-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S61ODKAM7GG2jgy5ID9jrR5yV3ThMwPYfKEZ4dgZOR03aznPbrLYzdNaxwj5FktR QHNKa6tHygqrSwJLN1Ok2g== 0000922907-01-500030.txt : 20010416 0000922907-01-500030.hdr.sgml : 20010416 ACCESSION NUMBER: 0000922907-01-500030 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010228 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSITUFORM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000353020 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 133032158 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-10786 FILM NUMBER: 1601481 BUSINESS ADDRESS: STREET 1: 702 SPIRIT 40 PARK DRIVE CITY: CHESTERFIELD STATE: MO ZIP: 63005 BUSINESS PHONE: 6365308000 MAIL ADDRESS: STREET 1: 702 SPIRIT 40 PARK DRIVE CITY: CHESTERFIELD STATE: MO ZIP: 63005 FORMER COMPANY: FORMER CONFORMED NAME: INSITUFORM OF NORTH AMERICA INC/TN/ DATE OF NAME CHANGE: 19930617 8-K/A 1 form8ka_041001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 28, 2001 ------------------------------------ INSITUFORM TECHNOLOGIES, INC. ------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 0-10786 13-3032158 - ------------------------------- ----------------------- -------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) 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 ---------------------- This amends the Insituform Technologies, Inc. ("Insituform") Form 8-K filed on March 14, 2001 to provide financial statements and pro forma information. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED Report of Independent Public Accountants Audited Financial Statements of Kinsel Industries, Inc. ("Kinsel") and Tracks of Texas, Inc. ("Tracks"): (i) Combined Balance Sheet as of December 31, 2000. (ii) Combined Statement of Income for the Year Ended December 31, 2000. (iii) Combined Statement of Stockholders' Equity for the Year Ended December 31, 2000. (iv) Combined Statement of Cash Flows for the Year Ended December 31, 2000. (v) Notes to Combined Financial Statements. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Kinsel Industries, Inc. and Tracks of Texas, Inc.: We have audited the accompanying combined balance sheet of Kinsel Industries, Inc. (a Texas corporation) and Tracks of Texas, Inc. (a Texas corporation) (collectively the Company) as of December 31, 2000, and the related combined statements of income, stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Kinsel Industries, Inc. and Tracks of Texas, Inc. as of December 31, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP St. Louis, Missouri, February 9, 2001
KINSEL INDUSTRIES, INC. AND TRACKS OF TEXAS, INC. COMBINED BALANCE SHEET AS OF DECEMBER 31, 2000 (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents (including restricted cash of $100) $ 6,935 Receivables, less allowance for doubtful accounts of $50 12,042 Receivables, related parties 1,226 Contract retainage 5,542 Costs and estimated earnings in excess of billings 4,502 Inventories 1,549 Other assets 103 ----------- Total current assets 31,899 ----------- PROPERTY AND EQUIPMENT, less accumulated depreciation 12,694 ----------- OTHER ASSETS: Investments in joint ventures 3,264 Other assets 547 ----------- Total other assets 3,811 ----------- Total assets $ 48,404 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt and notes payable $ 3,827 Accounts payable and accrued expenses 10,846 Billings in excess of costs and estimated earnings 4,517 ----------- Total current liabilities 19,190 LONG-TERM DEBT, less current maturities 8,474 DEFERRED INCOME TAXES 939 ----------- Total liabilities 28,603 ----------- STOCKHOLDERS' EQUITY: Common stock 37 Additional paid-in capital 3,397 Retained earnings 17,998 Notes receivable - stockholders (1,631) ----------- Total stockholders' equity 19,801 ----------- Total liabilities and stockholders' equity $ 48,404 =========== The accompanying notes are an integral part of this combined balance sheet.
