Aegion Corp - FORM 10-Q - July 28, 2010

Attached files

file	filename
EX-10.1 - EXHIBIT 10.1 - CREDIT AGREEMENT - Aegion Corp	ex101creditagr.htm
EX-3.1 - EXHIBIT 3.1 - CERTIFICATE OF INCORPORATION - Aegion Corp	ex31certofincorp.htm
EX-31.2 - EXHIBIT 31.2 - CERTIFICATION - Aegion Corp	ex312certification.htm
EX-31.1 - EXHIBIT 31.1 - CERTIFICATION - Aegion Corp	ex311certification.htm
EX-32.2 - EXHIBIT 32.2 - CERTIFICATION - Aegion Corp	ex322certification.htm
EX-32.1 - EXHIBIT 32.1 - CERTIFICATION - Aegion Corp	ex321certification.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to _______________________________

Commission File Number: 0-10786

Insituform Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware 13-3032158

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

17988 Edison Avenue, Chesterfield, Missouri 63005-3700

(Address of principal executive offices) (Zip Code)

(636) 530-8000

(Registrant’s telephone number, including area code)

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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer þ

Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

There were 39,234,350 shares of common stock, $.01 par value per share, outstanding at July 23, 2010.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements:

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009	3

Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	4

Consolidated Statements of Equity for the Six Months Ended June 30, 2010 and 2009	5

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009	6

Notes to Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3. Quantitative and Qualitative Disclosures About Market Risk	38

Item 4. Controls and Procedures	39

PART II—OTHER INFORMATION

Item 1. Legal Proceedings	40

Item 1A. Risk Factors	40

Item 6. Exhibits	40

SIGNATURE	41

INDEX TO EXHIBITS	42

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2010			2009			2010			2009

Revenues	$	230,192		$	183,196		$	429,374		$	311,208
Cost of revenues		170,993			135,280			321,494			232,619
Gross profit		59,199			47,916			107,880			78,589
Acquisition-related expenses		–			–			–			8,219
Operating expenses		36,452			34,446			72,626			56,821
Operating income		22,747			13,470			35,254			13,549
Other income (expense):
Interest income		63			(165	)		166			184
Interest expense		(1,886	)		(2,353	)		(4,263	)		(3,477	)
Other		131			374			(28	)		292
Total other expense		(1,692	)		(2,144	)		(4,125	)		(3,001	)
Income before taxes on income		21,055			11,326			31,129			10,548
Taxes on income		6,485			3,157			9,684			2,745
Income before equity in earnings (losses) of affiliated companies		14,570			8,169			21,445			7,803
Equity in earnings (losses) of affiliated companies, net of tax		1,526			8			2,677			(307	)
Income before discontinued operations		16,096			8,177			24,122			7,496
Loss from discontinued operations, net of tax		(28	)		(1,192	)		(76	)		(1,290	)
Net income		16,068			6,985			24,046			6,206
Less: net (income) loss attributable to noncontrolling interests		(291	)		(439	)		192			(864	)
Net income attributable to common stockholders	$	15,777		$	6,546		$	24,238		$	5,342

Earnings per share attributable to common stockholders:
Basic:
Income from continuing operations	$	0.40		$	0.20		$	0.62		$	0.18
Loss from discontinued operations		(0.00	)		(0.03	)		(0.00	)		(0.03	)
Net income	$	0.40		$	0.17		$	0.62		$	0.15
Diluted:
Income from continuing operations	$	0.40		$	0.20		$	0.62		$	0.18
Loss from discontinued operations		(0.00	)		(0.03	)		(0.00	)		(0.03	)
Net income	$	0.40		$	0.17		$	0.62		$	0.15

The accompanying notes are an integral part of the consolidated financial statements.

INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share amounts)

	June 30, 2010			December 31, 2009

Assets
Current assets
Cash and cash equivalents	$	90,141		$	106,064
Restricted cash		679			1,339
Receivables, net		154,957			147,835
Retainage		23,454			22,656
Costs and estimated earnings in excess of billings		79,147			64,821
Inventories		38,267			32,125
Prepaid expenses and other assets		29,164			27,604
Current assets of discontinued operations		1,189			1,189
Total current assets		416,998			403,633
Property, plant and equipment, less accumulated depreciation		156,900			148,435
Other assets
Goodwill		182,141			180,506
Identified intangible assets, less accumulated amortization		76,054			78,311
Investments in affiliated companies		25,517			27,581
Deferred income tax assets		11,223			11,203
Other assets		6,088			8,827
Total other assets		301,023			306,428
Non-current assets of discontinued operations		4,214			4,283

Total Assets	$	879,135		$	862,779

Liabilities and Equity
Current liabilities
Accounts payable and accrued expenses	$	150,320		$	146,702
Billings in excess of costs and estimated earnings		10,411			12,697
Current maturities of long-term debt, line of credit and notes payable		10,995			12,742
Current liabilities of discontinued operations		129			339
Total current liabilities		171,855			172,480
Long-term debt, less current maturities		96,450			101,500
Deferred income tax liabilities		32,096			31,449
Other liabilities		12,347			12,849
Non-current liabilities of discontinued operations		1,056			979
Total liabilities		313,804			319,257

Stockholders’ equity
Preferred stock, undesignated, $.10 par – shares authorized 2,000,000; none outstanding		–			–
Common stock, $.01 par – shares authorized 125,000,000 and 60,000,000; shares issued and outstanding 39,234,350 and 38,933,944		392			389
Additional paid-in capital		248,285			242,563
Retained earnings		311,025			286,787
Accumulated other comprehensive income (loss)		(1,320	)		8,313
Total stockholders’ equity before noncontrolling interests		558,382			538,052
Noncontrolling interests		6,949			5,470
Total equity		565,331			543,522

Total Liabilities and Equity	$	879,135		$	862,779

The accompanying notes are an integral part of the consolidated financial statements.

INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except number of shares)

	Common Stock Shares Amount						Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests			Total Equity			Comprehensive Income
BALANCE, December 31, 2008		27,977,785		$	280		$	109,235	$	260,616	$	(2,154	)	$	3,012		$	370,989
Net income		–			–			–		5,342		–			864			6,206		$	6,206
Issuance of common stock		10,499,766			105			128,995		–		–			–			129,100			–
Restricted stock units issued		394,660			4			–		–		–			–			4			–
Amortization and forfeitures of restricted stock shares and units		(42,248	)		(1	)		–		–		–			–			(1	)		–
Equity-based compensation expense		–			–			2,299		–		–			–			2,299			–
Derivative instruments												(1,208	)					(1,208	)		(1,208	)
Foreign currency translation adjustment		–			–			–		–		3,203			247			3,450			3,450
Total comprehensive income																					8,448
Less: total comprehensive income attributable to noncontrolling interests																					1,111
Total comprehensive income attributable to common stockholders																				$	7,337
BALANCE, June 30, 2009		38,829,963		$	388		$	240,529	$	265,958	$	(159	)	$	4,123		$	510,839


BALANCE, December 31, 2009		38,933,944		$	389		$	242,563	$	286,787	$	8,313		$	5,470		$	543,522
Net income (loss)		–			–			–		24,238		–			(192	)		24,046		$	24,046
Issuance of common stock upon exercise of stock options, including a tax benefit of $0.2 million for stock option exercises		104,649			1			1,993		–		–			–			1,994			–
Restricted shares issued		183,900			2			–		–		–			–			2			–
Distribution of restricted stock units		24,269			–			–		–		–			–			–			–
Distribution of deferred stock units		3,600			–			–		–		–			–			–			–
Forfeiture of restricted shares		(16,012	)		–			–		–		–			–			–			–
Equity based compensation expense		–			–			3,720		–		–			–			3,720			–
Investment of non-controlling interests		–			–			–		–		–			1,681			1,681			–
Foreign currency translation adjustment		–			–			9		–		(9,633	)		(10	)		(9,634	)		(9,634	)
Total comprehensive income																					14,412
Less: total comprehensive income attributable to non-controlling interests																					(1,479	)
Total comprehensive income attributable to common stockholders																				$	12,933
BALANCE, June 30, 2010		39,234,350		$	392		$	248,285	$	311,025	$	(1,320	)	$	6,949		$	565,331

The accompanying notes are an integral part of the consolidated financial statements.

INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	For the Six Months Ended June 30,
	2010			2009

Cash flows from operating activities:
Net income	$	24,046		$	6,206
Loss from discontinued operations		76			1,290
Income from continuing operations		24,122			7,496
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization		15,225			12,112
(Gain) loss on sale of fixed assets		154			(215	)
Equity-based compensation expense		3,720			2,299
Deferred income taxes		(490	)		(211	)
Dividend received, net of (income) loss from equity in earnings of affiliated companies		369			307
Other		(782	)		(7,535	)
Changes in operating assets and liabilities:
Restricted cash		601			503
Receivables net, retainage and costs and estimated earnings in excess of billings		(26,173	)		(1,366	)
Inventories		(6,846	)		(1,596	)
Prepaid expenses and other assets		(1,322	)		5,454
Accounts payable and accrued expenses		3,574			(11,883	)
Net cash provided by operating activities of continuing operations		12,152			5,365
Net cash provided by (used in) operating activities of discontinued operations		(699	)		2,295
Net cash provided by operating activities		11,453			7,660

Cash flows from investing activities:
Capital expenditures		(19,821	)		(10,440	)
Proceeds from sale of fixed assets		301			410
Proceeds from net foreign investment hedges		–			7,873
Purchase of Singapore licensee		(1,257	)		–
Purchase of Insituform-Hong Kong and Insituform-Australia		–			(278	)
Purchase of Bayou and Corrpro, net of cash acquired		–			(209,714	)
Net cash used in investing activities of continuing operations		(20,777	)		(212,149	)
Net cash provided by investing activities of discontinued operations		–			750
Net cash used in investing activities		(20,777	)		(211,399	)

Cash flows from financing activities:
Proceeds from issuance of common stock, including tax benefit of stock option exercises		1,996			127,837
Principal payments on notes payable		(1,774	)		(938	)
Investments from noncontrolling interests		1,681			–
Net proceeds from line of credit		–			7,500
Principal payments on long-term debt		(5,000	)		(2,500	)
Proceeds from long-term debt		–			50,000
Net cash provided by (used in) financing activities		(3,097	)		181,899
Effect of exchange rate changes on cash		(3,502	)		1,976
Net decrease in cash and cash equivalents for the period		(15,923	)		(19,864	)
Cash and cash equivalents, beginning of period		106,064			99,321
Cash and cash equivalents, end of period	$	90,141		$	79,457

The accompanying notes are an integral part of the consolidated financial statements.

INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

GENERAL

The accompanying unaudited consolidated financial statements of Insituform Technologies, Inc. and its subsidiaries (collectively, “Insituform” or the “Company”) reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of June 30, 2010 and the results of operations for the three and six months ended June 30, 2010 and 2009 and the statements of equity and cash flows for the six months ended June 30, 2010 and 2009. The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the requirements of Form 10-Q and Article 10 of Regulation S-X and, consequently, do not include all information or footnotes required by GAAP for complete financial statements or all the disclosures normally made in an Annual Report on Form 10-K. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2010.

The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year.

Acquisitions

During the first quarter of 2009, the Company acquired two companies that significantly expanded the range of products and services the Company offers in the energy and mining sector.

On February 20, 2009, the Company acquired the business of The Bayou Companies, L.L.C. and its related entities (“Bayou”) and the noncontrolling interests of certain subsidiaries of Bayou. Bayou provides cost-effective solutions to energy and infrastructure companies primarily in the Gulf of Mexico and North America. Bayou’s products and services include internal and external pipeline coating, lining, weighting, insulation, project management and logistics. Bayou also provides specialty fabrication services for offshore deepwater installations. The purchase price for Bayou was $127.9 million in cash. Pursuant to the acquisition agreement, the Company agreed to pay up to an additional $7.5 million plus 50% of Bayou’s excess earnings if the Bayou business achieves certain financial performance targets over a three-year period (the “earnout”). The Company recorded its estimate of the fair value of the Bayou earnout at $5.0 million as part of the acquisition accounting in March 2009. In the third quarter of 2009, the Company revised its estimate of the fair value of the Bayou earnout to $3.4 million and reduced operating expenses in the third quarter of 2009 by $1.6 million. The aggregate purchase price for the noncontrolling interests was $8.5 million and consisted of $4.5 million in cash, a $1.5 million promissory note and 149,016 shares of the Company’s common stock with a value of $2.5 million. The Company used proceeds from its equity offering completed in February 2009 to fund the cash purchase price for Bayou and a portion of the purchase price for the noncontrolling interests. During 2009, the Bayou purchase price was reduced by $0.7 million due to certain amounts owed back to the Company for working capital targets at the acquisition date that were not met by Bayou.

On March 31, 2009, the Company acquired Corrpro Companies, Inc. (“Corrpro”). Corrpro is a premier provider of corrosion protection and pipeline maintenance services in North America and the United Kingdom. Corrpro’s comprehensive line of fully-integrated corrosion protection products and services includes: (i) engineering; (ii) product and material sales; (iii) construction and installation; (iv) inspection, monitoring and maintenance; and (v) coatings. The purchase price for Corrpro consisted of cash consideration paid to the Corrpro shareholders of $65.2 million. In addition, the Company repaid $26.3 million of indebtedness of Corrpro. The total acquisition cost for Corrpro was approximately $91.5 million. The Company paid the purchase price for Corrpro with borrowings under its credit facility entered into in March 2009, along with cash on hand.

The Company performed an evaluation of the guidance included in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 280, Segment Reporting (“FASB ASC 280”), and FASB ASC 350, Intangibles – Goodwill and Other (“FASB ASC 350”). Based on that evaluation, the Company included Bayou and Corrpro as part of its Energy and Mining reportable segment. See Note 10 for additional information regarding the Company’s segments.

In accordance with the FASB ASC 805, Business Combinations (“FASB ASC 805”), the Company expensed all costs related to the acquisitions in the first quarter of 2009. The total costs related to the Bayou and Corrpro acquisitions were $8.2 million, which consisted of acquisition costs of $7.3 million and severance costs for certain Corrpro employees of $0.9 million. In addition, the Company incurred $1.2 million in costs directly related to its stock offering. These costs were recorded as a reduction to additional paid-in capital on the consolidated balance sheet.

