UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: December 31, 1999
OR
[ ] 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: 0-16749
CERBCO, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1448835
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3421 Pennsy Drive, Landover, Maryland 20785
(Address of principal executive offices) (Zip Code)
Registrant's telephone and fax numbers, including area code:
301-773-1784 (tel)
301-322-3041 (fax)
301-773-4560 (24-hour public information FaxVault System)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----------
As of February 4, 2000, the following number of shares of each of the issuer's
classes of common stock were outstanding:
Common Stock 1,189,476
Class B Common Stock 293,480
---------
Total 1,482,956
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements..................................................3
Condensed Consolidated Statements of Operations for the
Three Months and the Six Months Ended December 31, 1999
and December 31, 1998 (unaudited).....................................3
Condensed Consolidated Balance Sheets as of December 31, 1999
and June 30, 1999 (unaudited).........................................4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1999 and December 31, 1998 (unaudited).............6
Notes to Condensed Consolidated Financial Statements (unaudited)......7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........14
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings....................................................14
Item 2. Changes in Securities and Use of Proceeds............................14
Item 3. Defaults upon Senior Securities......................................14
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 5. Other Information....................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
For the three months ended Dec. 31 For the six months ended Dec. 31
---------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $4,672,268 $5,898,104 $11,986,722 $11,946,046
---------- ---------- ----------- -----------
Costs and Expenses:
Cost of sales 4,875,453 5,030,790 10,994,839 10,081,241
Selling, general and administrative expenses 1,212,307 1,249,798 2,475,033 2,456,337
---------- ---------- ----------- -----------
Total Costs and Expenses 6,087,760 6,280,588 13,469,872 12,537,578
---------- ---------- ----------- -----------
Operating Loss (1,415,492) (382,484) (1,483,150) (591,532)
Investment Income 161,178 235,246 326,552 486,108
Interest Expense (49,360) (11,193) (43,772) (23,898)
Other Income - net 428,258 76,362 448,452 110,000
---------- ---------- ----------- -----------
Loss Before Non-Owned Interests
and Incomes Taxes (875,416) (82,069) (751,918) (19,322)
Non-Owned Interest in Pretax Loss
of Midsouth Partners 0 20,725 19,889 82,348
---------- ---------- ----------- -----------
Earnings (Loss) Before Non-Owned Interests
in Insituform East, Inc. and Income Taxes (875,416) (61,344) (732,029) 63,026
Provision (Credit) for Income Taxes (261,000) (20,000) (201,000) 34,000
---------- ---------- ----------- -----------
Earnings (Loss) Before Non-Owned Interests
in Insituform East, Inc. (614,416) (41,344) (531,029) 29,026
Non-Owned Interests in (Earnings) Loss of
Insituform East, Inc. 641,919 30,646 605,083 (4,987)
---------- ---------- ----------- -----------
NET EARNINGS (LOSS) $ 27,503 $ (10,698) $ 74,054 $ 24,039
========== ========== =========== ===========
Net Earnings (Loss) per Share of Common
Stock:
Basic Earnings (Loss) per Share $ 0.02 $ (0.01) $ 0.05 $ 0.02
========== ========== =========== ===========
Diluted Earnings (Loss) per Share $ 0.02 $ (0.01) $ 0.05 $ 0.02
========== ========== =========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
As of
---------------- ---- ---------------
Dec. 31, 1999 June 30, 1999
---------------- ---------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $14,545,871 $17,050,119
Accounts receivable 5,924,812 6,592,913
Inventories 1,211,133 1,273,402
Prepaid and refundable taxes 88,612 550,453
Prepaid expenses and other 239,419 339,928
----------- -----------
Total Current Assets 22,009,847 25,806,815
----------- -----------
Property, Plant and Equipment - at cost less accumulated depreciation of
$16,402,327 at December 31, 1999 and $15,432,983 at June 30, 1999 11,235,260 11,511,536
----------- -----------
Other Assets:
Excess of acquisition cost over value of net assets acquired less accumulated
amortization of $1,290,488 at December 31, 1999 and $1,253,580 at
June 30, 1999 1,797,887 1,998,822
Deferred income taxes - net of valuation allowance of $242,000 at
December 31, 1999 and $0 at June 30, 1999 0 0
Cash surrender value of SERP life insurance 2,426,926 1,730,964
Deposits and other 86,822 70,489
----------- -----------
Total Other Assets 4,311,635 3,800,275
----------- -----------
Total Assets $37,556,742 $41,118,626
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
As of
---------------- -- -----------------
Dec. 31, 1999 June 30, 1999
---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Partner's loans to Midsouth Partners $ 0 $ 400,000
Accounts payable and accrued liabilities 2,169,970 2,958,136
Income taxes payable 1,070,432 1,508,353
Current portion of capital lease obligations 35,081 42,167
----------- -----------
Total Current Liabilities 3,275,483 4,908,656
----------- -----------
Long-Term Liabilities:
Accrued SERP liability 966,227 847,560
Capital lease obligations (less current portion shown above) 49,702 62,662
Deferred income taxes 0 219,000
----------- -----------
Total Long-Term Liabilities 1,015,929 1,129,222
----------- -----------
Total Liabilities 4,291,412 6,037,878
----------- -----------
Commitments and Contingencies
Non-Owned Interests in Consolidated Subsidiary 8,372,847 10,262,319
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value
Authorized: 3,500,000 shares
Issued and outstanding: 1,189,476 shares 118,947 118,947
Class B Common stock (convertible), $.10 par value
Authorized: 700,000 shares
Issued and outstanding: 293,480 shares 29,348 29,348
Additional paid-in capital 7,527,278 7,527,278
Retained earnings 17,216,910 17,142,856
----------- -----------
Total Stockholders' Equity 24,892,483 24,818,429
----------- -----------
Total Liabilities and Stockholders' Equity $37,556,742 $41,118,626
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