KINSEL INDUSTRIES, INC. AND TRACKS OF TEXAS, INC. COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 (In thousands) REVENUES $ 92,319 REVENUES - RELATED PARTIES 8,176 ------------ Total revenues 100,495 ------------ COST OF REVENUES 82,026 COST OF REVENUES - RELATED PARTIES 7,412 ------------ Total cost of revenues 89,438 ------------ Gross profit 11,057 OPERATING COSTS AND EXPENSES 7,567 ------------ Income from operations 3,490 ------------ OTHER INCOME (EXPENSE): Interest expense, net (498) Equity in earnings of joint ventures 1,569 Other 451 ------------ Total other income 1,522 ------------ Income before taxes on income 5,012 TAXES ON INCOME 1,906 ------------ Net income $ 3,106 ============ The accompanying notes are an integral part of this combined statement.
KINSEL INDUSTRIES, INC. AND TRACKS OF TEXAS, INC. COMBINED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 2000 (In thousands) Additional Notes Total Common Paid-In Retained Receivable - Stockholders' Stock Capital Earnings Stockholders Equity ----- ------- -------- ------------ ------ BALANCE, December 31, 1999 $ 37 $ 65 $ 14,892 $ - $ 14,994 Net income - - 3,106 - 3,106 Issuance of common stock - 3,332 - - 3,332 Notes receivable from stockholders - - - (1,631) (1,631) ----- --------- -------------------- ----------- BALANCE, December 31, 2000 $ 37 $ 3,397 $ 17,998 $(1,631) $ 19,801 === ===== ====== ===== ======
The accompanying notes are an integral part of this combined statement.
KINSEL INDUSTRIES, INC. AND TRACKS OF TEXAS, INC. COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,106 Adjustments to reconcile net income to net cash used in operating activities- Depreciation and amortization 2,868 Gain on disposal of assets (215) Equity in earnings of joint ventures (1,569) Deferred income taxes 546 Changes in operating assets and liabilities- Receivables and contract retainage 216 Inventories (669) Other assets 641 Accounts payable and accruals (1,292) Costs and earnings on uncompleted contracts (3,481) ----------- Net cash provided by operating activities 151 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,947) Proceeds from disposal of assets 898 Other investing activities (6) ----------- Net cash used in investing activities (4,055) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 4,770 Principal payments on long-term debt (3,949) ----------- Net cash provided by financing activities 821 ----------- Net decrease in cash and cash equivalents (3,083) CASH AND CASH EQUIVALENTS, beginning of year 10,018 ----------- CASH AND CASH EQUIVALENTS, end of year $ 6,935 =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for- Interest $ 981 ========== Income taxes $ 2,100 ========== The accompanying notes are an integral part of this combined statement.
KINSEL INDUSTRIES, INC. AND TRACKS OF TEXAS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. DESCRIPTION OF BUSINESS: ------------------------ The accompanying combined financial statements include the accounts of Kinsel Industries, Inc. (Kinsel) and Tracks of Texas, Inc. (Tracks) (collectively, the Company). Kinsel derives its primary source of revenues by providing the following construction services: trenchless technology construction, highway, bridge and airport construction, water and wastewater plant construction, conventional utility construction, commercial construction and industrial construction and services. Tracks derives its primary source of revenues from construction equipment sales and rentals. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------- Basis of Presentation - --------------------- The combined financial statements include the accounts of Kinsel and its sister company, Tracks which have common ownership and are managed and operated as one entity. All intercompany transactions and balances have been eliminated. Accounting Estimates - -------------------- 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 amount 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. Significant Customer - -------------------- The Company had revenues with one customer representing 35% of the Company's revenues for the year ended December 31, 2000. Cash and Cash Equivalents - ------------------------- The Company classifies highly liquid investments with original maturities of 90 days or less as cash equivalents. Included as cash equivalents is restricted cash. Restricted cash consists of a certificate of deposit in the amount of $100,453, which has been assigned as collateral for a loan to a third party. Inventories - ----------- Inventories are stated at the lower of actual cost or market. Contract Retainage - ------------------ The collection of receivables on construction contracts