings in
excess of billings and retainage under construction contracts,
increased 41.1% to $118.7 million from $84.2 million at December
1999. This increase was primarily attributable to the growth in
the Company's revenue for the third quarter of 2000. 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 $24.6 million in the first nine months
of 2000, compared to $8.0 million in the first nine months of
1999. Capital expenditures generally reflect replacement
equipment required by the Company's installation operations.
During the first nine months of 2000, capital expenditures also
reflected approximately $8.1 million related to the acquisition
of real estate, including properties adjacent to the Company's
Chesterfield campus, as part of the Company's growth strategies
and productivity improvements, as well as additional
installation equipment to support the growth experienced in
North America.
During the first quarter of 2000, the Company acquired the
rights to the Insituform(R) Process and NuPipe(R) Process for
the states of New York and New Jersey, through the purchase of
all of the shares of the capital stock of Insituform(R)
Metropolitan, Inc. and the operating assets of certain of its
affiliates. The Company paid the sellers or delivered into
escrow an aggregate of $5.0 million in cash, in addition to
assuming operating liabilities of the acquired business. During
the third quarter of 2000, Insituform Italia s.r.l., a newly
formed joint venture of the Company and Per Aarsleff A/S,
acquired Italcontrolli Nord s.r.l., the Insituform(R) Process
licensee in Italy, for $1.2 million. During the third quarter,
<PAGE>
the Company acquired the remaining 50% ownership of K-
Insituform, N.V., its joint venture in Belgium, for
approximately $0.3 million, along with the remaining 33%
ownership of Insituform France, S.A., for approximately $0.8
million.
Financing activities provided $0.5 million in the first nine
months of 2000, as compared to cash used of $16.2 million in the
first nine months of 1999. In mid-1998, the Company authorized
the repurchase of up to 2,700,000 shares of the Company's class
A common stock, $.01 par value ("Common Stock"), to be made from
time to time over five years in open market transactions. The
amount and timing of purchases will be dependent upon a number
of factors, including the price and availability of the
Company's shares, general market conditions and competing
alternative uses of funds, and may be discontinued at any time.
In October 1999, the Company increased the original
authorization by an additional 2,000,000 shares of Common Stock
through the period ending June 2003. During the nine months
ended September 30, 2000, the Company used cash in the amount of
$13.1 million for the repurchase of 500,165 shares. The Company
has used cash in the cumulative amount of $54.9 million for the
repurchase of 2,988,465 shares through September 30, 2000 since
inception of the stock repurchase program. The repurchased
shares will be held as treasury stock.
In the first nine months of 2000, the Company made principal
payments totaling $2.6 million relating to the Company's
existing debt, as compared to $2.2 million in the first nine
months of 1999. The Company generated $3.8 million from the
issuance of Common Stock from stock options granted to employees
and directors, as compared to $3.4 million in the first nine
months of 1999.
The Company's $110 million principal amount of Senior Notes bear
interest, payable semi-annually in August and February of each
year, at the rate per annum of 7.88%. Each year, from February
2001 to February 2006, inclusive, the Company will be required
to make principal payments of $15.7 million, together with an
equivalent payment at maturity. The Senior Notes may be prepaid
at the Company's option, in whole or in part, at any time,
together with a make whole premium, and upon specified change in
control events each holder has the right to require the Company
to purchase its Senior Note without any premium thereon.
In March 2000, the Company entered into a new credit agreement
(the "Credit Agreement") whereby the lender will make available
to the Company up to $50,000,000 aggregate principal amount for
working capital and permitted acquisitions, including
$30,000,000 available for standby and commercial letters of
credit, on a revolving basis through March 30, 2003, at which
<PAGE>
time principal will be repayable. Interest on outstanding
advances accrues, at the election of the Company, at either the
lender's prime rate, the federal funds rate plus .5% or the
lender's offshore rate plus a margin ranging from .5% to 1.5%
depending on the maintenance of certain financial ratios, and is
payable quarterly. Upon specified change in control events, the
lender has the right to require the Company to repay outstanding
amounts without any premium thereon. At the end of the third
quarter of 2000, the Company had $12 million outstanding under
the Credit Agreement, which has been subsequently repaid.
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 beginning in 2000, and accrues
interest, payable quarterly, at the rate of 5.5% per annum.
Management believes its current working capital will be adequate
to meet its requirements for the foreseeable future.
MARKET RISK
-----------
The Company conducts its rehabilitation activities on a
worldwide basis, giving rise to exposures related to changes in
foreign currency exchange rates. For example, foreign currency
exchange rate movements may create a degree of risk to the
Company's operations by affecting: (i) the U.S. dollar value of
sales made in foreign currencies, and (ii) the U.S. dollar value
of costs incurred in foreign currencies. In addition, the
Company is exposed to market risks related to changes in
interest rates. The Company's objective is to minimize the
volatility in earnings and cash flow from these risks.
The Company has selectively used, and will continue to use,
forward exchange contracts in order to manage its currency
exposure. Forward exchange contracts are executed by the
<PAGE>
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 September 30, 2000, a 10% weakening in
the U.S. dollar across all currencies or 10% increase in
interest rates would not have a material impact on the financial
position, results of operations or cash flows of the Company.
These effects of hypothetical changes in currency exchange rates
and in interest rates, however, ignore other effects the same
movement may have arising from other variables, and actual
results could differ from the sensitivity calculations of the
Company. The Company regularly assesses these variables,
establishes policies and business practices to protect against
the adverse effects of foreign currency and interest rate
fluctuations and does not anticipate any material losses
generated by these risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
For information concerning this item, see "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk," which information is incorporated
herein by reference.
<PAGE>
PART II - OTHER INFORMATION
----------------------------
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes since the filing of
the Company's Form 10-Q for the period ended June 30, 2000. See
Form 10-Q, Part II, Item 1, "Legal Proceedings."
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 September 30, 2000, the
Company did not file any Current Reports on Form 8-K
<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.
November 13, 2000 By: s/Joseph A. White
---------------------------------
Joseph A. White
Vice President - Chief Financial Officer
Principal Financial and
Accounting Officer
<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.