Bayou contributed revenues and net income to the Company for the period from February 20, 2009 through June 30, 2009 of $30.1 million and $0.2 million, respectively. Corrpro contributed revenues and net income to the Company for the period from April 1, 2009 through June 30, 2009 of $41.6 million and $1.6 million, respectively. The following unaudited pro forma summary presents combined information of the Company as if these business combinations had occurred on January 1, 2009 (in thousands):

	Three Months Ended June 30, 2009		Six Months Ended June 30, 2009

Revenues	$	183,196	$	362,401
Net income (loss)(1)		6,546		(12,472	)

_________

(1)

Includes $11.3 million of expense items related to after-tax acquisition-related costs incurred by the Company, Bayou and Corrpro and $8.2 million of after-tax expenses related to mark-to-market of Corrpro warrants prior to the acquisition, early termination fees and the write-off of deferred financing fees related to previously outstanding Corrpro debt.

The Company has completed its purchase price accounting of the acquisitions in accordance with the guidance included in FASB ASC 805. The following table summarizes the amounts of identified assets acquired and liabilities assumed from Bayou and Corrpro at their respective acquisition date fair value, as well as the fair value of the noncontrolling interests in Bayou at the acquisition date (in thousands):

	Bayou			Corrpro
Cash	$	68		$	14,186
Receivables and cost and estimated earnings in excess of billings		17,543			31,824
Inventory		3,349			10,498
Prepaid expenses and other current assets		556			2,886
Property, plant and equipment		50,816			14,966
Identified intangible assets		32,111			38,786
Investments		21,286			–
Other assets		59			11,169
Accounts payable, accrued expenses and billings in excess of cost and estimated earnings		(8,191	)		(30,747	)
Other long-term liabilities		(8,002	)		(25,028	)
Total identifiable net assets	$	109,595		$	68,540

Total consideration transferred	$	140,697		$	91,549
Less: total identifiable net assets		109,595			68,540
Goodwill at acquisition date	$	31,102		$	23,009

On June 30, 2009, the Company acquired the shares of its joint venture partner, VSL International Limited (“VSL”), in Insituform Asia Limited (“Insituform-Hong Kong”), the Company’s Hong Kong joint venture, and Insituform Pacific Pty Limited (“Insituform-Australia”), the Company’s Australian joint venture, in order to expand the Company’s operations in both Hong Kong and Australia. Prior to these acquisitions, the Company owned 50% of the shares in each entity and VSL owned the other 50% interest in each entity. The aggregate purchase price for VSL’s 50% interests in both companies was approximately $0.3 million. As a result of the acquisitions, effective June 30, 2009, the financial results of Insituform-Hong Kong and Insituform-Australia are included in the Company’s consolidated financial statements. For all periods prior to June 30, 2009, the Company accounted for these entities using the equity method of accounting. The Company recorded $3.4 million of goodwill in its Asia-Pacific Sewer Rehabilitation segment as a result of the Insituform-Hong Kong and Insituform-Australia transactions.

On October, 30, 2009, the Company expanded its energy and mining operation in Canada with the acquisition of the pipe coating and insulation facility and related assets of Garneau, Inc. through its joint venture Bayou Perma-Pipe Canada, Ltd. (“BPPC”). The Company holds a 51% majority interest in BPPC, and Perma-Pipe, Inc. holds the remaining 49%. The aggregate purchase price was $11.3 million, of which the Company paid $5.8 million. In accordance with FASB ASC 805, the Company expensed all costs related to the acquisition in the fourth quarter of 2009. The Company did not record any goodwill related to this purchase. As a result of the acquisition, effective October 30, 2009, the financial results of BPPC are included in the Company’s consolidated financial statements.

On December 3, 2009, the Company acquired the 25% noncontrolling interest in its United Kingdom CIPP tube manufacturing operation, now known as Insituform Linings Limited (“Insituform Linings”), which had been owned by Per Aarsleff, a Danish company. The aggregate purchase price for the remaining 25% interest in Insituform Linings was $3.9 million. The Company did not record any goodwill related to this purchase and the excess of the purchase price over the carrying value of the noncontrolling interest was recorded as a reduction to equity.

On January 29, 2010, the Company acquired its Singapore licensee, Insitu Envirotech (S.E. Asia) Pte Ltd (“Insituform-Singapore”), in order to expand its Singapore operations. The purchase price was $1.3 million. This entity is now a wholly-owned subsidiary. The Company recorded $1.6 million of goodwill in its Asia-Pacific Sewer Rehabilitation segment as a result of the transaction. The preliminary goodwill amount exceeds the aggregate purchase price because the fair value of the liabilities assumed exceeded the fair value of the assets acquired on the acquisition date. The Company has not completed its purchase price accounting for this acquisition due to the timing of the acquisition. In accordance with FASB ASC 805, the Company expensed all costs related to this acquisition in the fourth quarter of 2009 and the first quarter of 2010. As a result of the acquisition, the financial results of Insituform-Singapore for the period from January 29, 2010 to June 30, 2010 and the balance sheet as of June 30, 2010 are included in the Company’s consolidated financial statements.

During the first quarter of 2010, the Company formed Delta Double Jointing L.L.C. (“Bayou Delta”). The Company, through its Bayou subsidiary, owns a 59% ownership interest in Bayou Delta with the remaining 41% ownership belonging to Bayou Coating, L.L.C. (“Bayou Coating”), which the Company, through its Bayou subsidiary, holds a 49% equity interest. The financial results of Bayou Delta are included in the Company’s consolidated financial statements.

The following table presents a reconciliation of the beginning and ending balances of the Company’s goodwill at June 30, 2010 and December 31, 2009 (in millions):

	June 30, 2010		December 31, 2009
Beginning balance January 1,	$	180.5	$	123.0
Additions to goodwill through acquisitions(1)		1.6		57.5
Other changes (2)		–		–
Goodwill at end of period	$	182.1	$	180.5

__________

(1)

During 2010, the Company recorded goodwill of $1.6 million related to the acquisition of Insituform-Singapore. During 2009, the Company recorded goodwill of $54.1 million related to the acquisitions of Bayou and Corrpro and $3.4 million related to the acquisitions of its joint venture partner’s interests in Insituform-Australia and Insituform-Hong Kong.

(2)

The Company does not have any accumulated impairment charges.

2. ACCOUNTING POLICIES

Newly Adopted Accounting Pronouncements

FASB ASC 810, Consolidation (“FASB ASC 810”), establishes accounting and reporting standards for minority interests, which are recharacterized as noncontrolling interests. FASB ASC 810 was revised so that noncontrolling interests are classified as a component of equity separate from the parent’s equity; purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions; net income attributable to the noncontrolling interest are included in consolidated net income in the statement of operations; and upon a loss of control, the interest sold, as well as any interest retained, is recorded at fair value, with any gain or loss recognized in earnings. This revision was effective for the Company as of January 1, 2009. It applies prospectively, except for the presentation and disclosure requirements, for which it applies retroactively. In addition, FASB ASC 810, amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under FASB ASC 810. This phase of FASB ASC 810 became effective for the Company on January 1, 2010 and did not impact the Company’s consolidation conclusions for its variable interest entities.

In January 2010, the FASB issued an amendment to the fair value measurement and disclosure standard improving disclosures about fair value measurements. This amended guidance requires separate disclosure of significant transfers in and out of Levels 1 and 2 and the reasons for the transfers. The amended guidance also requires that in the Level 3 reconciliation, the information about purchases, sales, issuances and settlements be disclosed separately on a gross basis rather than as one net number. The guidance for the Level 1 and 2 disclosures was adopted on January 1, 2010, and did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The guidance for the activity in Level 3 disclosures is effective January 1, 2011, and the Company anticipates that it will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows as the amended guidance provides only disclosure requirements. The Company had no significant transfers between Level 1, 2 or 3 inputs during the six-months ended June 30, 2010. Additionally, for purposes of financial reporting, the Company has determined that the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximates fair value due to the short maturities of these instruments.

FASB issued authoritative guidance that defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value measurements for interim and annual reporting periods. The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1 – defined as quoted prices in active markets for identical instruments; Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The guidance was effective for the Company on January 1, 2008. The Company’s adoption of this guidance resulted in additional disclosures. See Note 8 regarding the fair value of the Company’s interest rate agreements.

Investments in Variable Interest Entities

The Company evaluates all transactions and relationships with variable interest entities (“VIE”) to determine whether the Company is the primary beneficiary of the entities in accordance with FASB ASC 810.

The Company’s overall methodology for evaluating transactions and relationships under the VIE requirements includes the following two steps:

•

determine whether the entity meets the criteria to qualify as a VIE; and

•

determine whether the Company is the primary beneficiary of the VIE.

In performing the first step, the significant factors and judgments that the Company considers in making the determination as to whether an entity is a VIE include:

•

the design of the entity, including the nature of its risks and the purpose for which the entity was created, to determine the variability that the entity was designed to create and distribute to its interest holders;

•

the nature of the Company’s involvement with the entity;

•

whether control of the entity may be achieved through arrangements that do not involve voting equity;

•

whether there is sufficient equity investment at risk to finance the activities of the entity; and

•

whether parties other than the equity holders have the obligation to absorb expected losses or the right to receive residual returns.

If the Company identifies a VIE based on the above considerations, it then performs the second step and evaluates whether it is the primary beneficiary of the VIE by considering the following significant factors and judgments:

•

whether the entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance; and

•

whether the entity has the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.

Based on its evaluation of the above factors and judgments, as of June 30, 2010, the Company consolidated any VIEs in which it was the primary beneficiary. Also, as of June 30, 2010, the Company had significant interests in several VIEs primarily through its joint venture arrangements for which it did not have controlling financial interests and, accordingly, was not the primary beneficiary. There have been no changes in the status of the Company’s VIE or primary beneficiary designations that occurred during 2010.

The Company develops joint bids on certain contracts with its joint venture partners. The success of the joint venture depends largely on the satisfactory performance of the Company’s joint venture partner of its obligations under the contract. The Company may be required to complete its joint venture partner’s portion of the contract if the joint venture partner were unable to complete its portion and a bond was not available. In such case, the additional obligations could result in reduced profits or, in some cases, significant losses for the Company’s joint ventures. The Company currently assesses the impact of these joint ventures to its consolidated financial position, financial performance and cash flows to be immaterial.

3. SHARE INFORMATION

Earnings (loss) per share have been calculated using the following share information:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Weighted average number of common shares used for basic EPS		39,055,841		38,466,050		39,044,436		35,741,858
Effect of dilutive stock options and restricted stock		358,162		690,884		352,906		680,371
Weighted average number of common shares and dilutive potential common stock used in dilutive EPS		39,414,003		39,156,934		39,397,342		36,422,229

The Company excluded 279,446 and 529,189 stock options for the three months ended June 30, 2010 and 2009, respectively, and 279,446 and 517,416 stock options for the six months ended June 30, 2010 and 2009, respectively, from the diluted earnings per share calculations for the Company’s common stock because they were anti-dilutive as their exercise prices were greater than the average market price of common shares for each period.

Common Stock

The Company completed a secondary public offering of 10,350,000 shares of the Company’s common stock in February 2009, from which the Company received net proceeds of $127.8 million. These proceeds were used to pay the purchase price for the acquisition of selected assets and liabilities of Bayou and the noncontrolling interests of certain subsidiaries of Bayou.

4. ACQUIRED INTANGIBLE ASSETS

Acquired intangible assets include license agreements, contract backlog, favorable lease terms, trademarks and tradenames, non-compete agreements, customer relationships and patents. Intangible assets at June 30, 2010 and December 31, 2009 were as follows (in thousands):

			As of June 30, 2010							As of December 31, 2009
	Weighted Average Useful Lives (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount

License agreements		10	$	3,894	$	(2,384	)	$	1,510	$	3,894	$	(2,302	)	$	1,592
Contract backlog	<1			3,010		(2,599	)		411		3,010		(1,737	)		1,273
Leases		21		1,237		(69	)		1,168		1,237		(44	)		1,193
Trademarks and tradenames		19		14,400		(929	)		13,471		14,400		(569	)		13,831
Non-compete agreements		1		740		(423	)		317		740		(257	)		483
Customer relationships		15		53,307		(4,903	)		48,404		53,307		(3,276	)		50,031
Patents		16		25,177		(14,404	)		10,773		24,173		(14,265	)		9,908
Total			$	101,765	$	(25,711	)	$	76,054	$	100,761	$	(22,450	)	$	78,311

Amortization expense was $1.6 million and $1.7 million for the three months ended June 30, 2010 and 2009, respectively. Amortization expense was $3.3 million and $2.2 million for the six months ended June 30, 2010 and 2009, respectively. Estimated amortization expense is as follows (in thousands):

Estimated amortization expense:
For year ending December 31, 2010	$	6,162
For year ending December 31, 2011		4,725
For year ending December 31, 2012		4,483
For year ending December 31, 2013		4,478
For year ending December 31, 2014		4,479

5. LONG-TERM DEBT AND CREDIT FACILITY

On March 31, 2009, the Company entered into a Credit Agreement with Bank of America, N.A., as Administrative Agent, Fifth Third Bank, U.S. Bank, National Association, Compass Bank, JPMorgan Chase Bank, N.A., Associated Bank, N.A. and Capital One, N.A (the “Credit Facility”). The Credit Facility is unsecured and initially consisted of a $50.0 million term loan and a $65.0 million revolving line of credit, each with a maturity date of March 31, 2012. The Company has the ability to increase the amount of the borrowing commitment under the Credit Facility by up to $25.0 million in the aggregate upon the consent of the lenders.

At the Company’s election, borrowings under the Credit Facility bear interest at either (i) a fluctuating rate of interest equal on any day to the higher of Bank of America, N.A.’s announced prime rate, the Federal Funds Rate plus 0.50% or the one-month LIBOR plus 1.0%, plus in each case a margin ranging from 1.75% to 3.00%, or (ii) rates of interest fixed for one, two, three or nine months at the British Bankers Association LIBOR for such period plus a margin ranging from 2.75% to 4.00%. The applicable margins are determined quarterly based upon the Company’s consolidated leverage ratio. The current annualized rate on outstanding borrowings under the Credit Facility at June 30, 2010 was 3.44%.