For the six months ended Dec. 31
---------------------------------------
1999 1998
----------------- -----------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings $ 74,054 $ 24,039
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation and amortization 1,217,500 1,059,224
Amounts attributable to non-owned interests (624,972) (77,361)
Deferred income taxes (219,000) 104,000
Decrease in other assets 0 17,989
Increase in accrued SERP liability 118,667 122,921
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 668,101 (526,232)
(Increase) decrease in inventories 62,269 (87,588)
Decrease in prepaid expenses and other current assets 562,350 317,070
Decrease in accounts payable and accrued expenses (639,870) (362,231)
Decrease in income taxes payable (437,921) (241,921)
----------- -----------
Net Cash Provided by Operating Activities 781,178 349,910
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures, net (900,649) (667,976)
Purchase of remaining interests in Midsouth Partners (948,707) 0
Increase in investment in Insituform East (151,766) 0
Increase in other assets (20,000) 0
Increase in cash surrender value of life insurance (695,962) (260,373)
----------- -----------
Net Cash Used in Investing Activities (2,717,084) (928,349)
----------- -----------
Cash Flows from Financing Activities:
Principal payments on revolving lines of credit and
capital lease obligations (20,046) (16,448)
Repayment of loans to Midsouth Partners from non-owned interests (400,000) (250,000)
Dividends paid (148,296) (148,296)
----------- -----------
Net Cash Used in Financing Activities (568,342) (414,744)
----------- -----------
Net Decrease in Cash and Cash Equivalents (2,504,248) (993,183)
Cash and Cash Equivalents at Beginning of Period 17,050,119 20,405,039
----------- -----------
Cash and Cash Equivalents at End of Period $14,545,871 $19,411,856
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 131,906 $ 23,898
Income taxes paid (refunded), net $ (5,920) $ (76,506)
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
CERBCO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Financial Information
The condensed consolidated financial statements include the accounts of
the parent holding company, CERBCO, Inc. ("CERBCO"), and its majority-controlled
subsidiary, Insituform East, Incorporated ("Insituform East"). All significant
intercompany accounts and transactions have been eliminated.
The Condensed Consolidated Balance Sheet as of December 31, 1999, the
Condensed Consolidated Statements of Operations for the three months and six
months ended December 31, 1999 and 1998, and the Condensed Consolidated
Statements of Cash Flows for the six months ended December 31, 1999 and 1998
have been prepared by the Company without audit. The Condensed Consolidated
Balance Sheet as of June 30, 1999 (unaudited) has been derived from the
Company's June 30, 1999 audited financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at December 31, 1999 and for all periods presented have been made.
These statements have been prepared in accordance with the instructions
to Form 10-Q and therefore do not necessarily include all information and
footnotes necessary to a presentation of the financial position, the results of
operations and the cash flows in conformity with generally accepted accounting
principles. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the audited financial
statements and notes thereto included in the CERBCO annual report on Form 10-K
for the fiscal year ended June 30, 1999. Operating results for interim periods
are not necessarily indicative of operating results for an entire fiscal year.
2. Earnings (Loss) Per Share
Basic earnings (loss) per share data are computed based upon the
weighted average number of common shares outstanding during each period. Diluted
earnings per share are computed based upon the weighted average number of common
shares outstanding during the period including common stock equivalents from
dilutive stock options, if any. The weighted average number of common shares
outstanding used in computing diluted earnings per share for the three months
and six months ended December 31, 1999 and 1998 include no net shares associated
with unexercised dilutive stock options. The following numbers of shares have
been used in the earnings (loss) per share computations:
<TABLE>
<CAPTION>
For the three months ended Dec. 31 For the six months ended Dec. 31
---------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic 1,482,956 1,482,956 1,482,956 1,482,956
========= ========= ========= =========
Diluted 1,482,956 1,482,956 1,482,956 1,482,956
========= ========= ========= =========
</TABLE>
3. Income Taxes
The calculation of Insituform East's Credit for Income Taxes for the
six months ended December 31, 1999, using applicable enacted federal and state
rates, resulted in a net deferred tax asset as temporary differences
attributable to operating loss carryforwards exceed deferred tax liabilities
attributable to other temporary differences, principally the recognition of
depreciation expense. The deferred tax asset of $242,000 at December 31, 1999,
has been reduced by a valuation allowance of $242,000 because, based on the
weight of evidence available, to include Insituform East's pretax operating
losses recognized during the past three fiscal years, it is more likely than not
that the deferred tax asset will not be realized.
4. Accounts Receivable
Accounts receivable consist of:
Dec. 31, 1999 June 30, 1999
Due from customers $5,871,473 $6,514,843
Miscellaneous 53,339 78,070
---------- ----------
5,924,812 6,592,913
Less: Allowance for doubtful accounts 0 0
---------- ----------
$5,924,812 $6,592,913
========== ==========
5. Equity in Insituform East
At December 31, 1999, CERBCO beneficially held 1,322,750 shares of
Insituform East Common Stock and 296,141 shares of convertible Insituform East
Class B Common Stock representing approximately 32.6% of the Common Stock, 99.5%
of the Class B Common Stock, 37.2% of the total equity and 60.9% of the total
voting power of all outstanding classes of Insituform East common stock. Holders
of Class B Common Stock, voting separately as a class, have the right to elect
the remaining members of the Insituform East Board of Directors after election
of not less than 25% of such members by holders of shares of Common Stock,
voting separately as a class.