involves contractual provisions which provide for the contract owner to withhold retainage, typically 5% to 15% of the contract amount. These amounts are typically paid within 60-90 days after completion of the contract. Property and Equipment - ---------------------- Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method. Estimated useful lives are as follows: Years ----- Buildings and improvements 15-39 Machinery and equipment 3-8 Furniture and fixtures 3-10 Automobiles and trucks 3 Long-Lived Assets - ----------------- Long-lived assets are reviewed for impairment whenever conditions indicate that the carrying value of the assets may not be fully recoverable. Such impairment tests are based on a comparison of undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset value is written down to its fair market value. Fair Value of Financial Instruments - ----------------------------------- The Company's financial instruments consist primarily of cash and equivalents, trade receivables, trade payables and debt instruments. The book values of these instruments are not materially different from their respective fair values. Revenue Recognition - ------------------- Revenues include construction and installation revenues which are recognized using the percentage-of-completion method using the ratio of costs incurred to estimated total costs. 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. Revenues in an amount equal to costs incurred are recognized prior to contracts reaching 15% completion. The related earnings are not recognized until the period in which such percentage completion is attained. It is the Company's judgment that until a project reaches 15% completion, there is insufficient information to determine what the profit on the project will be. The 15% threshold is applied to all percentage of completion projects without exception unless and until the Company projects a loss on the project, in which case the estimated loss is immediately recognized. Claims for additional contract revenues are recognized if it is probable that the claim will result in additional revenue and the amount can be reliably estimated. Factors that can contribute to changes in estimates of contract profitability include, without limitation, site conditions that differ from those assumed in the original bid, the availability and skill level of workers in the geographic location of the project, the availability and proximity of materials, inclement weather and timing and coordination issues inherent in design/build projects. Contract costs are recorded as incurred and revisions in contract revenue and cost estimates are reflected in the accounting period when known. 2 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. New Accounting Pronouncements - ----------------------------- In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, which summarizes certain aspects of the SEC staff's view on applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted SAB 101 in the fourth quarter of 2000. The implementation of SAB 101 has no effect on the Company's financial condition or results of operations. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities and requires, among other things, that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. In June 1999, the FASB issued SFAS 137, which delays the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. The Company adopted the accounting standard effective for its fiscal year beginning January 1, 2001, as required. The Company has considered the implications of SFAS 133 and concluded that implementation of the new standard had no effect on the Company's financial condition or results of operations. 3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS: ------------------------------------------------------ Costs and estimated earnings on uncompleted contracts consist of the following at December 31, 2000 (in thousands): Costs incurred on uncompleted contracts $ 108,666 Estimated earnings recognized to date 7,240 ------------ 115,906 Less- Billings to date (115,921) ------------ $ (15) ========== Included in the accompanying combined balance sheet: Costs and estimated earnings in excess of billings $ 4,502 Billings in excess of costs and estimated earnings (4,517) ------------ $ (15) =========== Costs and estimated earnings in excess of billings represent work performed which either due to contract stipulations or lacking required contractual documentation, could not be billed. Substantially all unbilled amounts are expected to be billed and collected within one year. 3 4. PROPERTY AND EQUIPMENT: ----------------------- Property and equipment consists of the following at December 31, 2000 (in