The Credit Facility is subject to certain financial covenants, including a consolidated financial leverage ratio and consolidated fixed charge coverage ratio. The Credit Facility also provides for events of default, including in the event of non-payment or certain defaults under other outstanding indebtedness of the Company.

In connection with its acquisition of Corrpro on March 31, 2009, the Company borrowed the entire amount of the term loan of $50.0 million and approximately $7.5 million under the revolving line of credit. The line of credit borrowing of $7.5 million was subsequently repaid.

As of June 30, 2010, the Company had $19.0 million in letters of credit issued and outstanding under the Credit Facility. Of such amount, (i) $13.5 million was collateral for the benefit of certain of the Company’s insurance carriers, (ii) $1.7 million was collateral for work performance obligations and (iii) $3.8 million was for security in support of working capital needs of Insituform Pipeline Rehabilitation Private Limited, (“Insituform-India”) the Company’s Indian joint venture, and the working capital and performance bonding needs of Insituform-Australia and Insituform-Hong Kong.

The Company’s total indebtedness at June 30, 2010 consisted of the Company’s $65.0 million 6.54% Senior Notes, Series 2003-A, due April 24, 2013, $37.5 million of the initial $50.0 million term loan under the Credit Facility and $1.0 million of third party notes and bank debt in connection with the working capital requirements of Insituform-India. In connection with the formation of Bayou Perma-Pipe Canada, as discussed in Note 1, the Company and Perma-Pipe Inc. loaned the joint venture an aggregate of $8.0 million for the purchase of capital assets and for operating purposes. Of such amount, as of June 30, 2010, $3.9 million was designated in our consolidated financial statements as third-party debt. Under the terms of the Senior Notes, Series 2003-A, prepayment could cause the Company to incur a “make-whole” payment to the holder of the notes. At June 30, 2010, this make-whole payment would have approximated $8.3 million.

At December 31, 2009, the Company’s total indebtedness consisted of the Company’s $65.0 million 6.54% Senior Notes, Series 2003-A, due April 24, 2013, $42.5 million of the initial $50.0 million term loan under the Credit Facility and $2.7 million of third party notes and bank debt in connection with the working capital requirements of Insituform-India. In connection with the formation of Bayou Perma-Pipe Canada, as discussed in Note 1, the Company and Perma-Pipe Inc. loaned the joint venture an aggregate of $8.0 million for the purchase of capital assets and for operating purposes. Of such amount, as of December 31, 2009, $4.0 million is designated in our consolidated financial statements as third-party debt.

At June 30, 2010 and December 31, 2009, the estimated fair value of our long-term debt was approximately $117.3 million and $114.5 million, respectively.

Debt Covenants

At June 30, 2010, the Company was in compliance with all of its debt covenants as required under the Senior Notes and the Credit Facility.

6. EQUITY-BASED COMPENSATION

At June 30, 2010, the Company had two active equity-based compensation plans under which equity-based awards may be granted, including stock appreciation rights, restricted shares of common stock, performance awards, stock options and stock units. There are an aggregate of 2.7 million shares authorized for issuance under these plans. At June 30, 2010, approximately 2.0 million shares remained available for future issuance under the 2009 Employee Equity Incentive Plan (the “2009 Employee Plan”) and approximately 0.1 million shares remained available under the 2006 Non-Employee Director Equity Incentive Plan (the “2006 Director Plan”).

Stock Awards

Stock awards, which include restricted stock shares and restricted stock units, of the Company’s common stock are awarded from time to time to executive officers and certain key employees of the Company. Stock award compensation is recorded based on the award date fair value and charged to expense ratably through the restriction period. Forfeitures of unvested stock awards cause the reversal of all previous expense recorded as a reduction of current period expense.

A summary of restricted award activity during the six months ended June 30, 2010 follows:

	Stock Awards			Weighted Average Award Date Fair Value
Outstanding at January 1, 2010		806,643		$	13.64
Restricted shares awarded		183,900			22.86
Restricted stock units awarded		6,858			24.97
Restricted shares distributed		(18,487	)		12.88
Restricted stock units distributed		(24,269	)		21.14
Restricted shares forfeited		(16,012	)		16.04
Restricted stock units forfeited		(12,041	)		14.22
Outstanding at June 30, 2010		926,592		$	15.32

Expense associated with restricted awards was $2.2 million and $1.5 million in the first six months of 2010 and 2009, respectively. Unrecognized pre-tax expense of $8.2 million related to restricted awards is expected to be recognized over the weighted average remaining service period of 2.0 years for awards outstanding at June 30, 2010.

For the quarter ended June 30, 2010, expense associated with restricted awards was $1.1 million compared to $0.9 million for the same quarter in 2009.

Deferred Stock Unit Awards

Deferred stock units are awarded to directors of the Company under the 2006 Director Plan. Deferred stock units represent the Company’s obligation to transfer one share of the Company’s common stock to the award recipient at a future date and generally are fully vested on the date of award. The expense related to the issuance of deferred stock units is recorded according to the vesting schedule.

A summary of deferred stock unit activity during the six months ended June 30, 2010 follows:

	Deferred Stock Units			Weighted Average Award Date Fair Value
Outstanding at January 1, 2010		147,374		$	18.22
Awarded		25,175			26.10
Shares distributed		(3,600	)		21.71
Forfeited		–			–
Outstanding at June 30, 2010		168,949		$	19.32

Expense associated with awards of deferred stock units in the three and six months ended June 30, 2010 was $0.7 million compared to $0.5 million in the same periods in 2009.

Stock Options

Stock options on the Company’s common stock are granted from time to time to executive officers and certain key employees of the Company under the 2009 Employee Plan. Stock options granted generally have a term of seven years and an exercise price equal to the market value of the underlying common stock on the date of grant.

A summary of stock option activity during the six months ended June 30, 2010 follows:

	Shares			Weighted Average Exercise Price
Outstanding at January 1, 2010		1,167,640		$	17.71
Granted		215,722			22.87
Exercised		(104,649	)		16.69
Canceled/Expired		(45,672	)		25.58
Outstanding at June 30, 2010		1,233,041		$	18.46
Exercisable at June 30, 2010		707,063		$	19.42

The weighted average grant-date fair value of options granted during the six months ended June 30, 2010 was $10.56. In the first six months of 2010, the Company collected $1.8 million from stock option exercises that had a total intrinsic value of $1.0 million. In the first six months of 2009, the Company collected $0.01 million from stock option exercises that had a total intrinsic value of $0.01 million. In the six months ended June 30, 2010 and 2009, the Company recorded expense of $0.9 million and $0.4 million, respectively, related to stock option grants. In the three months ended June 30, 2010 and 2009, the Company recorded expense of $0.5 million and $0.1 million, respectively, related to stock option grants. The intrinsic value of in-the-money stock options outstanding was $4.7 million and $2.7 million at June 30, 2010 and 2009, respectively. The aggregate intrinsic value of exercisable stock options was $2.4 million and $0.8 million at June 30, 2010 and 2009, respectively. The intrinsic value calculation is based on the Company’s closing stock price of $20.48 on June 30, 2010. Unrecognized pre-tax expense of $3.3 million related to stock option grants is expected to be recognized over the weighted average remaining contractual term of 2.2 years for awards outstanding at June 30, 2010.

The Company uses a binomial option pricing model. The fair value of stock options granted during the six-month periods ended June 30, 2010 and 2009 was estimated at the date of grant based on the assumptions presented in the table below. Volatility, expected term and dividend yield assumptions were based on the Company’s historical experience. The risk-free rate was based on a U.S. treasury note with a maturity similar to the option grant’s expected term.

	For the Six Months Ended June 30,
	2010						2009
	Range			Weighted Average			Range			Weighted Average
Volatility		50.4	%		50.4	%		49.5% – 50.1	%		50.1	%
Expected term (years)		7.0			7.0			7.0			7.0
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free rate		3.1	%		3.1	%		2.5% – 3.2	%		2.5	%

7. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is involved in certain litigation incidental to the conduct of its business and affairs. Management, after consultation with legal counsel, does not believe that the outcome of any such litigation will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

Guarantees

The Company has entered into several contractual joint ventures in order to develop joint bids on contracts for its installation business. In these cases, the Company could be required to complete the joint venture partner’s portion of the contract if the partner were unable to complete its portion. The Company would be liable for any amounts for which the Company itself could not complete the work and for which a third party contractor could not be located to complete the work for the amount awarded in the contract. While the Company would be liable for additional costs, these costs would be offset by any related revenues due under that portion of the contract. The Company has not experienced material adverse results from such arrangements. At June 30, 2010, the Company’s maximum exposure to its joint venture partner’s proportionate share of performance guarantees was $0.7 million. Based on these facts, the Company currently does not anticipate any future material adverse impact on its consolidated financial position, results of operations or cash flows.

The Company also has many contracts that require the Company to indemnify the other party against loss from claims of patent or trademark infringement. The Company also indemnifies its surety against losses from third party claims of subcontractors. The Company has not experienced material losses under these provisions and currently does not anticipate any future material adverse impact on its consolidated financial position, results of operations or cash flows.

The Company regularly reviews its exposure under all its engagements, including performance guarantees by contractual joint ventures and indemnification of its surety. As a result of the most recent review, the Company has determined that the risk of material loss is remote under these arrangements and has not recorded a liability for these risks at June 30, 2010 on its consolidated balance sheet.

8. DERIVATIVE FINANCIAL INSTRUMENTS

As a matter of policy, the Company uses derivatives for risk management purposes, and does not use derivatives for speculative purposes. From time to time, the Company may enter into foreign currency forward contracts to fix exchange rates for net investments in foreign operations or to hedge foreign currency cash flow transactions. For net investment hedges, if effective, no gain or loss would be recorded in the consolidated statements of operations. For cash flow hedges, gain or loss is recorded in the consolidated statement of operations upon settlement of the hedge. All of the Company’s hedges that are designated as hedges for accounting purposes, were effective; therefore, no gain or loss was recorded in the consolidated statements of operations for the outstanding hedged balance. During the three- and six-month periods ended June 30, 2010, the Company recorded $0.01 million as a gain on the consolidated statement of operations upon settlement of the cash flow hedges. At June 30, 2010, the Company recorded a net deferred gain of $0.1 million related to the cash flow hedges in other current assets and other comprehensive income on the consolidated balance sheet and on the foreign currency translation adjustment line of the consolidated statement of equity.

The Company engages in regular inter-company trade activities with, and receives royalty payments from, its 100% owned Canadian entity, paid in Canadian Dollars, rather than the Company’s functional currency, U.S. Dollars. In order to reduce the uncertainty of the U.S. Dollar settlement amount of that anticipated future payment from the Canadian entity, the Company uses forward contracts to sell a portion of the anticipated Canadian Dollars to be received at the future date and buys U.S. Dollars.

In some instances, the Company’s United Kingdom operations enters into contracts for services activities with third party customers that will pay in a currency other than the entity’s functional currency, British Pound Sterling. In order to reduce the uncertainty of that future conversion of the customer’s foreign currency payment to British Pound Sterling, the Company uses forward contracts to sell, at the time the contract is entered into, a portion of the applicable currency to be received at the future date and buys British Pound Sterling. These contracts are not accounted for using hedge accounting.

In May 2009, the Company entered into an interest rate swap agreement, for a notional amount of $25.0 million, which expires in March 2012. The swap notional amount mirrors the amortization of $25.0 million of the Company’s $50.0 million term loan. The swap requires the Company to make a monthly fixed rate payment of 1.63% calculated on the amortizing $25.0 million notional amount, and provides for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated on the amortizing $25.0 million notional amount. The receipt of the monthly LIBOR-based payment offsets a variable monthly LIBOR-based interest cost on a corresponding $25.0 million portion of the Company’s term loan. This interest rate swap is used to hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement, and is accounted for as a cash flow hedge. At June 30, 2010, a net deferred loss of $0.2 million related to this interest rate swap was recorded in other current liabilities and other comprehensive income on the consolidated balance sheet. The Company determines the fair value of the interest rate agreements using Level 2 inputs, discounted to adjust for potential credit risk to other market participants. This hedge was effective, and therefore, no gain or loss was recorded in the consolidated statements of operations.

FASB ASC 280 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value measurements for interim and annual reporting periods. The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1 – defined as quoted prices in active markets for identical instruments; Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table represents assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

	Total Fair Value at June 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Forward Currency Contracts	$	110		–	$	110		–
Total		110		–		110		–

Liabilities
Interest Rate Swap		211		–		211		–
Total	$	211		–	$	211		–

Total Fair Value at

December 31, 2009

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

Significant

Observable Inputs

(Level 2)

Significant

Unobservable Inputs

(Level 3)

Assets

Forward Currency Contracts

–

Total

–

Liabilities

Interest Rate Swap

–

Total

–

The following table summarizes the Company’s derivative positions at June 30, 2010:

				Weighted
				Average
				Remaining		Average
		Notional		Maturity		Exchange
	Position	Amount		in Months		Rate
Canadian Dollar/USD	Sell	$	2,630,000		0.2		1.03
British Pound/USD	Sell	£	300,000		1.0		1.46
British Pound/Euro	Sell	£	600,000		0.5		1.19
Interest Rate Swap		$	18,750,000

In accordance with FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), the Company determined that the instruments summarized above are derived from significant observable inputs, referred to as Level 2 inputs. The following table presents a reconciliation of the beginning and ending balances of the Company’s assets and liabilities measured at fair value on a recurring basis using Level 2 inputs at June 30, 2010 and 2009, respectively, which consisted only of the items summarized above (in thousands):

	Three Months Ended June 30,
	2010			2009
Beginning balance, April 1	$	(194	)	$	229
Deferred gain (loss) recorded in other comprehensive income related to interest rate swap		(17	)		48
Deferred loss recorded in other comprehensive income related to net investment hedges		–			(1,485	)
Gain recorded in statement of operations related to forward currency contracts not designated as hedging instruments		28			–
Deferred gain recorded in other comprehensive income related to forward currency contracts designated as hedging instruments		82			–
Ending balance, June 30	$	(101	)	$	(1,208	)

	Six Months Ended June 30,
	2010			2009
Beginning balance, January 1	$	(97	)	$	7,161
Expiration of prior foreign currency forward contracts included in other comprehensive income		–			(7,873	)
Deferred gain (loss) recorded in other comprehensive income related to interest rate swap		(114	)		48
Deferred loss recorded in other comprehensive income related to net investment hedges		–			(544	)
Gain recorded in statement of operations related to forward currency contracts not designated as hedging instruments		28			–
Deferred gain recorded in other comprehensive income related to forward currency contracts designated as hedging instruments		82			–
Ending balance, June 30	$	(101	)	$	(1,208	)

In January 2010, the FASB issued an amendment to the fair value measurement and disclosure standard improving disclosures about fair value measurements. This amended guidance requires separate disclosure of significant transfers in and out of Levels 1 and 2 and the reasons for the transfers. The amended guidance also requires that in the Level 3 reconciliation, the information about purchases, sales, issuances and settlements be disclosed separately on a gross basis rather than as one net number. The guidance for the Level 1 and 2 disclosures was adopted on January 1, 2010, and did not have a material impact on our consolidated financial position, results of operations or cash flows. The guidance for the activity in Level 3 disclosures is effective January 1, 2011, and is not anticipated to have a material impact on the Company’s consolidated financial position, results of operations or cash flows as the amended guidance provides only disclosure requirements. The Company had no significant transfers between Level 1, 2 or 3 inputs during the six-month period ended June 30, 2010. Additionally, for purposes of financial reporting, the Company determined that the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximated fair value as of June 30, 2010 due to the short maturities of these instruments.