During the six months ended December 31, 1999, CERBCO acquired 96,350
shares of Insituform East Common Stock for $151,766. The difference between the
cost of the stock and the net book value thereof, $164,027, has been credited to
excess of acquisition cost over value of net assets acquired.
From time to time, Insituform East issues additional shares of stock as
a result of stock dividends and exercised stock options. Changes in capital
structure resulting from such additional stock issues decrease CERBCO's equity
ownership. No additional shares were issued in the six months ended December 31,
1999. If all the options outstanding at December 31, 1999 were exercised, the
resulting percentages of CERBCO's equity ownership and total voting power would
be 33.2% and 56.7%, respectively.
From time to time, Insituform East purchases shares of its common stock
for treasury. Changes in capital structure resulting from such stock purchases
increase CERBCO's equity ownership. Insituform East did not purchase any shares
during the six months ended December 31, 1999.
6. Acquisition of Remaining Interests in Midsouth Partners
CERBCO's condensed consolidated financial statements as of December 31,
1999 and June 30, 1999, and for the three months and six months ended December
31, 1999 and 1998, include the accounts of Midsouth Partners, Insituform East's
majority-controlled subsidiary partnership since June 12, 1996. Midsouth
Partners was organized as Insituform Midsouth, a Tennessee general partnership,
in December 1985 with Insituform East as a general partner. Midsouth Partners
was the exclusive licensee for the Insituform(R) process and NuPipe(R) process
in Tennessee, Kentucky (excluding Boone, Kenton and Campbell counties) and
northern Mississippi from December 2, 1985 through July 20, 1999. The
Partnership's general partners through July 20, 1999 were Insitu, Inc., a
wholly-owned subsidiary of Insituform East; Insituform Technologies, Inc.
("ITI"); and Insituform Southwest, Inc., an affiliate of ITI.
Partnership profits and losses were allocated through July 20, 1999 to
the partners as follows:
Insitu, Inc. 42.5%
Insituform Technologies, Inc. 42.5%
Insituform Southwest, Inc. 15.0%
In March 1999, ITI gave notice of a purported termination of the
Midsouth Partners partnership, purportedly terminated Midsouth Partners'
Insituform(R) License Agreement and simultaneously commenced litigation in the
Chancery Court of Delaware to deny Midsouth Partners any rights to further
utilize the Insituform process as previously practiced under such license. In
April 1999, Midsouth Partners responded to the Delaware Chancery Court
litigation and filed a demand for arbitration with the American Arbitration
Association.
Insituform East settled its disputes with ITI concerning Midsouth
Partners under the terms of an agreement reached July 20, 1999 (the "Midsouth
Settlement Agreement") and actions before the Delaware Chancery Court and the
American Arbitration Association were dismissed. Under the terms of the Midsouth
Settlement Agreement, a wholly-owned subsidiary of Insituform East purchased
ITI's interests in the Midsouth Partners partnership at book value and Midsouth
Partners remained entitled to continue the business of the partnership under its
present name. The Insituform(R) License Agreement and its requirement to pay
royalties were relinquished under the settlement, henceforth permitting direct
competition between ITI and Midsouth Partners. The Midsouth Settlement Agreement
expressly provides that Midsouth Partners may utilize processes other than the
Insituform process to perform pipe rehabilitation services, and Midsouth
Partners also obtained a royalty-free non-exclusive right, without limitation in
time and within the partnership's previously licensed territory, to continued
use of the cured-in-place pipe processes, technique and inventions that it
formerly practiced pursuant to its since-terminated Insituform(R) License
Agreement as the same existed on July 20, 1999.
Effective July 20, 1999, Insituform East, through its wholly-owned
subsidiary, Midsouth, L.L.C., acquired the remaining 57.5% interests in Midsouth
Partners previously held by ITI and Insituform Southwest, Inc. for $948,707, the
book value of their respective partnership accounts on July 20, 1999. The
acquisition was accounted for as a purchase. Partnership pretax earnings and
losses attributable to these interests, previously allocated to non-owned
interests in consolidation, have been allocated to Insituform East subsequent to
July 20, 1999.
<TABLE>
Unaudited pro forma results of operations, assuming acquisition of the
remaining interests in Midsouth Partners had occurred as of July 1, 1998, are as
follows:
<CAPTION>
For the three months ended Dec. 31 For the six months ended Dec. 31
---------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $4,672,268 $5,898,104 $11,986,722 $11,946,046
Net Earnings (Loss) $ 27,503 $ (14,203) $ 66,664 $ 8,241
Net Earnings (Loss) per Share:
Basic $0.02 $(0.01) $0.04 $0.01
Diluted $0.02 $(0.01) $0.04 $0.01
This pro forma information does not purport to be indicative of the
results that actually would have been recognized if the operations had been
combined during the periods presented and is not intended to be a projection of
future results.
</TABLE>
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of:
Dec. 31, 1999 June 30, 1999
Accounts payable $1,093,311 $1,448,725
Accrued compensation and related expenses 1,076,659 1,361,115
Dividends payable 0 148,296
---------- ----------
$2,169,970 $2,958,136
========== ==========
8. Contingencies
Stockholder Suit - Superior Court of the District of Columbia
- -------------------------------------------------------------
As previously reported by the Company, in March 1990, the controlling
stockholders of the Company, Messrs. George Wm. Erikson and Robert W. Erikson
(together, the "Eriksons"), executed a letter of intent and subsequently
executed four amendments thereto (collectively referred to herein as the "Letter
of Intent") with Insituform Technologies, Inc. ("ITI") to effect a sale of their
controlling interest in the Company to ITI for $6,000,000 (the "Proposed
Transaction"). The Proposed Transaction, if consummated, would have had the
effect of making ITI the controlling stockholder of the Company, and,
indirectly, of each of the Company's three direct subsidiaries at the time,
including Insituform East. In September 1990, the Eriksons informed the Company
that the Letter of Intent had expired without consummation of any transaction,
that it would not be further extended, that negotiations had ceased, and that
the Eriksons had no further intention at the time of pursuing the proposed sale
of their controlling interest in the Company to ITI.