thousands): Land and land improvements $ 395 Buildings and improvements 1,377 Machinery and equipment 18,582 Furniture and fixtures 381 Automobiles and trucks 10 ----------- 20,745 Less- Accumulated depreciation (8,051) ----------- $ 12,694 =========== 5. RELATED PARTY TRANSACTIONS: --------------------------- Coastal Bend Property - --------------------- In the ordinary course of business, the Company completed contracts for Coastal Bend Property, a land development group, in which a stockholder of the Company owns a 60% interest in the partnership. During the year ended December 31, 2000, the Company had revenue from contracts with the partnership of $6,816,957. Amounts due from these contracts at December 31, 2000, totaled $741,405. 6. EQUITY METHOD INVESTMENTS: -------------------------- The Company participates in a construction joint venture partnership (Delta/Kinsel Joint Venture) with Delta Construction Corporation (Delta), which was formed in 1999 to perform a construction contract with the City and County of Honolulu, Hawaii. The Company owns a 60% interest in the joint venture, however, the Company does not consolidate the investment because it does not have control per the terms of the joint venture agreement. Each joint venture partner individually is providing personnel and all related costs of employment for which the partners will seek reimbursement from the joint venture. For the year ended December 31, 2000, the Company billed the joint venture for reimbursable expenses totaling $348,328. The Company recognized equity in earnings of the joint venture of $1.6 million for the year ended December 31, 2000. The Company has guaranteed equipment loans of the joint venture totaling $175,115 at December 31, 2000. The Company's investment in the joint venture is $2.6 million at December 31, 2000. In December 2000, the contract with the City and County of Honolulu, Hawaii, was terminated for owner's convenience. The Delta/Kinsel Joint Venture is in the process of liquidating. In January 2001, the Company received a distribution of $2.0 million from the joint venture representing the Company's share of the cash received on the construction contract. The remaining investment balance will be realized through the liquidation of the joint venture's assets. The Company owns a 27.945% limited partnership interest in Mag Creek, LP, a real estate development company. During the year ended December 31, 2000, the Company had revenues from development contracts with the partnership totaling $1,360,033. Amounts due from these contracts at December 31, 2000, totaled $135,823. The Company recognized equity in losses of the limited partnership of $31,415 for the year ended December 31, 2000. The Company's investment in the limited partnership was $695,172 at December 31, 2000. 4 7. LONG-TERM DEBT AND NOTES PAYABLE: --------------------------------- Long-term debt and notes payable consists of the following at December 31, 2000 (in thousands): Bank notes payable, due in monthly installments through 2004, including annual interest at 1.10% to 9.50% $ 6,090 Bank notes payable, due in monthly installments through 2006, including annual interest at one-month commercial paper rate plus 2.50% (8.7% at December 31, 2000) 3,464 Bank notes payable, due in monthly installments through 2005, including annual interest at one-month LIBOR plus 2.35% 1,976 (8.91% at December 31, 2000) Bank note payable in installments through 2001, including annual interest at prime rate (9.5% at December 31, 2000) 207 Bank note payable, due in monthly installments through 2004, including annual interest at prime rate plus 0.50% (10.0% at 177 December 31, 2000) Bank noninterest-bearing notes payable in monthly installments through 2003 137 Note payable in installments through 2001, including annual interest at 10.00% 250 -------- 12,301 Less- Current maturities (3,827) -------- $ 8,474 ======== 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 ----------- ------ 2001 $ 3,827 2002 2,725 2003 2,243 2004 1,492 2005 669 Thereafter 1,345 --------- Total $ 12,301 ========= 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES: -------------------------------------- Accounts payable and accrued expenses consist of the following at December 31, 2000 (in thousands): Accounts payable - trade $ 7,840 Accounts payable - subcontractor retainage 1,660 Accrued expenses 1,007 Other 339 --------- $ 10,846 ========= 5 9. COMMITMENTS AND CONTINGENCIES: ------------------------------ Leases - ------ The Company leases equipment and vehicles under noncancelable operating leases. Rent expense under all operating leases for 2000 was $2,062,432. At December 31, 2000, the future minimum lease