Insituform Technologies, Inc. Updates Its Earnings Forecasts

Business Wire, March 15, 2001

Business Editors

CHESTERFIELD, Mo.--(BUSINESS WIRE)--March 15, 2001

Insituform Technologies, Inc. (NASDAQ National Market:INSUA) today revised its forecasts to include Kinsel Industries, Inc. ("Kinsel"), which it acquired on February 28, 2001, and to account for events in the first quarter.

The Company now expects its consolidated revenues for the first quarter of 2001 to be about $100 million and its earnings per share to be in the range of $.16 to $.18, including the effect of Kinsel.

During the first quarter of 2001, the Company's North American Pipe Rehabilitation business has encountered delays in starting projects. The workable backlog in the domestic rehab business at the end of December 2000 was at a level consistent with the guidance the Company had given on first quarter revenue and earnings. January's results for this segment were weak but normal for the time of the year. February turned out to be unexpectedly weak. While March so far has been an essentially normal month, it is not sufficient to create an expectation of making up the shortfall during the quarter.

Total workable backlog is strong and the margin in backlog is normal, but the rate of conversion of backlog to revenue during the first two months of the quarter has been well below customary levels. Procedural delays in obtaining permission to start work, delays at outside engineers, and delays in gaining access to job sites have combined to hold back work to a much greater extent than normal. In addition, while the Company is acting to structurally balance capacity between regions, the actions did not start in time to improve the results for the quarter. Consequently, revenues in the North American Rehab business segment are expected to be about 9% ($7 million) below forecast. This shortfall created excess capacity that reduced the gross margin and which is expected to impact the forecast operating income for the segment by about 50% ($5 million). Pricing has not been a problem in the first quarter. Unit prices, on average, have been running above the Company's projections.

The revenue problem in the first quarter is in sharp contrast to order intake, which has been strong in all business segments but particularly in North American Rehab. The book-to-bill ratio for the first two months in this business was 1:5. Orders were also very strong in Europe and in Tunneling. For the Company as a whole, the book-to-bill ratio was 1:91 for the first two months. Order intake has continued at a strong pace in March. Orders are in line with the Company's plan, with the result that the Company now has a very high backlog with good margins and anticipates continued brisk order intake.

Revenue and earnings in the Tunneling and TiteLiner(R) business segments are in line with expectations. The expected revenue split for the first quarter is about 82% Rehab, 10% Tunneling, 6% TiteLiner(R) and 2% Other Construction, which is the general contracting business of Kinsel. The pipe rehabilitation operations of Kinsel are included in Rehab and are expected to amount to 7% of the segment's revenues in the quarter. The Company is still evaluating divestiture of the Other Construction segment. Because of the amortization of goodwill, the effect of Kinsel on net income is anticipated to be negligible for the quarter.

To reduce the sensitivity of the North American Rehab business to short-term revenue fluctuations, the Company has undertaken cost reductions in addition to its ongoing programs. Reductions of fixed-base costs have already been made. Additional reductions of fixed direct and overhead costs will be made in certain regions. The Company intends to make these during the next 30 days. There will be no one-time charges for these adjustments. Any resulting expenses have been built into the forecast for the quarter. The Company anticipates that in excess of $2 million of cost per quarter will be eliminated through these moves.

The Company expects more normal operations in the second quarter and a full quarter impact of the Kinsel acquisition. Revenues for the second quarter are forecast between $135 and $140 million, with earnings per share in the range of $.41 to $.46. The revenues are expected to be approximately 79% in the Rehab business, 9% in Tunneling, 6% in TiteLiner(R) and 6% in Other Construction.

For the full year, the Company expects to make up at least part of the income shortfall incurred in the first quarter. Full year revenues are forecast to be in the range of $545 to $550 million. The split between segments would be about 80% for Rehab, 10% for Tunneling, 6% for TiteLiner(R) and 4% for Other Construction (assuming that business is retained for the full year). Earnings per share for 2001 are expected to fall in the $1.63 to $1.71 range.

Commenting, Anthony W. (Tony) Hooper, Chairman of the Board, President and Chief Executive Officer of the Company, said, "Had we detected this problem sooner, we could have limited its impact. We need to accelerate the implementation of systems improvements already underway which will give us adequate visibility of near-term work flow so that we can take timely action with our customers and adjust our planning.