Also as previously reported by the Company, two stockholders commenced
a derivative lawsuit in the Delaware Court of Chancery against the Eriksons in
August, 1990, making certain claims with respect to the Proposed Transaction
(the "Delaware Action"). The Delaware Action finally was concluded on December
3, 1997, when the Delaware Supreme Court issued its order affirming the findings
of the Court of Chancery with respect to (a) the trial court's assessment of
certain damages against the Eriksons on remand from a previous appeal and (b)
the renewed petition of plaintiffs' attorneys for an award of attorneys' fees
and expenses. Those findings by the Court of Chancery had been made on remand
from the same Delaware Supreme Court after a 1996 ruling in which the Supreme
Court affirmed the Court of Chancery's holding that CERBCO had not suffered any
transactional damages with respect to the Proposed Transaction.
Also as previously reported by the Company, in January 1993, a lawsuit
against the partners in the law firm of Rogers & Wells and the Company, arising
out of the subject matter of the Delaware litigation, was filed in the Superior
Court of the District of Columbia (the "D.C. Complaint"). Plaintiffs were the
same two stockholders who were plaintiffs in the Delaware Action, and a former
director of the Company, and alleged that Rogers & Wells breached its duty of
loyalty and care to the Company by representing allegedly conflicting interests
of the Eriksons in the Proposed Transaction with ITI. Plaintiffs also claimed
that Rogers & Wells committed malpractice by allegedly making misrepresentations
to the Company's Board and allegedly failing to properly inform the Company's
Board. Plaintiffs claimed that the conduct of Rogers & Wells caused the Company
to lose an opportunity to sell its control of Insituform East to ITI, caused the
Company to incur substantial expense, and unjustly enriched Rogers & Wells. The
D.C. Complaint sought to recover from Rogers & Wells (i) damages in an amount
equal to all fees paid to Rogers & Wells, (ii) damages in an amount not less
than $6 million for the loss of the opportunity for the Company to sell its
control of Insituform East to ITI, and (iii) punitive damages. Although the D.C.
Complaint stated that it was filed on behalf of the Company, management does not
believe that Rogers & Wells should be sued on any of the claims set forth
therein.
Motions to dismiss this case by the Company and Rogers & Wells were
denied, but a stay of the proceedings was granted until after the Delaware
trial. Plaintiffs agreed to a stay in the D.C. Superior Court action pending the
outcome of the appeal of the outcome of the Delaware Action to the Delaware
Supreme Court and, subsequently, the stay was continued at least until such time
as the Delaware Court of Chancery ruled upon plaintiffs' pending motion for
post-remand relief. After the Delaware Supreme Court's most recent ruling on
December 3, 1997, finally affirming the Delaware Court of Chancery with respect
to such post-remand relief and a renewed petition for counsel fees and expenses,
the stay of the District of Columbia action was lifted, and plaintiffs filed an
amended D.C. Complaint. In the amended D.C. Complaint, plaintiffs assert
essentially the same conflicts of interest charges against Rogers & Wells but
shift their focus from the value of the alleged lost opportunity to the
litigation expenses incurred by the Company in the Delaware Action. Plaintiffs
now seek to recover from Rogers & Wells (i) damages in an amount equal to all
fees paid to Rogers & Wells, (ii) damages for more than $2 million in attorneys'
fees and expenses incurred by CERBCO in the Delaware Action and other
unspecified compensatory damages, and (iii) punitive damages. On March 27, 1998,
the Company filed its answer to the amended D.C. Complaint, in which it denied
all liability and asserted certain affirmative defenses. On the same day, it
filed its motion for summary judgment, together with a supporting memorandum of
law, on the grounds of collateral estoppel and res judicata. Rogers & Wells
likewise answered the amended D.C. Complaint, denying liability, and filed a
motion for summary judgment on collateral estoppel grounds. On February 18,
1999, the D.C. Superior Court entered an Order denying the Company's motion on
the ground of res judicata, but granting the defendants' summary judgment motion
on the issue of punitive damages only. On April 9, 1999, the Court conducted a
hearing limited to the issues of causation, damages, and collateral estoppel
with respect to the defendants' pending motions. On May 20, 1999, the Court
denied the Company's motion for summary judgment on the ground of collateral
estoppel. The matter has now been referred to mediation in the District of
Columbia, which mediation is ongoing.
Antitrust Suit - U.S. District Court for the Southern District of Texas
- -----------------------------------------------------------------------
As previously reported, on June 30, 1998, Inliner U.S.A. and CAT
Contracting, Inc. filed an antitrust suit against ITI, Insituform Gulf South,
Inc. and Insituform East in United States District Court for the Southern
District of Texas, Houston Division, alleging violations by ITI (including all
of its subsidiary licensees), Insituform Gulf South, Inc., and Insituform East
of Sections 1 and 2 of the Sherman Act, Section 2 of the Clayton Act, as amended
by the Robinson-Patman Act, Section 43(a) of the Lanham Act, business
disparagement, tortious interference with contracts and prospective business
relationships, and unfair competition. Plaintiffs sought from the defendants an
unspecified amount of compensatory damages, treble damages and attorneys' fees,
as well as punitive damages of $50 million.