payments required under the noncancelable operating leases were as follows (in thousands): Years Ended December 31 Amount ----------- ------ 2001 $ 1,767 2002 1,411 2003 893 2004 451 2005 338 Thereafter 194 --------- Total $ 5,054 ========= Litigation - ---------- The Company is a party in legal proceedings and potential claims arising in the ordinary course of its business. Management does not believe these matters will materially affect the Company's combined financial statements. Claims - ------ The Company has filed two separate claims on a construction project seeking reimbursement of unanticipated costs incurred by the Company as a result of excessive delays and lost productivity caused by adverse weather conditions, differing and concealed site conditions, unforeseen underground utilities and engineering delays. These claims, totaling $1.9 million, have been included in the total amended contract amount and revenue has been recognized to the extent of the percentage complete on the contract as the estimated recoveries are deemed probable of collection. The claims are included in costs and estimated earnings in excess of billings at December 31, 2000. 10. RETIREMENT PLANS: ----------------- The Company sponsors a 401(k) retirement plan that covers all employees who meet certain eligibility requirements. Under the 401(k) section of the retirement plan, the Company matches 401(k) plan contributions. The plan provides for the Company to contribute 50% of the employees contribution up to a maximum of 4% of the employee's compensation. The Company contribution is discretionary. Total company contributions to the 401(k) plan were $102,918 for the year ended December 31, 2000. 6 11. STOCKHOLDERS' EQUITY: --------------------- In 2000, the Company terminated its previous stock bonus plan and replaced it with the Kinsel 2000 Stock Purchase Bonus Plan (the 2000 Plan). Each participant's account was paid out with the understanding that the employees would use the distribution to purchase stock pursuant to the 2000 Plan. The 2000 Plan provides for common stock of the Company to be offered to employees of the Company at the sole discretion of the Board of Directors. Participants were issued shares at fair value representing 21% of the Company. The Company loaned the participants the amounts required to purchase the shares that were in excess of their distributions from the previous stock bonus plan. The promissory notes are to be repaid annually over 20 years. Interest equal to 6% is due with the annual payments. The promissory notes are secured by the shares of stock issued. The promissory notes are recorded as notes receivable - stockholders in the equity section of the balance sheet. Each participant was required to enter into a shareholder agreement in connection with the purchase of stock from the Company. The shareholder agreement prevents the participants from selling their shares without first offering the shares to the Company. The common stock of the Company is composed of the following at December 31, 2000: Number of Shares ---------------------------------- Description Authorized Issued Outstanding ----------- ---------- ------ ----------- Kinsel common stock - par value, $0.10 500,000 14,065 14,065 Tracks common stock - par value $1.00 1,000,000 36,000 34,560 12. TAXES ON INCOME: ---------------- Taxes on income are as follows for the year ended December 31, 2000 (in thousands): Current $ 1,360 Deferred 546 --------- Taxes on income $ 1,906 ========= A reconciliation between the U.S. federal statutory tax rate and the effective tax rate follows: Income taxes at U.S. federal statutory tax rate 34.0% Increase in taxes resulting from: State income taxes 2.2 Other 1.8 ----- Effective tax rate 38.0% ===== Net deferred taxes consist of the following at December 31, 2000 (in thousands): Deferred income tax assets: Accrued compensation $ 29 Accrued job losses 42 Other 26 ------- Total deferred income tax assets 97 ------- Deferred income tax liabilities: Property, plant and equipment (939) ------- Total deferred income tax liabilities (939) ------- Net deferred income tax liability $ 842 ======= Tracks has $33,269 net operating loss carryforwards having varying expiration dates, ranging from 2018 through 2019. 7 13. SUBSEQUENT EVENTS: ------------------ On January 28, 2001, the Company and Insituform Technologies, Inc. (Insituform) entered into a tentative stock purchase agreement, whereby Insituform would acquire 100% of the Company's stock for $80 million, of which $15.3 million will be paid in cash and notes and the balance will be paid in Insituform common stock. In February 2001, the Company acquired 100% of the assets of a local construction contractor for $120,000 in cash and assumed debt obligations totaling $663,000. 