The following table provides a summary of the fair value amounts of our derivative instruments, all of which are Level 2 inputs (in thousands):

Designation of Derivatives	Balance Sheet Location	June 30, 2010		December 31, 2009
Derivatives Designated as Hedging Instruments
Forward Currency Contracts	Other current assets	$	82	$	–
	Total Assets		82		–

Interest Rate Swaps	Other long-term liabilities		211		97
	Total Liabilities		211		97

Derivatives Not Designated as Hedging Instruments
Forward Currency Contracts	Other current assets	$	28	$	–
	Total Derivative Assets		110		–
	Total Derivative Liabilities		211		97
	Total Net Derivative Liability	$	101	$	97

9. DISCONTINUED OPERATIONS

The Company has classified the results of operations of its tunneling business as discontinued operations for all periods presented. Substantially all existing tunneling business activity had been completed in early 2008.

Operating results for discontinued operations are summarized as follows for the three and six months ended June 30, 2010 and 2009 (in thousands):

	Three Months Ended June 30,						Six Month Ended June 30,
	2010			2009			2010			2009
Revenues	$	–		$	(590	)	$	–		$	(590	)
Gross profit (loss)		5			(698	)		(7	)		(651	)
Operating expenses		47			759			107			956
Operating loss		(42	)		(1,457	)		(114	)		(1,607	)
Loss before tax benefits		(42	)		(1,457	)		(114	)		(1,607	)
Tax benefits		(14	)		(265	)		(38	)		(317	)
Net loss	$	(28	)	$	(1,192	)	$	(76	)	$	(1,290	)

The Company took a $0.9 million write-down associated with the settlement of a previously recorded claim during the second quarter of 2009, which resulted in a reversal of $0.6 million in previously recorded revenues.

Balance sheet data for discontinued operations was as follows at June 30, 2010 and December 31, 2009 (in thousands):

	June 30, 2010		December 31, 2009

Receivables, net	$	21	$	21
Retainage		647		647
Costs and estimated earnings in excess of billings		521		521
Property, plant and equipment, less accumulated depreciation		1,283		1,283
Deferred income tax assets		2,931		3,000
Total assets	$	5,403	$	5,472

Accounts payable and accrued expenses and billings in excess of costs and estimated earnings	$	129	$	339
Deferred income tax liabilities		1,056		979
Total liabilities	$	1,185	$	1,318

10. SEGMENT REPORTING

The Company operates in three distinct markets: sewer rehabilitation, water rehabilitation and energy and mining services. Management organizes the enterprise around differences in products and services, as well as by geographic areas. Within the sewer rehabilitation market, the Company operates in three distinct geographies: North America, Europe and internationally outside of North America and Europe. As such, the Company is organized into five reportable segments: North American Sewer Rehabilitation, European Sewer Rehabilitation, Asia-Pacific Sewer Rehabilitation, Water Rehabilitation and Energy and Mining. Each segment is regularly reviewed and evaluated separately.

The following disaggregated financial results have been prepared using a management approach that is consistent with the basis and manner with which management internally disaggregates financial information for the purpose of making internal operating decisions. The Company evaluates performance based on stand-alone operating income (loss).

Financial information by segment was as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009

Revenues:
North American Sewer Rehabilitation	$	99,590		$	83,687		$	188,704		$	164,192
European Sewer Rehabilitation		18,003			20,708			35,633			38,915
Asia-Pacific Sewer Rehabilitation		13,750			6,597			23,623			12,342
Water Rehabilitation		2,115			2,493			7,325			4,451
Energy and Mining		96,734			69,711			174,089			91,308
Total revenues	$	230,192		$	183,196		$	429,374		$	311,208

Gross profit (loss):
North American Sewer Rehabilitation	$	23,180		$	22,383		$	44,258		$	40,832
European Sewer Rehabilitation		4,972			5,644			9,250			10,142
Asia-Pacific Sewer Rehabilitation		3,137			1,714			4,692			3,768
Water Rehabilitation		158			(80	)		818			(254	)
Energy and Mining		27,752			18,255			48,862			24,101
Total gross profit	$	59,199		$	47,916		$	107,880		$	78,589

Operating income (loss):
North American Sewer Rehabilitation	$	9,847		$	9,701		$	17,354		$	15,520
European Sewer Rehabilitation		1,268			1,168			1,232			1,025
Asia-Pacific Sewer Rehabilitation(1)		594			532			(230	)		1,794
Water Rehabilitation		(318	)		(807	)		(187	)		(2,036	)
Energy and Mining(2) (3)		11,356			2,876			17,085			(2,754	)
Total operating income	$	22,747		$	13,470		$	35,254		$	13,549

____________

(1)	Asia-Pacific Sewer Rehabilitation included $(0.2) million of operating loss for the six months ended June 30, 2010 related to the 153-day period following the acquisition of Insituform-Singapore on January 29, 2010.

(2)	$8.2 million of acquisition and severance costs were included in the operating loss of the Energy and Mining segment for the six months ended June 30, 2009.

(3)

Bayou and Corrpro contributed $2.3 million of operating income to this segment in the six-month period ended June 30, 2009 during the 130-day period following the Company’s acquisition of Bayou on February 20, 2009 and during the 91-day period following the Company’s acquisition of Corrpro on March 31, 2009.

The following table summarizes revenues, gross profit and operating income by geographic region (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009

Revenues:
United States	$	157,867	$	126,195	$	288,154	$	213,261
Canada		28,982		22,925		60,498		34,642
Europe		20,926		24,074		41,764		42,298
Other foreign		22,417		10,002		38,958		21,007
Total revenues	$	230,192	$	183,196	$	429,374	$	311,208

Gross profit:
United States	$	38,260	$	32,152	$	70,225	$	51,753
Canada		9,923		6,352		18,697		9,565
Europe		5,794		6,681		11,009		11,051
Other foreign		5,222		2,731		7,949		6,220
Total gross profit	$	59,199	$	47,916	$	107,880	$	78,589

Operating income:
United States (1) (2)	$	11,666	$	6,690	$	17,020	$	1,723
Canada(3)		6,251		4,289		11,267		6,570
Europe(4)		2,039		1,344		3,586		1,733
Other foreign(5)		2,791		1,147		3,381		3,523
Total operating income	$	22,747	$	13,470	$	35,254	$	13,549

_______________

(1)	$8.2 million of acquisition-related expenses were included in operating income of the United States region for the six-month period ended June 30, 2010.

(2)

Bayou’s and Corrpro’s domestic operations contributed $1.5 million of operating income to this segment in the six-month period ended June 30, 2010 during the 153-day period following the acquisition of Bayou by the Company on February 20, 2009 and during the 91-day period following the acquisition of Corrpro by the Company on March 31, 2009.

(3)	Corrpro’s Canadian operations contributed $1.4 million of operating income to this segment in the six-month period ended June 30, 2009 during the 91-day period following the acquisition of Corrpro by the Company on March 31, 2009.

(4)	Corrpro’s European operations contributed $0.3 million of operating income to this segment in the six-month period ended June 30, 2009 during the 91-day period following the acquisition of Corrpro by the Company on March 31, 2009.

(5)	Other foreign operating income includes $(0.2) million of operating loss for the six-month period ended June 30, 2010 related to the 153-day period following the acquisition of the Company’s Singapore licensee on January 29, 2010.

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 that have affected our financial condition, results of operations and cash flows during the periods included in the accompanying unaudited consolidated financial statements. This discussion should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (see Note 2 to Consolidated Financial Statements included as part of this Report).

We believe that certain accounting policies could potentially have a more significant impact on our consolidated financial statements, either because of the significance of the consolidated financial statements to which they relate or because they involve a higher degree of judgment and complexity. A summary of such critical accounting policies can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2009.

Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. The Company makes forward-looking statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Quarterly Report on Form 10-Q that represent the Company’s beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to the Company and on management’s beliefs, assumptions, estimates and projections and are not guarantees of future events or results. When used in this report, the words “anticipate,” “estimate,” “believe,” “plan,” “intend,” “may,” “will” 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 known and unknown risks, uncertainties and assumptions, including those referred to in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on March 1, 2010, and in our subsequent Quarterly Reports on Form 10-Q, including this report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. In addition, our actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, we do not assume a duty to update forward-looking statements, whether as a result of new information, future events or otherwise. Investors should, however, review additional disclosures made by the Company from time to time in its periodic filings with the Securities and Exchange Commission. Please use caution and do not place reliance on forward-looking statements. All forward-looking statements made by the Company in this Form 10-Q are qualified by these cautionary statements.

Executive Summary

We are a leader in global pipeline protection, providing proprietary technologies and services for rehabilitating sewer, water, energy and mining piping systems and the corrosion protection of industrial pipelines. We offer one of the broadest portfolios of cost-effective solutions for rehabilitating aging or deteriorating pipelines and protecting new pipelines from corrosion. Our business activities include research and development, manufacturing, distribution, installation, coating and insulation, cathodic protection and licensing. Our products and services are currently utilized and performed in more than 36 countries across six continents. We believe that the depth and breadth of our products and services platform makes us a leading “one-stop” provider for the world’s pipeline rehabilitation and protection needs.

We are organized into five reportable segments: North American Sewer Rehabilitation, European Sewer Rehabilitation, Asia-Pacific Sewer Rehabilitation, Water Rehabilitation and Energy and Mining. We regularly review and evaluate our reportable segments. Market changes between the segments are typically independent of each other, unless a macroeconomic event affects both the sewer and water rehabilitation markets and the oil, mining and gas markets. These changes exist for a variety of reasons, including, but not limited to, local economic conditions, weather-related issues and levels of government funding.

In early 2009, we expanded our operations in the energy and mining sector to include pipe coating and cathodic protection services. On February 20, 2009, we acquired the business of The Bayou Companies, L.L.C. and its related entities (“Bayou”). Our Bayou business provides cost-effective solutions to energy and infrastructure companies primarily in the Gulf of Mexico and North America. Bayou’s products and services include internal and external pipeline coating, lining, weighting and insulation. Bayou also provides specialty fabrication and services for offshore deepwater installations, including project management and logistics.

On March 31, 2009, we acquired Corrpro Companies, Inc. and its subsidiaries (“Corrpro”). Our Corrpro business offers a comprehensive line of fully-integrated corrosion protection products and services including: (i) engineering; (ii) product and material sales; (iii) construction and installation; (iv) inspection, monitoring and maintenance; and (v) coatings. Corrpro’s specialty in the corrosion control market is cathodic protection, an electrochemical process that prevents corrosion in new structures and stops the corrosion process for existing structures.

On June 30, 2009, we acquired the shares of our joint venture partner, VSL International Limited, in Insituform Pacific Pty Limited (“Insituform-Australia”) and Insituform Asia Limited (“Insituform-Hong Kong”), our former Australian and Hong Kong joint ventures, respectively, in order to expand our operations in both Australia and Hong Kong.

On October, 30, 2009, we expanded our energy and mining operation in Canada with our acquisition of the pipe coating and insulation facility and related assets of Garneau, Inc. through our joint venture Bayou Perma-Pipe Canada, Ltd. (“Bayou-Canada”). We hold a 51% majority interest in Bayou-Canada, which serves as our pipe coating and insulation operations in Canada.

On December 3, 2009, we acquired the 25% noncontrolling interest in our United Kingdom CIPP tube manufacturing operation, now known as Insituform Linings Limited (“Insituform Linings”), which had been owned by Per Aarsleff A/S, a Danish company. Insituform Linings manufactures CIPP tube for our European sewer rehabilitation operation and third-party sales.

On January 29, 2010, we acquired our Singapore CIPP licensee, Insitu Envirotech (S.E. Asia) Pte Ltd (“Insituform-Singapore”), in order to expand our Singapore operations. Insituform-Singapore performs sewer rehabilitation services in Southeast Asia. As a result of the acquisition, the financial results of this entity for the period from January 29, 2010 to June 30, 2010 and the balance sheet as of June 30, 2010 are included in our consolidated financial statements as of and for the three- and six-month periods ended June 30, 2010.

During the first quarter of 2010, we formed Delta Double Jointing L.L.C. (“Bayou Delta”) in order to expand the service offering of our Bayou operation. We, through our Bayou subsidiary, own a 59% ownership interest in Bayou Delta with the remaining 41% ownership belonging to Bayou Coating, L.L.C. (“Bayou Coating”), which we, through our Bayou subsidiary, hold a 49% ownership interest. The financial results of Bayou Delta are included in our consolidated financial statements as of and for the three- and six-month periods ended June 30, 2010.