On January 7, 2000, in response to a stipulation of dismissal filed on
December 1, 1999, this lawsuit was dismissed with prejudice with each party
bearing its own costs. In connection with this dismissal, defendants and
plaintiffs executed a Release and Settlement Agreement dated November 29, 1999,
in which plaintiffs released defendants from any and all claims and damages
relating to the lawsuit.
Dispute with ITI - U.S. District Court for the Middle District of Tennessee
- ---------------------------------------------------------------------------
On December 3, 1999, ITI and its Netherlands affiliate filed a lawsuit
in the United States District Court for the Middle District of Tennessee against
Insituform East, Midsouth Partners, Insituform East's wholly-owned subsidiary,
and other Company affiliates. ITI takes the position in the suit that all CIPP
processes are derivative of the Insituform process and that neither the Company
nor Midsouth Partners can utilize other CIPP processes without utilizing ITI's
intellectual property and trade secrets. ITI seeks to enjoin the Company and
Midsouth Partners from utilizing other CIPP processes. In the alternative, ITI
seeks a declaration that the Company and Midsouth Partners must pay ITI a
cross-over royalty for any CIPP work performed in "Insituform Owner Reserved
Territories." ITI seeks a declaration that the Company and Midsouth Partners are
in breach of the Settlement Agreement. ITI seeks injunctive relief and
unspecified damages.
On January 18, 2000, Insituform East filed its answer to ITI's
complaint. In its answer, Insituform East responded to the allegations contained
in ITI's complaint and presented counterclaims against ITI which, among other
things, seek declaratory judgments of the Court reaffirming various provisions
of the existing Midsouth Settlement Agreement and particularly reaffirming the
right of Midsouth Partners to utilize CIPP rehabilitation processes other than
the Insituform process. Insituform East seeks unspecified damages from ITI in
its counterclaims.
The ultimate outcome and consequences of the suit cannot be ascertained
at this time. While it is not possible at this time, during the preliminary
stages of this litigation, to establish the ultimate amount of liability, if
any, associated with this suit, it is the opinion of the management of
Insituform East that the aggregate amount of any such liability will not have a
material adverse effect on the financial position of Insituform East.
Conversely, in the unforeseen event that the plaintiffs/counter-defendants
substantially prevailed on their claims against Insituform East and its
subsidiary Midsouth Partners, including the restriction or elimination of
Midsouth Partners existing rights to expand nationally and to practice CIPP
rehabilitation process methods, such unforeseen event could have a material
adverse effect on the future financial position of Insituform East.
Summary and Other
- -----------------
Management believes ultimate resolution of the above matters will not
have a material effect on the financial statements of CERBCO. Accordingly, no
provision for these contingencies has been reflected therein. The Company is
also involved in other contingencies arising out of the ordinary course of
business, none of which will, in the opinion of management, materially affect
the Company's financial position, results of operations or cash flows.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
-----------------------------------------------------------------------
Overview and Outlook
The Company reported consolidated net earnings of $27,503 ($0.02 per
share) on sales of $4.7 million for the second quarter of fiscal year 2000, and
consolidated net earnings for the first six months of fiscal year 2000 of
$74,054 ($0.05 per share) on sales of $12.0 million. For the second quarter of
fiscal year 1999, the Company reported a consolidated net loss of -$10,698
(-$0.01 per share) on sales of $5.9 million, which reduced consolidated net
earnings for the first six months of fiscal year 1999 to $24,039 ($0.02 per
share) on sales of $11.9 million.
The Company attributed its modestly positive results for the first six
months of fiscal year 2000 to the parent company's short-term investment
earnings and significant increases in the cash surrender values of insurance
policies funding its supplemental retirement plan. Insituform East, Inc.
("Insituform East"), the Company's majority-controlled and only remaining
operating segment, recognized a consolidated net loss of -$1.0 million on sales
of $12.0 million, contributing a loss of -$357,770 to CERBCO for the first six
months of fiscal year 2000, which largely offset the parent company's gains.
These losses were attributed to a significant decrease in Insituform East's
immediately workable backlog during the second quarter of the fiscal year
compounded by actions taken during the first nine months of calendar year 1999
to increase future productive capacity.
With respect to forward-looking information, and while there can be no
assurances regarding the Company's future operating performance, based on the
volume and mix of Insituform East's present and expected immediately workable
backlog of customer orders, the Company presently anticipates improved but
marginal operating results for the third quarter of fiscal 2000, with fourth
quarter and subsequent operating results significantly dependent upon growth and
availability of immediately workable backlog. An improved immediately workable
backlog level at the outset of the third quarter of fiscal year 2000 was
initially offset by severe winter weather conditions experienced in January
2000. Income from the Company's non-operating activities presently is
anticipated to continue to approximate the normal levels of its holding company
expenses into the future; accordingly, absent unusual items, the Company's
forward-looking results are anticipated substantially to parallel the Company's
approximate 37% participation in the forward results of Insituform East.
In addition to immediately workable backlog, a primary factor affecting
the Company's future performance remains the volatility of Insituform East's
earnings as a function of sales volume at normal margins. Accordingly, because a
substantial portion of Insituform East's costs are semi-fixed in nature, its
earnings can, at times, be severely reduced or eliminated during periods of
either depressed sales at normal margins or material increases in discounted
sales, even where total revenues may experience an apparent buoyancy or growth
from the addition of discounted sales undertaken from time to time for strategic
reasons. Conversely, at normal margins, increases in Insituform East's period
sales typically leverage positive earnings significantly.