8 (b) UNAUDITED PRO FORMA FINANCIAL STATEMENTS On February 28, 2001, the Registrant, referred to in the following context as Insituform Technologies, Inc. ("Insituform"), completed the acquisition of Kinsel and Tracks, collectively referred to as the Kinsel Group ("Kinsel Group"). The following unaudited pro forma financial statements give effect to the acquisition of the Kinsel Group by Insituform under the purchase method of accounting. These pro forma statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The pro forma financial statements do not purport to represent what the results of operations or financial position of Insituform would actually have been if the acquisition and related transactions had in fact occurred on such dates, nor do they purport to project the results of operations or financial position of Insituform for any future period or as of any date. Under the purchase method of accounting, tangible and identifiable intangible assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price, including estimated fees and expenses related to the acquisition, over the net assets acquired is classified as goodwill on the accompanying unaudited pro forma balance sheet. The estimated fair values and useful lives of assets acquired and liabilities assumed are based on a preliminary valuation and are subject to final valuation adjustments. The unaudited pro forma balance sheet as of December 31, 2000 was prepared by combining Insituform's balance sheet as of December 31, 2000 with the Kinsel Group's balance sheet as of December 31, 2000, giving effect to the acquisition as though it had been completed on December 31, 2000. The unaudited pro forma income statement for the period presented was prepared by combining Insituform's income statement for the year ended December 31, 2000 with the Kinsel Group's income statement for the year ended December 31, 2000, giving effect to the acquisition as though it had occurred on January 1, 2000. This unaudited pro forma financial data does not give effect to any restructuring costs or to any potential cost savings or other synergies that could result from the acquisition. Management is in the process of developing a plan to integrate the rehabilitation related activities of the Kinsel Group with the like businesses within Insituform. The Kinsel Group also has other contracting activities that Insituform's management will be evaluating for possible divestiture in the future. On a combined basis, there were no material differences between the accounting policies of Insituform and the Kinsel Group. The consolidated historical financial statements of Insituform and the Kinsel Group for the year ended December 31, 2000, are derived from the audited consolidated financial statements of Insituform and the audited combined financial statements of the Kinsel Group, respectively.
Unaudited Pro Forma Balance Sheet As of December 31, 2000 (In thousands of US Dollars) Insituform Kinsel Group Pro forma Historical Historical Adjustments Pro forma ----------- ---------- ---------- ---------- (a) (a) ASSETS Current: Cash $ 64,107 $ 6,935 $ (10,000) (b) $ 61,042 Receivables, net 78,607 12,042 (120) (c) 90,529 Retainage 15,976 5,542 - 21,518 Costs and est. earnings in excess of billings 19,151 4,502 - 23,653 Inventories 18,121 1,549 - 19,670 Prepaid expenses and other 5,046 1,329 - 6,375 ----------- ---------- ---------- ---------- Total current assets 201,008 31,899 (10,120) 222,787 Property and Equipment 70,226 12,694 - 82,920 Other Assets: Goodwill 66,108 - 61,199 (b) 127,307 Other assets 17,632 3,811 - 21,443 ----------- ---------- ---------- ---------- Total other assets 83,740 3,811 61,199 148,750 ----------- ---------- ---------- ---------- Total assets $354,974 $ 48,404 $ 51,079 $ 454,457 =========== ========== ========== ========== LIABILITIES Current: Current maturities of long-term debt and notes payable $ 18,023 $ 3,827 $ 5,350 (b) $ 27,200 Accounts payable and accrued expenses 68,517 15,363 1,000 (e) 84,760 (120) (c) ----------- ---------- ---------- ---------- Total current liabilities 86,540 19,190 6,230 111,960 Long-term debt 98,217 8,474 - 106,691 Other liabilites 2,570 939 - 3,509 ----------- ---------- ---------- ---------- Total liabilities 187,327 28,603 6,230 222,160 Minority Interests 2,357 - - 2,357 Stockholders' equity 165,290 19,801 (19,801) (d) 229,940 64,650 (b) ----------- ---------- ---------- ---------- Total liabilities and stockholders' equity $354,974 $ 48,404 $ 51,079 $ 454,457 =========== ========== ========== ==========
See accompanying Notes to Unaudited Pro Forma Financial Statements.