Overview – Consolidated Results

Key financial data for our consolidated operations was as follows (dollars in thousands):

							Increase (Decrease)
	2010			2009			$		%
Three Months Ended June 30,
Revenues	$	230,192		$	183,196		$	46,996	25.7	%
Gross profit		59,199			47,916			11,283	23.5
Gross margin		25.7	%		26.2	%		n/a	(0.5	)
Operating expenses		36,452			34,446			2,006	5.8
Operating income		22,747			13,470			9,277	68.9
Operating margin		9.9	%		7.4	%		n/a	2.5
Net income from continuing operations		15,805			7,738			8,067	104.3

Six Months Ended June 30,
Revenues	$	429,374		$	311,208		$	118,166	38.0	%
Gross profit		107,880			78,589			29,291	37.3
Gross margin		25.1	%		25.3	%		n/a	(0.2	)
Operating expenses		72,626			65,040			7,586	11.7
Operating income		35,254			13,549			21,705	160.2
Operating margin		8.2	%		4.4	%		n/a	3.8
Net income from continuing operations		24,313			6,632			17,681	266.6

Consolidated net income from continuing operations was $8.1 million, or 104.3%, higher in the second quarter of 2010 than in the second quarter of 2009. The improvement was primarily due to significant improvement in performance quarter-over-quarter by our Energy and Mining segment combined with continued strong results generated by our North America Sewer Rehabilitation segment. For the first six months, consolidated net income from continuing operations was $17.7 million, or 266.6%, higher than the first six months of 2009. Again, the increase can be attributed to the improvement in Energy and Mining as well as the fact that the first six months of 2009 included $6.1 million (net of income tax) of costs associated with the acquisitions of Bayou and Corrpro. Revenues during the second quarter of 2010 increased by $47.0 million, or 25.7%, primarily due to improvement in our Energy and Mining and North America Sewer Rehabilitation segments, although we also experienced revenue growth in our Asia-Pacific Sewer Rehabilitation and Water Rehabilitation segments as well. These revenue increases were partially offset by a revenue decline in our European Sewer Rehabilitation segment due to our exit from contracting markets in Poland, Romania and Belgium. Gross profit margins in the second quarter of 2010 were slightly lower than the margins achieved in the second quarter of 2009 primarily due to lower gross margin achieved by our North American Sewer Rehabilitation segment due to changes in our business mix and project management issues in the western region of the United States. In addition, gross margins rates achieved by our Asia-Pacific Sewer Rehabilitation segment continue to be lower than the prior year quarter due to project delays and performance issues on several projects in India.

Consolidated operating expenses increased $2.0 million, or 5.8%, in the second quarter of 2010 compared to the second quarter of 2009. The increase was primarily due to increases in our North American Sewer Rehabilitation, Asia-Pacific Sewer Rehabilitation and Energy and Mining segments. The North American Sewer Rehabilitation increase was due to increased operational expense in connection with crew expansion, while the increase in our Asia-Pacific Sewer Rehabilitation segment was due to additional project management and operational support in connection with growth in the business. The increase in operating expense in our Energy and Mining segment was due to the inclusion of operating expenses of $0.9 million from Bayou-Canada and Bayou Delta, which were not included in second quarter of 2009. In addition, operating expenses associated with acquisitions made in our Asia-Pacific Sewer Rehabilitation segment contributed $1.0 million to the increase. The acquisitions include Insituform-Hong Kong, Insituform-Australia and Insituform-Singapore. For the first six months of 2010, operating expenses increased by $7.6 million, or 11.7%, compared to the corresponding prior year period. The increases discussed above contributed to the increase as well as the inclusion of operating expenses from Bayou and Corrpro in the first quarter of 2010, but not in the first quarter of 2009. Partially offsetting this increase was $6.1 million (net of income tax) of costs associated with the acquisitions of Bayou and Corrpro that were included in the first quarter of 2009.

Total contract backlog improved to $475.2 million at June 30, 2010 compared to $462.4 million at June 30, 2009, a 2.8% increase. The June 30, 2010 level of backlog was 4.4% lower than the total contract backlog of $497.0 million at March 31, 2010.

North American Sewer Rehabilitation Segment

Key financial data for our North American Sewer Rehabilitation segment was as follows (dollars in thousands):

							Increase (Decrease)
	2010			2009			$		%
Three Months Ended June 30,
Revenues	$	99,590		$	83,687		$	15,903	19.0	%
Gross profit		23,180			22,383			797	3.6
Gross margin		23.3	%		26.7	%		n/a	(3.4	)
Operating expenses		13,333			12,682			651	5.1
Operating income		9,847			9,701			146	1.5
Operating margin		9.9	%		11.6	%		n/a	(1.7	)

Six Months Ended June 30,
Revenues	$	188,704		$	164,192		$	24,512	14.9	%
Gross profit		44,258			40,832			3,426	8.4
Gross margin		23.5	%		24.9	%		n/a	(1.4	)
Operating expenses		26,904			25,312			1,592	6.3
Operating income		17,354			15,520			1,834	11.8
Operating margin		9.2	%		9.5	%		n/a	(0.3	)

Revenues

Revenues increased by $15.9 million, or 19.0%, in our North American Sewer Rehabilitation segment in the second quarter of 2010 compared to the second quarter of 2009. The increase in revenues was primarily due to the addition of six crews in response to the increased backlog that started in the second half of 2009. Additionally, revenue growth was realized throughout most of our geographic markets, but in particular, in the Eastern and Central regions of the United States. The increase in the second quarter was also helped by a stronger foreign exchange rate of the Canadian dollar of approximately $0.4 million compared to the U.S. dollar. Third-party product sales also contributed to the increase in this segment with sales of $3.6 million and $2.5 million in the second quarters of 2010 and 2009, respectively. Revenues increased 14.9% in our North American Sewer Rehabilitation segment in the first six months of 2010 compared to the first six months of 2009 for the same reasons described above, with the increase partially offset by project delays and postponements in the first quarter of 2010 due to poor weather conditions in the northern United States.

Contract backlog in our North American Sewer Rehabilitation segment at June 30, 2010 was $206.6 million. This represented a $2.0 million, or 1.0%, decrease from backlog at March 31, 2010. North American Sewer Rehabilitation contract backlog was flat as compared to June 30, 2009. Backlog levels increased 14.2% during the first six months of 2010 as a result of improved win-rate and increased market activity, a portion of which is attributable to federal stimulus programs.

Gross Profit and Gross Margin

Gross profit in our North American Sewer Rehabilitation segment increased $0.8 million, or 3.6%, in the second quarter of 2010 compared to the second quarter of 2009. Gross margin rates decreased 340 basis points in the second quarter of 2010 compared to the second quarter of 2009 due to changes in project mix as well as the recording of $1.2 million of unfavorable adjustments to projects in our Western Region, which were related to project management issues. We believe these project management issues were isolated and that they have been resolved. We expect the margins to improve in future quarters.

In the first six months of 2010, gross profit in our North American Sewer Rehabilitation segment increased $3.4 million, or 8.4%, compared to the first six months of 2009. Gross margin rates decreased 140 basis points in the first six months of 2010 compared to the same period of 2009, primarily due to changes in project mix as well as the recording of $1.7 million of unfavorable adjustments due to project management issues in our Western Region. As stated above, we believe these project management issues were isolated and that they have been resolved. We expect the margins to improve in the second half of 2010.

We will continue to strive for improvements in productivity through enhanced project management and crew training, continued implementation of technologies and improved logistics management. We continue to seek avenues for taking advantage of our vertical integration and manufacturing capabilities through transfer price optimization programs and by expanding our third-party product sales efforts on a global basis.

Operating Expenses

Operating expenses in our North American Sewer Rehabilitation segment increased by $0.7 million, or 5.1%, during the second quarter of 2010 compared to the second quarter of 2009 due to additional operational expenses in connection with the crew expansion mentioned above. Operating expenses as a percentage of revenues were 13.4% in the second quarter of 2010 compared to 15.2% in the second quarter of 2009.

Operating expenses increased by $1.6 million, or 6.3%, in the first six months of 2010 compared to the first six months of 2009 for the reasons described above. Operating expenses as a percentage of revenues were 14.3% in the first six months of 2010 compared to 15.4% in the first six months of 2009.

Operating Income and Operating Margin

Higher gross profit, partially offset by higher operating expenses, led to a $0.1 million, or 1.5%, increase in operating income in our North American Sewer Rehabilitation segment in the second quarter of 2010 compared to the second quarter of 2009. North American Sewer Rehabilitation operating margin, which is operating income as a percentage of revenues, declined to 9.9% in the second quarter of 2010 compared to 11.6% in the second quarter of 2009, a decrease of 170 basis points. The primary reason for the decrease was the unfavorable project adjustments in our Western Region due to the project management issues discussed above. We anticipate the operating margins will improve in future quarters.

In the first six months of 2010, operating income increased to $17.4 million compared to $15.5 million in the first six months of 2009, an 11.8% increase. North American Sewer Rehabilitation operating margin decreased to 9.2%, a decrease of 30 basis points, in the first six months of 2010 compared to 9.5% in the first six months of 2009 as a result of the slightly lower gross margins and increased operating expenses. We expect operating margins to improve in the second half of 2010.

European Sewer Rehabilitation Segment

Key financial data for our European Sewer Rehabilitation segment was as follows (dollars in thousands):

							Increase (Decrease)
	2010			2009			$			%
Three Months Ended June 30,
Revenues	$	18,003		$	20,708		$	(2,705	)	(13.1	)%
Gross profit		4,972			5,644			(672	)	(11.9	)
Gross margin		27.6	%		27.3	%		n/a		0.3
Operating expenses		3,704			4,476			(772	)	(17.2	)
Operating income		1,268			1,168			100		8.6
Operating margin		7.0	%		5.6	%		n/a		1.4

Six Months Ended June 30,
Revenues	$	35,633		$	38,915		$	(3,282	)	(8.4	)%
Gross profit		9,250			10,142			(892	)	(8.8	)
Gross margin		26.0	%		26.1	%		n/a		(0.1	)
Operating expenses		8,018			9,117			(1,099	)	(12.1	)
Operating income		1,232			1,025			207		20.2
Operating margin		3.5	%		2.6	%		n/a		0.9

Revenues

Revenues in our European Sewer Rehabilitation segment decreased by $2.7 million, or 13.1%, during the second quarter of 2010 compared to the second quarter of 2009. This was primarily due to lower contracting revenues as we exited the Belgium, Romanian, and Polish contracting markets in the first quarter of 2010 as part of the previously announced reorganization of our European business. In addition, revenues were negatively impacted by weaker European currencies versus the U.S. dollar of approximately $0.9 million.

For the first six months of 2010, revenues decreased by $3.3 million, or 8.4%, compared to the first six months of 2009. The decrease was primarily due to lower contracting revenues in Belgium, Romania and Poland as we exited these markets. Also, poor weather conditions in the first quarter of 2010 caused a number of project delays and postponements, particularly in the Netherlands.

Contract backlog in our European Sewer Rehabilitation segment was $22.7 million at June 30, 2010. This represented a decrease of $18.2 million, or 44.6%, compared to June 30, 2009. The decrease was principally due to our exit from the contracting markets in Poland, Romania and Belgium, as well as lower backlog in France due to re-valuation of existing contracts and unfavorable impacts of currencies throughout Europe. On the positive side, backlogs remain strong in the Netherlands and increased in the United Kingdom as a result of improved market conditions and win-rate.

As previously announced, during the fourth quarter of 2009, we implemented a reorganization of our European business, whereby we decided to exit the contracting markets in Belgium, Romania and Poland. We also realigned responsibilities and functions and combined operations, thereby reducing administrative overhead costs. The reorganization included the elimination of 34 positions throughout our operations in Europe. As part of the reorganization, we acquired the 25% minority interest in our CIPP tube manufacturing operation in the United Kingdom, which had been owned by Per Aarsleff A/S, a Danish company. Under the new organizational structure, our European contracting operation is divided into five geographic regions, plus our German joint venture. We also are now in the position to expand our third-party tube sales through our wholly-owned manufacturing operation. We do not expect any future restructuring charges related to the 2009 European restructuring.

Gross Profit and Gross Margin

Gross profit in our European Sewer Rehabilitation segment decreased by $0.7 million, or 11.9%, during the second quarter of 2010 compared to the second quarter of 2009, primarily due to lower revenue levels and unfavorable impacts of currency throughout Europe. Despite the decline in revenues, our European Sewer Rehabilitation segment experienced a 30 basis points increase in gross margin year over year due to pricing and cost efficiencies in our European manufacturing operation.

Gross profit in our European Sewer Rehabilitation segment decreased by $0.9 million, or 8.8%, during the first six months of 2010 compared to the first six months of 2009. Gross margin decreased by 10 basis points to 26.0% in the first six months of 2010 over the first six months of 2009. The overall slight decrease in gross margin was due to lower revenue levels, negative adjustments to some projects in France and challenging weather conditions in the first quarter of 2010.

We expect that our gross profit margins will increase during 2010, as we exit unprofitable businesses and pursue initiatives focused on receiving an appropriate level of return.

Operating Expenses

Operating expenses in our European Sewer Rehabilitation segment decreased by $0.8 million, or 17.2%, during the second quarter of 2010 compared to the second quarter of 2009, primarily due to our previously discussed reorganization. As discussed above, we realigned responsibilities and functions and combined operations, thereby reducing administrative overhead costs. The reorganization included the elimination of 34 positions throughout our operations in Europe. Operating expenses as a percentage of revenues decreased slightly to 20.6% for the second quarter of 2010, a reduction of 100 basis points from 21.6% for the second quarter of 2009.

Operating expenses in our European Sewer Rehabilitation segments decreased by $1.1 million, or 12.1%, during the first six months of 2010 compared to the first six months of 2009. Operating expenses as a percentage of revenues decreased to 22.5% in the first six months of 2010 compared to 23.4% in the first six months of 2009, primarily due to the reorganization mentioned above.

Operating Income and Operating Margin

Lower operating expenses, partially offset by lower gross profit, led to a $0.1 million improvement in operating income in the second quarter of 2010 compared to the second quarter of 2009. European Sewer Rehabilitation operating margin improved to 7.0% in the second quarter of 2010 compared to 5.6% in the second quarter of 2009.