The Company believes the trenchless pipeline reconstruction marketplace
is continuing to expand, thereby enticing, however, the entry of ever more
contractors with limited cured-in-place pipe ("CIPP") installation experience or
inferior products hoping that cheap price alone might permit them to succeed
against Insituform East's quality and time tested CIPP rehabilitation
capabilities. In that segment of the market where technical risk and the lowest
priced product may be deemed "good enough," Insituform East is at a disadvantage
and market share participation strategically undertaken by Insituform East in
such segment, at levels materially below normal margins, necessarily dilutes the
overall margin performance of Insituform East. Conversely, in the "best value"
and quality-based market segment, Insituform East's quality CIPP rehabilitation
capabilities continue to provide a distinct advantage. While both the Federal
Government and industry routinely use best value and quality-weighted contract
award criteria in technical procurements, municipalities and local governments
are often politically reluctant to modernize from simply "low bid" buying to
"best value" buying. In the face of mounting technical failures from awards
based upon lowest price, municipalities also are expected over time to
reevaluate traditional "low bid" award criteria - in favor of "best value" award
criteria - when procuring trenchless technology for the rehabilitation of older
pipelines.
Results of Operations
Three Months Ended 12/31/99 Compared with Three Months Ended 12/31/98
Consolidated sales decreased $1.2 million (-21%) from $5.9 million for
the quarter ended December 31, 1998 to $4.7 million for the quarter ended
December 31, 1999. Comparable period sales decreased primarily as a result of
decreases in immediately workable backlog during the current quarter.
Consolidated operating losses increased $1.0 million from -$0.4 million
in the quarter ended December 31, 1998 to -$1.4 million in the quarter ended
December 31, 1999, due to an increase in Insituform East's operating loss from
- -$0.2 million to -$1.2 million. Consolidated cost of sales decreased only 3% in
the second quarter of fiscal year 2000 as compared to the second quarter of
fiscal year 1999, and as a result, gross profit as a percentage of sales
decreased from a positive 15% to a negative 4% for the same two comparative
periods. This decrease reflects primarily the lack of available work to fully
absorb Insituform East's increased semi-fixed costs. Insituform East's selling,
general and administrative expenses decreased slightly (-3%), as did the parent
company's unallocated general corporate expenses (-1%) in the three months ended
December 31, 1999.
Other income increased $0.4 million (460%), primarily as a result of
significant increases in the cash surrender values of insurance policies funding
the parent company's supplemental retirement plan.
Six Months Ended 12/31/99 Compared With Six Months Ended 12/31/98
Consolidated sales increased slightly (less than 1%) from $11.9 million
for the six months ended December 31, 1998 to $12.0 million for the six months
ended December 31, 1999.
Consolidated operating losses increased $0.9 million from -$0.6 million
in the six months ended December 31, 1998 to -$1.5 million in the six months
ended December 31, 1999, due to the increase in Insituform East's operating loss
from -$0.2 million to -$1.1 million. Consolidated cost of sales increased 9% in
the first six months of fiscal year 2000 as compared to the first six months of
fiscal year 1999, and as a result, gross profit as a percentage of sales
decreased to 8% from 16% for the same two comparative periods. This decrease
reflects the absorption of increased semi-fixed costs over a static sales
volume. Insituform East's selling, general and administrative costs increased
slightly (2%), while the parent company's unallocated general corporate expenses
decreased (-5%), in the six months ended December 31, 1999.
Other income increased $0.3 million (308%) primarily as a result of
significant increases in the cash surrender values of insurance policies funding
the parent company's supplemental retirement plan.
Financial Condition
During the six months ended December 31, 1999, the Company's operating
activities provided $0.8 million in cash. This result is due primarily to the
net effect of (i) several items that did not affect the amount of cash held by
the Company, such as the $1.2 million in depreciation and amortization expenses
included in operating results and the adjustment for the $0.6 million of
Insituform East's consolidated net loss attributable to non-owned interests, and
(ii) the changes in items that did affect the amount of cash held, such as a
$0.7 million decrease in accounts receivable and a $0.6 million decrease in
prepaid expenses, which increased cash, offset by a $0.6 million decrease in
accounts payable and a $0.4 million decrease in income taxes payable, which
decreased cash.
The Company used $2.7 million in cash in investing activities during
the six months ended December 31, 1999, primarily to purchase the remaining
non-owned interests in Midsouth Partners, and for equipment purchases and other
capital improvements. The Company also used $0.6 million in financing
activities, primarily due to the repayment of loans made to Midsouth Partners by
its former partners and payment of dividends by the parent company, CERBCO.
Despite the $2.5 million net decrease in cash during the first six months of
fiscal year 2000, the Company's liquidity remained strong with working capital
of $18.7 million and a current ratio of 6.7 to 1 at December 31, 1999.
The Company anticipates that Insituform East will continue to expand
production capabilities in the current fiscal year which, along with improving
operational performance, will require additional capital expenditures.
Management believes that Insituform East has cash reserves or borrowing
potential against unencumbered assets sufficient to meet future cash flow
requirements. In addition, the parent holding company has cash and temporary
investments in excess of $13 million which, pending longer term investment,
management believes are more than adequate to meet its own cash flow
requirements and the temporary requirements of Insituform East in the
foreseeable future.
Year 2000 Issues
The inability of computerized systems to process dates correctly beyond
December 31, 1999 and the potential impact on businesses and governments
subsequent to that date are generally referred to as "Year 2000" issues.