Unaudited Pro Forma Income Statement For the year ended December 31, 2000 (In thousands of US Dollars) Insituform Kinsel Group Pro forma Historical Historical Adjustments Pro Forma ----------- ----------- ----------- ----------- (a) (a) Revenues $ 409,434 $ 100,495 $ (959) (c) $ 508,970 Costs of Revenues 272,361 89,438 (959) (c) 360,840 ----------- ----------- ----------- ----------- Gross Profit 137,073 11,057 - 148,130 Operating Expense: Selling, Administrative and General Expenses 69,307 7,567 - 76,874 Amortization Expense 4,800 - 3,060 (f) 7,860 ----------- ----------- ----------- ----------- Total Operating Expense 74,107 7,567 3,060 84,734 Operating Income 62,966 3,490 (3,060) 63,396 Other (Expense) Income: Interest expense (9,347) (498) (268) (g) (10,113) Other 3,732 2,020 (726) (h) 5,026 ----------- ----------- ----------- ----------- Total other expense (5,615) 1,522 (994) (5,087) ----------- ----------- ----------- ----------- Income before taxes on income 57,351 5,012 (4,054) 58,309 Taxes on income 22,647 1,906 (312) (i) 24,241 ----------- ----------- ----------- ----------- Income before minority interests and equity in earnings 34,704 3,106 (3,742) 34,068 Minority interests (610) - - (610) Equity in earnings of affiliated companies 812 - - 812 ----------- ----------- ----------- ----------- Net Income $ 34,906 $ 3,106 $ (3,742) $ 34,270 =========== =========== =========== =========== Earnings per share (j) Basic $ 1.41 $ 1.28 Diluted $ 1.37 $ 1.25 Weighted average common shares (j): Basic 24,834 1,847 26,681 Diluted 25,540 1,847 27,387
See accompanying Notes to Unaudited Pro Forma Financial Statements. Notes to Unaudited Pro Forma Financial Statements (a) Represent historical results of operations and financial position of Insituform and the Kinsel Group as of and for the year ended December 31, 2000. (b) The adjustment reflects the initial estimate made by Insituform's management of the excess of the total purchase price over the net assets acquired, and the liabilities assumed, in the acquisition. The following is a preliminary allocation of the purchase price (in thousands): Purchase Price: Common Stock $ 64,650 Cash delivered to sellers 10,000 Notes delivered to sellers 5,350 Estimated transaction costs 1,000 ---------- $ 81,000 Total Purchase Price ========== Allocation of Purchase Price Assets: Kinsel Group Historical Assets $ 48,404 Goodwill 61,199 Liabilities: Kinsel Group Historical Liabilities (28,603) ---------- Total Purchase Price $ 81,000 ========== The total purchase price will be allocated to the assets and liabilities of the Kinsel Group based on their estimated fair value. The excess of the purchase price over the historical book value of the Kinsel Group's net assets has been allocated to goodwill. The Kinsel Group's other assets and liabilities have not been adjusted because, based on preliminary review, their cost approximates fair value at the time of acquisition. The final allocation of the purchase price to the Kinsel Group's assets acquired and liabilities assumed depends on certain valuations and studies that have not progressed to a stage where there is sufficient information to make a final allocation in the accompanying pro forma financial information. The amortization period of goodwill will be 20 years. (c) Reflects the elimination of transactions between Insituform and the Kinsel Group for subcontract work performed during the period. (d) Reflects the elimination of the Kinsel Group's stockholders' equity accounts. (e) Reflects an accrual for the estimated acquisition related transaction costs. Insituform's management has estimated the costs as follows (in thousands): Investment banking fees $ 300 Accounting and legal fees and expenses 700 --------- Total $ 1,000 ========= (f) Reflects an adjustment to amortization expense for the effect of goodwill. For purposes of the unaudited pro forma financial statements, goodwill has been amortized over an estimated useful life of 20 years. (g) Reflects an adjustment to interest expense related to the $5.35 million note incurred in connection with the acquisition. The note bears interest at 5% per annum. (h) Reflects the recognition of lost investment income to Insituform, for the cash paid to the sellers and the related estimated transaction costs in connection with the acquisition. Management has assumed an average invested cash rate of 