Lower operating expenses, partially offset by lower gross profit, led to a $0.2 million improvement in operating income in the first six months of 2010 compared to the first six months of 2009. European Sewer Rehabilitation operating margin improved to 3.5% in the first six months of 2010 compared to 2.6% in the first six months of 2009.

Asia-Pacific Sewer Rehabilitation Segment

Key financial data for our Asia-Pacific Sewer Rehabilitation segment was as follows (dollars in thousands):

							Increase (Decrease)
	2010			2009			$			%
Three Months Ended June 30,
Revenues	$	13,750		$	6,597		$	7,153		108.4	%
Gross profit		3,137			1,714			1,423		83.0
Gross margin		22.8	%		26.0	%		n/a		(3.2	)
Operating expenses		2,543			1,182			1,361		115.1
Operating income		594			532			62		11.7
Operating margin		4.3	%		8.1	%		n/a		(3.8	)

Six Months Ended June 30,
Revenues	$	23,623		$	12,342		$	11,281		91.4	%
Gross profit		4,692			3,768			924		24.5
Gross margin		19.9	%		30.5	%		n/a		(10.6	)
Operating expenses		4,922			1,974			2,948		149.3
Operating income (loss)		(230	)		1,794			(2,024	)	(112.8	)
Operating margin		(1.0	)%		14.5	%		n/a		(15.5	)

Revenues

Revenues in our Asia-Pacific Sewer Rehabilitation segment increased by $7.2 million, or 108.4%, in the second quarter of 2010 compared to the second quarter of 2009. The increase was primarily due to the inclusion of revenues from Insituform-Australia, Insituform-Hong Kong and Insituform-Singapore, which had not been previously consolidated. We believe these acquisitions further improve the geographic diversification of our Asia-Pacific Sewer Rehabilitation business. In addition, although Insituform-India continued to experience project delays and execution issues, it also experienced a slight increase in revenues compared to the prior year quarter. For the first six months of 2010, revenues in our Asia-Pacific Sewer Rehabilitation segment increased by $11.3 million, or 91.4%, compared to the first six months of 2009. Again, the primary reason for the increase was due to the inclusion of revenues from Insituform-Australia, Insituform-Hong Kong and Insituform-Singapore, which had not been previously consolidated. The year-to-date increases were partially offset by a revenue decline in India due to project delays and project execution issues.

Contract backlog in our Asia-Pacific Sewer Rehabilitation segment was $76.0 million at June 30, 2010. This represented an increase of $15.1 million, or 24.8%, compared to June 30, 2009. This increase was principally due to the inclusion of Insituform-Singapore, which was not included at June 30, 2009 and the recently announced $17.0 million contract in Insituform-Hong Kong, partially offset by work performed.

Gross Profit and Gross Margin

Gross profit in the Asia-Pacific Sewer Rehabilitation segment increased by $1.4 million, or 83.0%, in the second quarter of 2010 compared to the second quarter of 2009. Our gross margin decreased to 22.8% compared to 26.0% in the same period. The primary reason for the lower margin was a significant increase in the cost of resin on several projects in India. We also experienced project delays and performance issues on several projects in India.

For the first six months of 2010, gross profit was $0.9 million, or 24.5%, higher than the same period last year. However, our gross profit margin in Asia was significantly lower in the first six months of 2010 compared to the first six months of 2009. This decrease was primarily due to revisions made in the cost to complete two projects in India. The main issue that caused us to revise the costs to complete for these two projects related to our resin supply. The estimates to complete were based on using a type of resin (“filled resin”) that was less expensive than other resins available (“unfilled resin”). It was believed that this less expensive resin would be available during 2010; however, this resin was not available for these projects. As a result, the operation had to use the more expensive unfilled resin. In the estimates to complete, the discount assumed from the use of the cheaper filled resin had to be removed. Additionally, the customer is requiring increased tube thickness, which is requiring the use of more resin than originally estimated. The adjustments made to the cost to complete resulted in one project being estimated to complete in a loss position. An accrual for the expected loss of $0.4 million has been recorded. Because these adjustments were isolated, the risk of further substantial write-downs is limited and we do not believe that any further loss provisions are required at this time.

Operating Expenses

Operating expenses increased by $1.4 million, or 115.1%, in our Asia-Pacific Sewer Rehabilitation segment during the second quarter of 2010 compared to the second quarter of 2009, principally due to the inclusion of operating expenses from Insituform-Australia, Insituform-Hong Kong and Insituform-Singapore, which had not been previously consolidated. This was also the primary reason for the increase in operating expenses for the first six months of 2010 compared to the first six months of 2009.

Operating Income(loss) and Operating Margin

Higher gross profit partially offset with higher operating expenses led to a $0.1 million increase in operating income for the second quarter of 2010 compared to the second quarter of 2009. Higher operating expenses partially offset by higher gross profit led to a $2.0 million decrease in operating income for the first six months of 2010 compared to the first six months of 2009. Operating margin decreased to 4.3% in the second quarter of 2010 compared to 8.1% in the second quarter of 2009.

Water Rehabilitation Segment

Key financial data for our Water Rehabilitation segment was as follows (dollars in thousands):

							Increase (Decrease)
	2010			2009			$			%
Three Months Ended June 30,
Revenues	$	2,115		$	2,493		$	(378	)	(15.2	)%
Gross profit (loss)		158			(80	)		238		297.5
Gross margin		7.5	%		(3.2	)%		n/a		10.7
Operating expenses		476			727			(251	)	(34.5	)
Operating loss		(318	)		(807	)		489		60.6
Operating margin		(15.0	)%		(32.4	)%		n/a		17.4

Six Months Ended June 30,
Revenues	$	7,325		$	4,451		$	2,874		64.6	%
Gross profit (loss)		818			(254	)		1,072		422.0
Gross margin		11.2	%		(5.7	)%		n/a		16.9
Operating expenses		1,005			1,782			(777	)	(43.6	)
Operating loss		(187	)		(2,036	)		1,849		90.8
Operating margin		(2.5	)%		(45.7	)%		n/a		43.1

Revenues

Revenues for our Water Rehabilitation segment decreased to $2.1 million, or 15.2%, in the second quarter of 2010 from $2.5 million in the prior year quarter. During the second quarter of 2009, we were completing a large water project in New York as well as beginning a project in Victoria, British Columbia. Despite lower revenues in the second quarter of 2010, we believe that our InsituMainTM product, launched in 2009, coupled with our other Insituform Blue® water pipe rehabilitation products, firmly establishes us in the marketplace. We continue to believe that prospects for new orders and growth are strong. Our Water Rehabilitation segment contract backlog increased $5.9 million, or 203.8%, to $8.8 million at June 30, 2010 compared to $2.9 million at March 31, 2010, and we anticipate continued growth in backlog over the coming quarters. For the first six months of 2010, revenues increased $2.9 million, or 64.6%, compared to the first six months of 2009, primarily due to the execution of a number of projects in North America during the first quarter of 2010.

Gross Profit (loss) and Gross Margin

During the second quarter of 2010, gross profit in our Water Rehabilitation segment increased $0.2 million compared to the second quarter of 2009. In addition, our gross margin percentage increased to 7.5% for the second quarter of 2010 compared to (3.2)% for the second quarter of 2009. Gross profit during the first six months of 2010 increased $1.1 million, or 422.0%, compared to the first six months of 2009. Our gross margin increased during the first six months of 2010 to 11.2% compared to the (5.7)% achieved during the first six months of 2009. The increases for both the second quarter and the first six months of 2010 were due to the execution of a number of projects in North America. Our water rehabilitation business is still in an early growth stage. We have successfully completed small- and medium-diameter work and continue to validate our large diameter capability in the market.

Operating Expenses

Operating expenses in our Water Rehabilitation segment decreased by $0.3 million, or 34.5%, in the second quarter of 2010 compared to the second quarter of 2009. The decrease was primarily due to combining operations and project management resources with our North American Sewer Rehabilitation operation during the second half of 2009. Operating expenses as a percentage of revenues declined to 22.5% in the second quarter of 2010 compared to 29.2% in the second quarter of 2009. For the first six months of 2010, operating expenses decreased by $0.8 million, or 43.6%, compared to the first six months of 2009 for the same reasons. Operating expenses as a percentage of revenues declined to 13.7% in the first six months of 2010 compared to 40.0% in the first six months of 2009.

Operating Loss and Operating Margin

Operating loss in this segment was $0.3 million in the second quarter of 2010 compared to a loss of $0.8 million in the second quarter of 2009. Operating loss for the first six months of 2010 was $0.2 million compared to a loss of $2.0 million during the first six months of 2009. The improvements in both the quarter and the six-month period ended June 30, 2010 were primarily due to improvements in all areas of the business.

Energy and Mining Segment

Key financial data for our Energy and Mining segment was as follows (dollars in thousands):

							Increase (Decrease)
	2010			2009			$			%
Three Months Ended June 30,
Revenues	$	96,734		$	69,711		$	27,023		38.8	%
Gross profit		27,752			18,255			9,497		52.0
Gross margin		28.7	%		26.2	%		n/a		2.5
Operating expenses		16,396			15,379			1,017		6.6
Operating income		11,356			2,876			8,480		294.9
Operating margin		11.7	%		4.1	%		n/a		7.6

Six Months Ended June 30,
Revenues	$	174,089		$	91,308		$	82,781		90.7	%
Gross profit		48,862			24,101			24,761		102.7
Gross margin		28.1	%		26.4	%		n/a		1.7
Acquisition-related expenses		–			8,219			(8,219	)	(100.0	)
Operating expenses		31,777			18,636			13,141		70.5
Operating income (loss)		17,085			(2,754	)		19,839		720.4
Operating margin		9.8	%		(3.0	)%		n/a		12.8

Revenues

Revenues in our Energy and Mining segment increased by $27.0 million, or 38.8%, in the second quarter of 2010 compared to the second quarter of 2009. This increase was primarily due to significant growth in our pipe coating and Titeliner® businesses. Our Energy and Mining segment is divided into six primary geographic regions: the United States, Canada, Mexico, South America, the Middle East and Europe, and includes pipeline rehabilitation, pipe coating, design and installation of cathodic protection systems and welding services. During the second quarter of 2010, each of these six geographic regions experienced growth in revenues. Unlike our sewer rehabilitation segments and our Water Rehabilitation segment, revenues in our Energy and Mining segment are responsive to market conditions in the oil, gas and mining industries. Portions of our Energy and Mining segment are somewhat insulated from market downturns as they are not entirely dependent on new pipelines or expansion, but rather on rehabilitation and the opportunity for our clients to gain increased utilization and capacity through existing assets.

For the first six months of 2010, results for our Energy and Mining segment included two full quarters of results for our Bayou and Corrpro businesses in 2010, compared to only 130 days for Bayou and 91 days for Corrpro in the first six months of 2009. Revenues in our Energy and Mining segment increased from $91.3 million to $174.1 million during the first six months of 2010 compared to the prior year period, a 90.7% increase.

Contract backlog in our Energy and Mining segment at June 30, 2010 declined $19.1 million, or 10.6%, compared to December 31, 2009 as we recognized revenue on major coating projects that weren’t immediately replaced. We continue to believe that improved commodity prices will result in significant opportunities for our Energy and Mining segment for future periods, particularly as it relates to new spending in the sector. We believe the business environment for our Energy and Mining segment is steady for the near-term.

Gross Profit and Gross Margin

Gross profit in the Energy and Mining segment increased from the prior year quarter by $9.5 million, or 52.0%, with gross margin also increasing from the prior year quarter to 28.7% from 26.2%. Gross margin percentages were strong in all operating units of our Energy and Mining segment, most notably, our coating services and industrial liner businesses. For the first six months of 2010, gross profit increased $24.8 million, or 102.7%, from the first six months of 2009. As discussed in the revenue discussion above, the increase was primarily due the fact that for the first six months of 2010, results for our Energy and Mining segment included two full quarters of results for our Bayou and Corrpro businesses in 2010, compared to only 130 days for Bayou and 91 days for Corrpro in the first six months of 2009.

Operating Expenses

Operating expenses in our Energy and Mining segment increased by $1.0 million, or 6.6%, in the second quarter of 2010 compared to the second quarter of 2009. The increase in operating expenses for the second quarter of 2010 was attributable to the inclusion of operating expenses of $0.9 million for Bayou-Canada and Bayou Delta as they were not included in the second quarter of 2009. For the first six months of 2010, operating expenses increased $13.1 million compared to the first six months of 2009. This increase in operating expenses was attributable to the inclusion of operating expenses for Bayou and Corrpro for the entire six-month period in 2010 and the inclusion of operating expenses for Bayou-Canada and Bayou Delta. We anticipate a reduction in operating expenses throughout the remainder of 2010 compared to prior year periods due to the cost synergies identified throughout 2009. As a percentage of revenues, operating expenses were 16.9% in the second quarter of 2010 compared to 22.1% in the second quarter of 2009, and 18.3% in the six-month period ended June 30, 2010 compared to 20.4% in the six-month period ended June 30, 2009.

Operating Income (Loss) and Operating Margin

Operating income increased $8.5 million or, 294.9%, in the second quarter of 2010 compared to the second quarter of 2009 primarily due to increased revenues and gross margins. Operating margin was 11.7% in the second quarter of 2010 compared to 4.1% in the second quarter of 2009.

Operating income in the first six months of 2010 was $17.1 million compared to a loss of $(2.8) million in the first six months of 2009. Operating margin improved to 9.8% in the first six months of 2010 compared to (3.0) % in the same period of 2009.

Other Income (Expense)

Interest Income

Interest income was $0.1 million and increased by $0.2 million in the second quarter of 2010 compared to the prior year period. Interest income was $0.2 million and remained flat for the first six months of 2010 compared to the prior year period. The increase for the quarter was primarily driven by higher deposits and investments from the prior year.

Interest Expense

Interest expense decreased by $0.5 million in the second quarter of 2010 compared to the prior year quarter due to lower variable interest rates on our outstanding term loan balance. Interest expense was $4.3 million and increased by $0.8 million in the first six months of 2010 compared to the prior year period. The increase in interest expense was due to the additional borrowings under the new credit facility as discussed under “–– Long-Term Debt” related to the Corrpro and Bayou acquisitions made in the first quarter of 2009.