Prior to December 31, 1999, the Company implemented plans to address
Year 2000 issues. Primary areas of focus included the Company's information
technology systems, the Company's non-information technology systems, the Year
2000 readiness of the Company's vendors and suppliers and the Year 2000
readiness of the Company's major customers. The Company expended approximately
$30,000 in implementation costs through December 31, 1999. Because the Company's
primary products and services neither include nor rely upon computerized
components, the Company concluded that there were no additional contingencies
associated with actual or implied warranties related to its products and
services resulting from Year 2000 issues.
Subsequent to December 31, 1999, the Company has not experienced any
difficulties with its information technology systems or its non-information
technology systems resulting from Year 2000 issues. In addition, the Company is
not aware of any disruptions experienced by its vendors, suppliers or major
customers associated with Year 2000 readiness. As a result, the Company has not
been required to implement any element of its contingency plan in order to
conduct normal business operations in the Year 2000.
The Company will continue to monitor the Year 2000 readiness of its
vendors, suppliers and major customers. The Company has not incurred any
material expenditures subsequent to December 31, 1999, and does not presently
anticipate any significant future costs related to Year 2000 issues.
Forward-Looking Information
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements that are
based on certain assumptions and describe future plans, strategies, and
expectations of the Company are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors that could have a
material adverse affect on the operations and future prospects of the Company
include, but are not limited to the availability of immediately workable
backlog, mix of work, weather, changes in interest rates and general economic
conditions, and legislative/regulatory changes. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, "Notes to Condensed Consolidated Financial
Statements (unaudited) - Note 8. Contingencies" for details concerning (a) a
previously disclosed lawsuit pending in the Superior Court of the District of
Columbia, (b) a previously disclosed lawsuit filed in the U.S. District Court
for the Southern District of Texas, Houston Division, and (c) a new lawsuit
filed in U.S. District Court for the Middle District of Tennessee.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule for the period ended December 31, 1999
99 - CERBCO, Inc. Consolidating Schedules: Statement of Operations
Information for the three months ended December 31, 1999;
Statement of Operations Information for the six months ended
December 31, 1999; Balance Sheet Information and
Consolidating Elimination Entries as of December 31, 1999.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
December 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 11, 2000
CERBCO,
Inc.
(Registrant)
/s/ ROBERT W. ERIKSON
Robert W. Erikson
President
/s/ ROBERT F. HARTMAN
Robert F. Hartman
Vice President, Secretary & Treasurer
(Principal Financial and Accounting Officer)
<PAGE>
Exhibits to CERBCO, Inc. Form 10-Q
Exhibit 27. CERBCO, Inc. Financial Data Schedule
Exhibit 99. CERBCO, Inc. Consolidating Schedules: Statement of Operations
Information for the Three Months Ended December 31, 1999;
Statement of Operations Information for the Six Months Ended
December 31, 1999; Balance Sheet Information and
Consolidating Elimination Entries as of December 31, 1999.
Note: Exhibit 27, the Financial Data Schedule, is
a requirement by the Securities and Exchange
Commission to be submitted only with the
electronic filing of Form 10-Q. Therefore,
since this schedule contains summary
financial information found elsewhere in
this report, it is not included here.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826821
<NAME> CERBCO, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 14,546
<SECURITIES> 0
<RECEIVABLES> 5,925
<ALLOWANCES> 0
<INVENTORY> 1,211
<CURRENT-ASSETS> 22,010
<PP&E> 27,638
<DEPRECIATION> 16,402
<TOTAL-ASSETS> 37,557
<CURRENT-LIABILITIES> 3,275
<BONDS> 0
<COMMON> 148
0
0
<OTHER-SE> 24,744
<TOTAL-LIABILITY-AND-EQUITY> 37,557
<SALES> 11,987
<TOTAL-REVENUES> 11,987
<CGS> 10,995
<TOTAL-COSTS> 10,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> (875)
<INCOME-TAX> (261)
<INCOME-CONTINUING> (614)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENTS OF OPERATIONS INFORMATION
THREE MONTHS ENDED DECEMBER 31, 1999
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
<S> <C> <C> <C> <C>
Sales $4,672,268 $ 0 $ 0 $ 4,672,268
---------- ------------- ------------ -----------
Costs and Expenses:
Cost of sales 4,875,453 0 0 4,875,453
Selling, general and administrative expenses 1,212,307 0 189,906 1,022,401
---------- ------------- ------------ -----------
Total Costs and Expenses 6,087,760 0 189,906 5,897,854
---------- ------------- ------------ -----------
Operating Loss (1,415,492) 0 (189,906) (1,225,586)
Investment Income 161,178 (A) (52,138) 198,993 14,323
Interest Expense (49,360) (A) 52,138 0 (101,498)
Other Income (Expense) - net 428,258 0 392,967 35,291
---------- ------------- ------------ -----------
Earnings (Loss) Before Non-Owned Interests in
Insituform East and Income Taxes (875,416) 0 402,054 (1,277,470)
Credit for Income Taxes (261,000) 0 (5,000) (256,000)
---------- ------------- ------------ -----------
Earnings (Loss) Before Non-Owned Interests in
Insituform East (614,416) 0 407,054 (1,021,470)