6.6% per annum, based on the average rates received by Insituform on invested cash for the year ended December 31, 2000. (i) Represents an adjustment to reflect a 39.5% tax rate on the pro forma income before income taxes. The pro forma income before income taxes was adjusted to eliminate the pro forma adjustment for non-deductible goodwill amortization (see Note (f)). (j) Pro forma per share data is based on the number of shares of Insituform common stock and common equivalent shares that would have been outstanding had the acquisition occurred on January 1, 2000. Item 9. Regulation FD Disclosure UNAUDITED ADJUSTED PRO FORMA INCOME STATEMENT EXCLUDING NON-RECURRING TRANSACTIONS The following unaudited adjusted pro forma income statement gives effect to the acquisition of the Kinsel Group by Insituform under the purchase method of accounting. The unaudited pro forma financial statements have been presented as required by Item 7 included elsewhere herein. This statement gives further effect to excluding certain non-recurring transactions, which the Kinsel Group incurred during the year ended December 31, 2000. This unaudited adjusted pro forma information could be presented in the future by Insituform's management in conjunction with the unaudited pro forma financial statements included elsewhere herein, as part of investor presentations and discussions. This unaudited adjusted pro forma income statement is presented for illustrative purposes only. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. This unaudited adjusted pro forma income statement does not purport to represent what the results of operations of Insituform would actually have been if the acquisition and related transactions had in fact occurred on such dates, nor do they purport to project the results of operations for Insituform for any future period or as of any date.
Unaudited Adjusted Pro Forma Income Statement For the year ended December 31, 2000 (In thousands, except per share data) Further Item 7 Pro forma Adjusted Pro Forma Adjustments Pro Forma ---------------- --------------- ---------------- (a) Revenues $508,970 $ - $508,970 Costs of Revenues 360,840 - 360,840 ---------------- --------------- ---------------- Gross Profit 148,130 - 148,130 Operating Expense: Selling, Administrative and General Expenses 76,874 (3,527) (b) 73,347 Amortization Expense 7,860 - 7,860 ---------------- --------------- ---------------- Total Operating Expense 84,734 (3,527) 81,207 Operating Income 63,396 3,527 66,923 Other (Expense) Income: Interest expense (10,113) - (10,113) Other 5,026 - 5,026 ---------------- --------------- ---------------- Total other expense (5,087) - (5,087) ---------------- --------------- ---------------- Income before taxes on income 58,309 3,527 61,836 Taxes on income 24,241 1,393 (c) 25,634 ---------------- --------------- ---------------- Income before minority interests and equity in earnings 34,068 2,134 36,202 Minority interests (610) - (610) Equity in earnings of affiliated companies 812 - 812 ---------------- --------------- ---------------- Net Income $ 34,270 $ 2,134 $ 36,404 ================ =============== ================ Earnings per share Basic $ 1.28 $ 1.36 Diluted $ 1.25 $ 1.33 Weighted average common shares: Basic 26,681 26,681 Diluted 27,387 27,387
See accompanying Notes to Unaudited Adjusted Pro Forma Income Statement. NOTES TO THE UNAUDITED ADJUSTED PRO FORMA INCOME STATEMENT (a) The unaudited pro forma income statement assumes that the acquisition took place on January 1, 2000. The information presented shows Insituform and the Kinsel Group combined after giving effect to pro forma adjustments previously described herein under Item 7. (b) The pro forma adjustments represent non-recurring transactions incurred by the Kinsel Group. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The adjustments made are as follows (in thousands): Stock bonus plan $ 2,113 Management cash bonuses 951 Other private company expenses 463 ----------- Total $ 3,527 =========== (c) Represents the tax effect of the pro forma adjustments. SIGNATURE 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 hereunto duly authorized. INSITUFORM TECHNOLOGIES, INC. By:/s/ Joseph A. White ------------------------------------------------ Joseph A. White Vice President and Chief Financial Officer Date: April 12, 2001 -----END PRIVACY-ENHANCED MESSAGE-----