Other Income

Other income decreased by $0.2 million in the second quarter of 2010 compared to the same period in 2009. Other income decreased by $0.3 million in the first six months of 2010 compared to the same period in 2009. The primary component of other income (loss) in the first half of 2010 included a loss of $0.2 million on the disposition of excess property and equipment. Likewise, gains of $0.2 million were recorded on dispositions of excess property and equipment in the first half of 2009.

Taxes on Income

Taxes on income increased $3.3 million and $6.9 million in the second quarter and first six months of 2010, respectively, as compared to the prior year periods, due to improved operating results. Our effective tax rate was 30.8% and 31.1% in the second quarter and first six months of 2010, respectively, compared to 27.9% and 26.0% in the corresponding periods in 2009. The increase in the 2010 effective tax rate was driven by a mix of income in higher tax jurisdictions. During the second quarter 2009, income from continuing operations included a one-time income tax benefit of $0.6 million related to the revaluation of deferred taxes on fixed assets.

The majority of the variance in the effective tax rate for the respective quarters was attributable to the mix of pre-tax income among tax jurisdictions with varying tax rates.

Equity in Earnings (Losses) of Affiliated Companies, Net of Tax

Equity in earnings of affiliated companies, net of tax, was $1.5 million and $0.01 million in the second quarter of 2010 and 2009, respectively. Equity in earnings (losses) of affiliated companies in the first six months of 2010 and 2009 was $2.7 million and $(0.3) million, respectively. The increase during the second quarter and first six months of 2010 compared to the prior year periods was due primarily to improved results from our German joint venture, which has experienced growth in the marketplace and improved margins over the last few quarters. A favorable income tax adjustment also impacted our German joint venture in the first half of 2010. At June 30, 2010, the German joint venture had record contract backlog, which should enable continued improved profitability in the coming quarters. Additionally, there has been improvement in the results from our Bayou pipe coating joint venture in Baton Rouge, which has recovered from weak market conditions and low backlog that persisted during much of 2009. During the first six months of 2009, equity in earnings (losses) of affiliated companies included $(0.3) million related to Insituform-Hong Kong and Insituform-Australia, which were unconsolidated entities during the period.

Noncontrolling Interests

(Income) loss attributable to noncontrolling interests was $(0.3) million and $(0.4) million in the second quarters of 2010 and 2009, respectively. For the six-month periods ended June 30, 2010 and 2009, (income) loss attributable to noncontrolling interests was $0.2 million and $(0.9) million, respectively. The results were related to the 49.5% interest in the net income (loss) of the contractual joint ventures in India held by Subhash Projects and Marketing, Ltd., and the non-controlling interest in net income of our United Pipeline Systems joint venture in Mexico and our consolidated Bayou joint ventures. The decrease in non-controlling interests was due to the performance issues in Insituform-India discussed above.

Loss from Discontinued Operations, Net of Tax

Losses from discontinued operations, net of income taxes, were $(0.03) and $(1.2) million in the second quarters of 2010 and 2009, respectively. Losses from discontinued operations, net of income taxes, were $(0.1) and $(1.3) million in the first six months of 2010 and 2009, respectively. The results in discontinued operations were due to the winding down of our tunneling business, which was shut down in March 2007. In the second quarter of 2009, we took a $0.9 million write-down associated with the settlement of a previously recorded claim, which resulted in a reversal of $0.6 million in previously recorded revenues. The remaining losses and expenses in this segment were primarily related to legal expenses with respect to certain final tunneling matters. All tunneling projects have been completed. At June 30, 2010, receivables, including retention, totaled $1.2 million. This amount is being held pending the final close-out of two projects. While there can be no certainty, these matters are expected to be concluded in 2010, and we believe that the receivables will be collected. Approximately $1.3 million in equipment relating to discontinued operations remained as of June 30, 2010, and we continue to pursue the sale of the equipment through a variety of sources.

Contract Backlog

Contract backlog is our expectation of revenues to be generated from received, signed and uncompleted contracts, the cancellation of which is not anticipated at the time of reporting. Contract backlog excludes any term contract amounts for which there is not specific and determinable work released and projects where we have been advised that we are the low bidder, but have not formally been awarded the contract. The following table sets forth our consolidated backlog by segment (in millions):

Backlog	June 30, 2010		March 31, 2010		December 31, 2009		June 30, 2009
North American Sewer Rehabilitation	$	206.6	$	208.6	$	180.9	$	206.8
European Sewer Rehabilitation		22.7		24.7		37.2		40.9
Asia-Pacific Sewer Rehabilitation		76.0		73.3		57.4		60.9
Water Rehabilitation		8.8		2.9		7.7		7.7
Energy and Mining		161.1		187.6		180.2		146.1
Total	$	475.2	$	497.1	$	463.4	$	462.4

Although backlog represents only those contracts that are considered to be firm, there can be no assurance that cancellation or scope adjustments will not occur with respect to such contracts.

Liquidity and Capital Resources

Cash and Equivalents

	June 30, 2010		December 31, 2009
	(in thousands)
Cash and cash equivalents	$	90,141	$	106,064
Restricted cash		679		1,339

Restricted cash held in escrow relates to deposits made in lieu of retention on specific projects performed for municipalities and state agencies or advance customer payments in Europe.

Sources and Uses of Cash

We expect the principal use of funds for the foreseeable future will be for capital expenditures, working capital and debt servicing. During the first half of 2010, capital expenditures were primarily for an increase in crew resources for our Indian joint venture, equipment for Bayou Delta and crew expansion in our North American Sewer Rehabilitation segment. We expect capital expenditures to trend lower in the second half of 2010 compared to the first half of 2010; however, we expect capital expenditures to increase year-over-year as we continue to grow our operations in Asia-Pacific as well as add crew resources in North America for water rehabilitation projects. We also expect to see growth in our Energy and Mining segment as markets rebound, which will require further investment in equipment.

Our primary source of cash is operating activities. We occasionally borrow under our line of credit to fund operating activities, including working capital investments. Information regarding our cash flows for 2010 and 2009 is discussed below and is presented in our consolidated statements of cash flows contained in this Report. Operating cash flow in the first half of 2010 improved over the prior year period primarily as a result of improved profitability offset by an increase in receivables, retainage and costs and estimated earnings in excess of billings. This increase in receivables, retainage, and costs and estimated earnings in excess of billings was due to increased revenues as well as a slight increase in days sales outstanding (referred to as DSOs). This improved cash flow, coupled with existing cash balances and other resources, should be sufficient to fund our operations in 2010.

We completed a secondary public offering of our common stock in February 2009, from which we received net proceeds of $127.8 million. These proceeds were used to pay the purchase price for our acquisition of selected assets and liabilities of Bayou and the noncontrolling interests of certain subsidiaries of Bayou.

Cash Flows from Operations

Cash flows from continuing operating activities provided $12.2 million in the first half of 2010 compared to $5.4 million provided in the first half of 2009. The increase in operating cash flow from 2009 to 2010 was primarily related to increased earnings and additional depreciation and amortization. Depreciation and amortization was $3.1 million higher in the first half of 2010 compared to the first half of 2009. In relation to working capital, we used $30.2 million in the first half of 2010 compared to $8.9 million in the first half of 2009. Within working capital, we used $6.8 million for inventories, while accounts payable provided $3.6 million. Our DSOs from continuing operations increased by three days to 98 at June 30, 2010 from 95 at December 31, 2009. DSOs have generally increased over the last two years due to more stringent customer requirements for project documentation for billings as well as longer billing cycles due to a shift in our business mix to include more bundling of services within our North American Sewer Rehabilitation segment. Additionally, payment cycles have generally lengthened. Notwithstanding these issues, we have redoubled our efforts to reduce DSOs in an effort to facilitate improvements in liquidity. The rise in DSOs along with increased revenues led to accounts receivable, retainage and costs and estimated earnings use of $26.2 million in cash during the first half of 2010.

Unrestricted cash decreased to $90.1 million at June 30, 2010 from $106.1 million at December 31, 2009. The liquidation of our discontinued operations used $0.7 million in the first half of 2010 compared to $2.3 million provided in the first half of 2009.

Cash Flows from Investing Activities

Investing activities from continuing operations used $20.8 million and $211.4 million in the first half of 2010 and 2009, respectively. The largest component of cash used by investing activities in the first half of 2010 was the use of cash for capital expenditures. We used $19.8 million in cash for capital expenditures in the first half of 2010 compared to $10.4 million in the first half of 2009. Capital expenditures were primarily for an increase in crews in our North American Sewer Rehabilitation segment, a growth of our Asia-Pacific Sewer Rehabilitation segment and equipment purchases within our Energy and Mining segment for our Bayou Delta operation. Capital expenditures in the first half of 2010 and 2009 were partially offset by $0.3 million, respectively, in proceeds received from asset disposals. In the first half of 2010 and 2009, $1.2 million and $0.4 million, respectively, of non-cash capital expenditures were included in accounts payable and accrued expenditures. In addition, we used $1.3 million to acquire our licensee in Singapore. In the first half of 2009, we used $209.7 million, net of cash acquired, to acquire Bayou and Corrpro. The investing activities of our discontinued operations had no activity during the first half of 2010 compared to $0.8 million provided in the first half of 2009. In 2010, we expect to spend approximately $30.0 million on capital expenditures.

Cash Flows from Financing Activities

Cash flows from financing activities from continuing operations used $3.1 million in the first half of 2010 compared to $181.9 million provided in the first half of 2009. In the first half of 2010, we received $1.7 million from the holders of the noncontrolling interests in Bayou Delta. In the first half of 2009, we received proceeds of $50.0 million from a term loan as well as borrowed $7.5 million of proceeds from our line of credit. In addition, we received $127.8 million from our public offering of common stock.

Long-Term Debt

On March 31, 2009, we entered into a Credit Agreement with Bank of America, N.A., as Administrative Agent, Fifth Third Bank, U.S. Bank, National Association, Compass Bank, JPMorgan Chase Bank, N.A., Associated Bank, N.A. and Capital One, N.A. (the “Credit Facility”). The Credit Facility is unsecured and initially consisted of a $50.0 million term loan and a $65.0 million revolving line of credit, each with a maturity date of March 31, 2012. We have the ability to increase the amount of the borrowing commitment under the Credit Facility by up to $25.0 million in the aggregate upon the consent of the lenders.

At our election, borrowings under the Credit Facility bear interest at either (i) a fluctuating rate of interest equal on any day to the higher of Bank of America, N.A.’s announced prime rate, the Federal Funds Rate plus 0.50% or the one-month LIBOR plus 1.0%, plus in each case a margin ranging from 1.75% to 3.00%, or (ii) rates of interest fixed for one, two, three or nine months at the British Bankers Association LIBOR Rate for such period plus a margin ranging from 2.75% to 4.00%. The applicable margins are determined quarterly based upon our consolidated leverage ratio. The current annualized rate on outstanding borrowings under the Credit Facility at June 30, 2010 was 3.44%.

The Credit Facility is subject to certain financial covenants, including a consolidated financial leverage ratio and consolidated fixed charge coverage ratio. The Credit Facility also provides for events of default, including, in the event of non-payment or certain defaults under other outstanding indebtedness. The Company was in compliance with each of these covenants at June 30, 2010.

In connection with our acquisition of Corrpro on March 31, 2009, we borrowed the entire amount of the term loan of $50.0 million and approximately $7.5 million under the revolving line of credit, which was subsequently repaid. See Note 5 to the consolidated financial statements contained in this report for more information.

As of June 30, 2010, we had $19.0 million in letters of credit issued and outstanding under the Credit Facility. Of such amount, (i) $13.5 million was collateral for the benefit of certain of our insurance carriers, (ii) $1.7 million was collateral for work performance obligations and (iii) $3.8 million was for security in support of working capital needs of Insituform-India and the working capital and performance bonding needs of Insituform-Australia and Insituform-Hong Kong.

Our total indebtedness at June 30, 2010 consisted of the Company’s $65.0 million 6.54% Senior Notes, Series 2003-A, due April 24, 2013, $37.5 million of the original $50.0 million term loan and $1.0 million of third party notes and other bank debt. In connection with the formation of Bayou Perma-Pipe Canada, Ltd., we and Perma-Pipe Inc. loaned the joint venture an aggregate of $8.0 million for the purchase of capital assets and for operating purposes. Of such amount, $3.9 million is included in our consolidated financial statements as third-party debt. Under the terms of the Senior Notes, Series 2003-A, prepayment could cause us to incur a “make-whole” payment to the holder of the notes. At June 30, 2010, this make-whole payment would have approximated $8.3 million.

At December 31, 2009, our total indebtedness consisted of the Company’s $65.0 million 6.54% Senior Notes, Series 2003-A, due April 24, 2013, $42.5 million of the original $50.0 million term loan and $2.7 million of third party notes and other bank debt. In connection with the formation of Bayou Perma-Pipe Canada, Ltd., we and Perma-Pipe Inc. loaned the company an aggregate of $8.0 million for the purchase of capital assets and for operating purposes. Of such amount, $4.0 million is included in our consolidated financial statements as third-party debt.

We believe that we have adequate resources and liquidity to fund future cash requirements and debt repayments with cash generated from operations, existing cash balances, additional short- and long-term borrowings and the sale of assets for the next twelve months. We expect cash generated from operations to continue to improve going forward due to increased profitability, improved working capital management initiatives and additional cash flows generated from businesses acquired in 2009 and 2010.

Disclosure of Contractual Obligations and Commercial Commitments

We have entered into various contractual obligations and commitments in the course of our ongoing operations and financing strategies. Contractual obligations are considered to represent known future cash payments that we are required to make under existing contractual arrangements, such as debt and lease agreements. These obligations may result from both general financing activities or from commercial arrangements that are directly supported by related revenue-producing activities. Commercial commitments represent contingent obligations, which become payable only if certain pre-defined events were to occur, such as funding financial guarantees.

The following table provides a summary of our contractual obligations and commercial commitments as of June 30, 2010 (in thousands). This table includes cash obligations related to principal outstanding under existing debt agreements and operating leases.