Non-Owned Interests in Loss of Insituform East 641,919 (B) 641,919 0 0
---------- ------------- ------------ -----------
NET EARNINGS (LOSS) $ 27,503 $ 641,919 $ 407,054 $(1,021,470)
========== ============= ============ ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENTS OF OPERATIONS INFORMATION
SIX MONTHS ENDED DECEMBER 31, 1999
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
<S> <C> <C> <C> <C>
Sales $11,986,722 $ 0 $ 0 $11,986,722
----------- ------------- ------------ -----------
Costs and Expenses:
Cost of sales 10,994,839 0 0 10,994,839
Selling, general and administrative expenses 2,475,033 0 342,529 2,132,504
----------- ------------- ------------ -----------
Total Costs and Expenses 13,469,872 0 342,529 13,127,343
----------- ------------- ------------ -----------
Operating Loss (1,483,150) 0 (342,529) (1,140,621)
Investment Income 326,552 (D) (115,947) 418,493 24,006
Interest Expense (43,772) (D) 115,947 0 (159,719)
Other Income (Expense) - net 448,452 0 373,860 74,592
----------- ------------- ------------ -----------
Earnings (Loss) Before Non-Owned Interests and
Income Taxes (751,918) 0 449,824 (1,201,742)
Non-Owned Interest in Pretax Loss of
Midsouth Partners 19,889 0 0 19,889
----------- ------------- ------------ -----------
Earnings (Loss) Before Non-Owned Interests in
Insituform East and Income Taxes (732,029) 0 449,824 (1,181,853)
Provision (Credit) for Income Taxes (201,000) 0 18,000 (219,000)
----------- ------------- ------------ -----------
Earnings (Loss) Before Non-Owned Interests in
Insituform East (531,029) 0 431,824 (962,853)
Non-Owned Interests in Loss of Insituform East 605,083 (E) 605,083 0 0
----------- ------------- ------------ -----------
NET EARNINGS(LOSS) $ 74,054 $ 605,083 $ 431,824 $ (962,853)
=========== =========== ============ ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
DECEMBER 31, 1999
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $14,545,871 $ 0 $ 13,983,630 $ 562,241
Accounts receivable 5,924,812 0 2,322 5,922,490
Inventories 1,211,133 0 0 1,211,133
Prepaid and refundable taxes 88,612 0 0 88,612
Prepaid expenses and other 239,419 0 0 239,419
----------- ------------- ------------ -----------
TOTAL CURRENT ASSETS 22,009,847 0 13,985,952 8,023,895
Investment in and Advances to Subsidiary:
Investment in subsidiary 0 (F) (7,106,310) 7,106,310 0
Intercompany receivables and payables 0 0 3,800,170 (3,800,170)
Property, Plant and Equipment - net of
accumulated depreciation 11,235,260 0 81,955 11,153,305
Other Assets:
Excess of acquisition cost over value of net
assets acquired - net 1,797,887 (F) 1,797,887 0 0
Cash surrender value of SERP life insurance 2,426,926 0 2,254,167 172,759
Deposits and other 86,822 0 44,489 42,333
----------- ------------- ------------ -----------
TOTAL ASSETS $37,556,742 $ (5,308,423) $ 27,273,043 $15,592,122
=========== ============= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 2,169,970 $ 0 $ 77,673 $ 2,092,297
Income taxes payable 1,070,432 0 1,054,708 15,724
Current portion of capital lease obligations 35,081 0 0 35,081
----------- ------------- ------------ -----------
TOTAL CURRENT LIABILITIES 3,275,483 0 1,132,381 2,143,102
Long-Term Liabilities:
Accrued SERP liability 966,227 0 890,409 75,818
Capital lease obligations 49,702 0 0 49,702
----------- ------------- ------------ -----------
TOTAL LIABILITIES 4,291,412 0 2,022,790 2,268,622
----------- ------------- ------------ -----------
Non-Owned Interests 8,372,847 (E)(F) 8,372,847 0 0
----------- ------------- ------------ -----------
Stockholders' Equity:
Common stock 118,947 (F) (175,486) 118,947 175,486
Class B stock 29,348 (F) (11,904) 29,348 11,904
Additional paid-in capital 7,527,278 (F) (4,000,424) 7,527,278 4,000,424
Retained earnings 17,216,910 (F)(G) (10,683,069) 17,574,680 10,325,299
Treasury stock 0 (F) 1,189,613 0 (1,189,613)
----------- ------------- ------------ -----------
TOTAL STOCKHOLDERS' EQUITY 24,892,483 (13,681,270) 25,250,253 13,323,500
----------- ------------- ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,556,742 $ (5,308,423) $ 27,273,043 $15,592,122
=========== ============= ============ ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING ELIMINATION ENTRIES
DECEMBER 31, 1999
(unaudited)
<CAPTION>
(A)
<S> <C> <C>
Investment income $ 52,138
Interest expense $ 52,138
To eliminate interest expense paid by Insituform East to CERBCO in the
three months ended December 31, 1999.
(B)
Non-owned interests $641,919
Non-owned interests in loss of subsidiary $641,919
To record non-owned interests in loss of Insituform East for the
three months ended December 31, 1999.
(C)
Current quarter loss adjustments $641,919
Retained earnings $641,919
To close out impact of eliminating entries on three months' statement
of operations.
(D)
Investment income $115,947
Interest expense $115,947
To eliminate interest expense paid by Insituform East to CERBCO in the
six months ended December 31, 1999.
(E)
Non-owned interests $605,083
Non-owned interests in loss of subsidiary $605,083
To record non-owned interests in loss of Insituform East for the
six months ended December 31, 1999.
(F)
Common stock $ 175,486
Class B stock 11,904
Additional paid-in capital 4,000,424
Retained earnings 11,288,152
Excess of acquisition cost over value of net assets acquired 1,797,887
Treasury stock $1,189,613
Non-owned interests 8,977,930
Investment in subsidiary 7,106,310
To eliminate investments in consolidated subsidiaries.
(G)
Current period loss adjustments $605,083
Retained earnings $605,083
To close out impact of eliminating entries on six months'
statement of operations.
</TABLE>