Payments Due by Period
Cash Obligations(1)(2)(3)(4)(5)	Total		2010		2011		2012		2013		2014		Thereafter

Long-term debt	$	106,450	$	5,000	$	10,000	$	26,450	$	65,000	$	-	$	-
Interest on long-term debt		17,182		4,986		5,451		4,620		2,125		-		-
Operating leases		34,982		7,834		10,533		6,967		4,984		2,716		1,948
Total contractual cash obligations	$	158,614	$	17,820	$	25,984	$	38,037	$	72,109	$	2,716	$	1,948

___________________

(1)	Cash obligations are not discounted. See Notes 5 and 7 to the consolidated financial statements contained in this report regarding our long-term debt and credit facility and commitments and contingencies, respectively.

(2)

We borrowed the entire amount of the $50.0 million term loan upon inception, of which $37.5 million was outstanding at June 30, 2010. We also had $19.0 million for non-interest bearing letters of credit outstanding as of June 30, 2010, $13.5 million of which was collateral for insurance, $1.7 million of which was collateral for work performance obligations and $3.8 million of which was for security in support of working capital and performance bonding needs for our operations in India, Australia and Hong Kong.

(3)	Liabilities related to Financial Accounting Standards Board Accounting Standards Codification 740, Income Taxes, have not been included in the table above because we are uncertain as to if or when such amounts may be settled.

(4)	There were no material purchase commitments at June 30, 2010.

(5)	The Corrpro pension funding was excluded from this table as the amounts are immaterial.

Off-Balance Sheet Arrangements

We use various structures for the financing of operating equipment, including borrowings, operating and capital leases, and sale-leaseback arrangements. All debt is presented in the balance sheet. Our contractual obligations and commercial commitments are disclosed above. We also have exposure under performance guarantees by contractual joint ventures and indemnification of our surety. However, we have never experienced any material adverse effects to our consolidated financial position, results of operations or cash flows relative to these arrangements. At June 30, 2010, our maximum exposure to our joint venture partner’s proportionate share of performance guarantees is $0.7 million. All of our unconsolidated joint ventures are accounted for using the equity method. We have no other off-balance sheet financing arrangements or commitments. See Note 7 to our consolidated financial statements contained in this report regarding commitments and contingencies.

Goodwill

Under FASB ASC 350, Intangibles – Goodwill and Other (“FASB ASC 350”), we assess recoverability of goodwill on an annual basis or when events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Our annual assessment was performed on October 1, 2009. Factors that could potentially trigger an impairment review include (but are not limited to):

·	significant underperformance of a segment relative to expected, historical or projected future operating results;

·	significant negative industry or economic trends;

·	significant changes in the strategy for a segment including extended slowdowns in the sewer rehabilitation market; and

·	a decrease in our market capitalization below our book value for an extended period of time.

The following table presents a reconciliation of the beginning and ending balances of our goodwill at June 30, 2010 and December 31, 2009 (in millions):

	June 30, 2010		December 31, 2009
Beginning balance January 1,	$	180.5	$	123.0
Additions to goodwill through acquisitions(1)		1.6		57.5
Other changes (2)		–		–
Goodwill at end of period	$	182.1	$	180.5

__________

(1)

During 2010, we recorded goodwill of $1.6 million related to the acquisition of Insituform-Singapore. During 2009, we recorded goodwill of $54.1 million related to the acquisitions of Bayou and Corrpro and $3.4 million related to the acquisition of our joint venture partner’s interests in Insituform-Australia and Insituform-Hong Kong.

(2)

We do not have any accumulated impairment charges.

Our recorded goodwill by reporting segment was as follows at June 30, 2010 and December 31, 2009 (in millions):

	June 30, 2010		December 31, 2009
North American Sewer Rehabilitation	$	102.3	$	102.3
European Sewer Rehabilitation		19.8		19.8
Asia-Pacific Sewer Rehabilitation		5.0		3.4
Energy and Mining		55.0		55.0
Total goodwill	$	182.1	$	180.5

No goodwill was recorded for the Water Rehabilitation segment at June 30, 2010. In accordance with the provisions of FASB ASC 350, we determined the fair value of our reporting units at the annual impairment assessment date and compared such fair value to the carrying value of those reporting units to determine if there was any indication of goodwill impairment. During the first six months of 2010, we did not have any triggering events that required us to conduct an interim impairment assessment. Our reporting units for purposes of assessing goodwill are North American Sewer Rehabilitation, European Sewer Rehabilitation, Asia-Pacific Sewer Rehabilitation, UPS, Bayou and Corrpro.

Fair value of reporting units is determined using a combination of two valuation methods: a market approach and an income approach with each method given equal weight in determining the fair value assigned to each reporting unit. Absent an indication of fair value from a potential buyer or similar specific transaction, we believe the use of these two methods provides a reasonable estimate of a reporting unit’s fair value. Assumptions common to both methods are operating plans and economic projections, which are used to project future revenues, earnings and after-tax cash flows for each reporting unit. These assumptions are applied consistently for both methods.

The market approach estimates fair value by first determining earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples for comparable publicly-traded companies with similar characteristics of the reporting unit. The EBITDA multiples for comparable companies are based upon current enterprise value. The enterprise value is based upon current market capitalization and includes a 15% control premium. Management believes this approach is appropriate because it provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to our reporting units.

The income approach is based on projected future (debt-free) cash flows that are discounted to present value using factors that consider timing and risk of future cash flows. Management believes this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. Discounted cash flow projections are based on financial forecasts developed from operating plans and economic projections, growth rates, estimates of future expected changes in operating margins, terminal value growth rates, future capital expenditures and changes in working capital requirements. Estimates of discounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to business models, changes in our weighted average cost of capital or changes in operating performance. An impairment charge will be recognized to the extent that the implied fair value of the goodwill balances for each reporting unit is less than the related carrying value. In performing this analysis, we revised our estimated future cash flows and discount rates, as appropriate, to reflect a variety of market conditions. In each case, no impairment was indicated.

Given the continued distressed global market and economic conditions, we carefully considered whether an interim assessment of our goodwill was necessary during the six-month period ended June 30, 2010. In management’s judgment, we do not believe conditions existed that indicated the fair value of our reporting units was below their carrying value at June 30, 2010. Accordingly, an interim impairment assessment was not performed. A future decline in the fair value of North American Sewer Rehabilitation, European Sewer Rehabilitation, Asia-Pacific Sewer Rehabilitation or Energy and Mining operations could lead to impairment of their respective goodwill balances. The recorded goodwill related to the Asia-Pacific Sewer Rehabilitation segment is the result of our recent acquisitions of Insituform-Hong Kong, Insituform-Australia and Insituform-Singapore (see Note 1 to our consolidated financial statements contained in this report). The recorded goodwill related to our Energy and Mining segment is the result of our recent acquisitions of Bayou and Corrpro (see Note 1 to our consolidated financial statements contained in this report). While not currently anticipated, any significant deterioration in the earnings of those businesses compared to the forecasted earnings assumptions used in the determination of their fair value could lead to the need for us to assess the recoverability of the recorded goodwill and potential impairment.

Recently Adopted Accounting Pronouncements

See Note 2 to the consolidated financial statements contained in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We are exposed to the effect of interest rate changes and of foreign currency and commodity price fluctuations. We currently do not use derivative contracts to manage commodity risks. From time to time, we may enter into foreign currency forward contracts to fix exchange rates for net investments in foreign operations to hedge our foreign exchange risk.

Interest Rate Risk

The fair value of our cash and short-term investment portfolio at June 30, 2010 approximated carrying value. Given the short-term nature of these instruments, market risk, as measured by the change in fair value resulting from a hypothetical 100 basis point change in interest rates, would not be material.

Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we maintain fixed rate debt whenever favorable. At June 30, 2010 and December 31, 2009, the estimated fair value of our long-term debt was approximately $117.3 million and $114.5 million, respectively. Fair value was estimated using market rates for debt of similar risk and maturity. Market risk related to the potential increase in fair value resulting from a hypothetical 100 basis point increase in our debt specific borrowing rates at June 30, 2010 would result in a $0.4 million increase in interest expense. The increase in interest expense would be offset by the interest rate swap agreement discussed below.

In May 2009, we entered into an interest rate swap agreement, for a notional amount of $25.0 million, which expires in March 2012. The swap notional amount mirrors the amortization of $25.0 million of our $50.0 million term loan. The swap requires us to make a monthly fixed rate payment of 1.63% calculated on the amortizing $25.0 million notional amount, and provides for us to receive a payment based upon a variable monthly LIBOR interest rate calculated on the amortizing $25.0 million notional amount. The receipt of the monthly LIBOR-based payment offsets a variable monthly LIBOR-based interest cost on a corresponding $25.0 million portion of our term loan. This interest rate swap is used to hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement, and is accounted for as a cash flow hedge.

Foreign Exchange Risk

We operate subsidiaries and are associated with licensees and affiliated companies operating solely outside of the United States and in foreign currencies. Consequently, we are inherently exposed to risks associated with the fluctuation in the value of the local currencies compared to the U.S. dollar. At June 30, 2010, a substantial portion of our cash and cash equivalents were denominated in foreign currencies, and a hypothetical 10.0% change in currency exchange rates could result in an approximate $5.1 million impact to our equity through accumulated other comprehensive income.

In order to help mitigate this risk, we may enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations. We do not engage in hedging transactions for speculative investment reasons. There can be no assurance that our hedging operations will eliminate or substantially reduce risks associated with fluctuating currencies. At June 30, 2010, we have foreign currency hedge instruments outstanding. See Note 8 to the consolidated financial statements contained in this report for additional information and disclosures regarding our derivative financial instruments.

Commodity Risk

We have exposure to the effect of limitations on supply and changes in commodity pricing relative to a variety of raw materials that we purchase and use in our operating activities, most notably resin, chemicals, staple fiber, fuel and pipe. We manage this risk by entering into agreements with certain suppliers utilizing a request for proposal, or RFP, format and purchasing in bulk, when possible. We also manage this risk by continuously updating our estimation systems for bidding contracts so that we are able to price our products and services appropriately to our customers. However, we face exposure on contracts in process that have already been priced and do not price for any cost adjustments in the contract. This exposure is potentially more significant on our longer-term projects.

We obtain a majority of our global resin requirements, one of our primary raw materials, from multiple suppliers in order to diversify our supplier base and thus reduce the risks inherent in concentrated supply streams. We have a number of vendors in North America that can deliver, and are currently delivering, proprietary resins that meet our specifications.

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2010. Based upon and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms and (b) is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

We completed the acquisitions of Bayou and Corrpro on February 20, 2009 and March 31, 2009, respectively, at which time Bayou and Corrpro became significant subsidiaries of the Company. We are currently in the process of assessing, and incorporating, as appropriate, the internal controls and procedures of Bayou and Corrpro into our internal control over financial reporting. We have extended our Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include Bayou and Corrpro. We will report on our assessment of our consolidated operations within the time period provided by the Exchange Act and applicable SEC rules and regulations concerning business combinations.

There were no other changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in certain actions incidental to the conduct of our business and affairs. Management, after consultation with legal counsel, does not believe that the outcome of any such actions will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 1A. Risk Factors

The following risk factors update the Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2009. Except as set forth below, there have been no material changes to the risks described in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2009.

Our business is dependent on obtaining work through a competitive bidding process.

The markets in which we operate are highly competitive. Most of our products and services, including the Insituform® CIPP process, face direct competition from companies offering similar or essentially equivalent products or services. In the Sewer Rehabilitation segment, few significant barriers to entry exist, and, as a result, any organization that has the financial resources and access to technical expertise may become a competitor. In this segment, we compete with many smaller firms on a local or regional level, and with a small number of larger firms on a national level.

In the Water Rehabilitation segment, we compete primarily with local and regional specialty contractors. Even though this is a more specialized field than sewer rehabilitation, there are few proprietary technologies or other barriers which prevent other companies from entering this market.

In our Energy and Mining segment, we compete primarily with local and regional companies. In addition, customers can select a variety of methods to meet their pipe installation, rehabilitation, coating and cathodic protection needs, including a number of methods that we do not offer. Competition also places downward pressure on our contract prices and profit margins. Intense competition is expected to continue in these markets, and we face challenges in our ability to maintain strong growth rates. If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience an overall reduction in our profits.

The Recent Rig Explosion in the Gulf of Mexico Could Have a Significant Impact on Exploration and Production Activities in United States Coastal Waters that Could Adversely Affect our U. S. Operations.

The April 20, 2010 Deepwater Horizon drilling rig explosion and the related oil spill in the Gulf of Mexico may have an adverse effect on drilling and exploration activities in the U. S. offshore waters, including the Gulf of Mexico. In the near term, the financial consequences of the recently announced deepwater drilling moratorium, as well as regulatory delays and uncertainty with respect to other offshore activities, could have a significant impact on the offshore exploration and production industry and companies that serve that industry. Our Energy and Mining segment provides services to this region.

We cannot predict the long-term impact of the explosion and resulting oil spill on our operations nor can we predict how government or regulatory agencies will respond to the incident or whether changes in laws and regulations concerning operations in the Gulf of Mexico or beyond, will be enacted. Among the possible future consequences of the rig explosion are additional regulatory oversight and control with respect to offshore drilling and a potential ban or restriction on certain offshore oil and gas exploration, particularly deepwater drilling. Any such development could reduce demand for the Company’s services and have an adverse impact on certain segments of our business.

Item 6. Exhibits

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed on the Index to Exhibits attached hereto.

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 thereunto duly authorized.



	By:	INSITUFORM TECHNOLOGIES, INC. /s/ David A. Martin
		David A. Martin
		Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Date: July 28, 2010

INDEX TO EXHIBITS

These exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.

3.1	Restated Certificate of Incorporation as amended through April 22, 2010, filed herewith.

10.1*

Credit Agreement among the Company and certain of its domestic subsidiaries and Bank of America N.A. and certain other lenders party thereto dated March 31, 2009, filed herewith.

31.1	Certification of J. Joseph Burgess pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2	Certification of David A. Martin pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1	Certification of J. Joseph Burgess pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2	Certification of David A. Martin pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

* This agreement was originally filed with the SEC without all exhibits and schedules (Exhibit 10.1 was filed as Exhibit 10.1 to the current report on Form 8-K filed on April 3, 2009). The complete agreement, including all exhibits and schedules, is being filed herein.

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