UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2000
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 small business issuer 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 20785-1608
(Address of principal executive offices) (Zip Code)
Issuer'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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 November 7, 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 Earnings for the Three
Months Ended September 30, 2000 and September 30, 1999 (unaudited).. 3
Condensed Consolidated Balance Sheets as of September 30, 2000
and June 30, 2000 (unaudited)........................................ 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2000 and September 30, 1999 (unaudited).. 5
Notes to Condensed Consolidated Financial Statements (unaudited).... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 11
Item 2. Changes in Securities and Use of Proceeds.......................... 11
Item 3. Defaults upon Senior Securities.................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................ 11
Item 5. Other Information.................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................... 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<CAPTION>
For the three months ended Sept. 30
-----------------------------------
2000 1999
---- ----
<S> <C> <C>
Sales $6,332,089 $7,314,454
--------------- ---------------
Costs and Expenses:
Cost of sales 5,162,982 6,119,386
Selling, general and administrative expenses 1,136,296 1,262,726
--------------- ---------------
Total Costs and Expenses 6,299,278 7,382,112
--------------- ---------------
Operating Profit (Loss) 32,811 (67,658)
Investment Income 246,663 178,412
Interest Expense (4,077) (7,450)
Other Income - net (8,574) 20,194
--------------- ---------------
Earnings Before Non-Owned Interests and Incomes Taxes 266,823 123,498
Non-Owned Interest in Pretax Loss of Midsouth Partners 0 19,889
--------------- ---------------
Earnings Before Non-Owned Interests in Insituform East, Inc.
and Income Taxes 266,823 143,387
Provision for Income Taxes 46,000 60,000
--------------- ---------------
Earnings Before Non-Owned Interests in Insituform East, Inc. 220,823 83,387
Non-Owned Interests in Earnings of Insituform East, Inc. (125,183) (37,886)
--------------- ---------------
NET EARNINGS $ 95,640 $ 45,501
=============== ===============
Net Earnings per Share of Common Stock:
Basic Earnings per Share $ 0.06 $ 0.03
=============== ===============
Diluted Earnings per Share $ 0.06 $ 0.03
=============== ===============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
As of
--------------------------------------
Sept. 30, 2000 June 30, 2000
----------------- ----------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 3,079,324 $ 2,344,077
Marketable securities 10,177,576 9,844,593
Accounts receivable 6,917,417 6,294,655
Inventories 1,256,734 1,421,104
Prepaid and refundable taxes 22,895 22,895
Prepaid expenses and other 313,467 204,381
----------------- ----------------
Total Current Assets 21,767,413 20,131,705
----------------- ----------------
Property, Plant and Equipment - at cost less accumulated depreciation
of $17,341,561 at September 30, 2000 and $17,247,839 at June 30, 2000 9,927,162 10,308,637
----------------- ----------------
Other Assets:
Excess of acquisition cost over value of net assets acquired less accumulated
amortization of $1,339,847 at September 30, 2000 and $1,323,521 at
June 30, 2000 1,599,942 1,618,629
Cash surrender value of SERP life insurance 2,409,562 2,387,287
Marketable securities 741,733 2,231,052
Deferred income taxes - net of valuation allowance of $863,000 at
September 30, 2000 and $943,000 at June 30, 2000 0 0
Deposits and other 57,756 60,056
----------------- ----------------
Total Other Assets 4,808,993 6,297,024
----------------- ----------------
Total Assets $36,503,568 $36,737,366
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 2,616,880 $ 2,961,927
Income taxes payable 1,107,708 1,271,708
Current portion of capital lease obligations 30,976 30,177
----------------- ----------------
Total Current Liabilities 3,755,564 4,263,812
----------------- ----------------
Long-Term Liabilities:
Accrued SERP liability 1,166,468 1,099,720
Capital lease obligations (less current portion shown above) 34,754 42,584
----------------- ----------------
Total Long-term Liabilities 1,201,222 1,142,304
----------------- ----------------
Total Liabilities 4,956,786 5,406,116
----------------- ----------------
Commitments and Contingencies
Non-Owned Interests in Consolidated Subsidiaries 7,124,207 7,004,314
----------------- ----------------
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 16,747,002 16,651,363
----------------- ----------------
Total Stockholders' Equity 24,422,575 24,326,936
----------------- ----------------
Total Liabilities and Stockholders' Equity $36,503,568 $36,737,366
================= ================
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
For the three months ended Sept. 30
---------------------------------------
2000 1999
----------------- ----------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings $ 95,640 $ 45,501
Adjustments to reconcile net earnings
to net cash used in operations:
Depreciation and amortization 531,644 600,145
Amounts attributable to non-owned interests 125,183 17,997
Deferred income taxes 0 36,000
Changes in operating assets and liabilities:
Increase in accounts receivable (622,762) (1,278,030)
Decrease in inventories 164,370 124,163
(Increase) decrease in prepaid expenses (109,086) 59,381
Decrease in prepaid taxes 0 462,776
(Decrease) increase in accounts payable and accrued expenses (196,751) 188,299
Decrease in income taxes payable (164,000) (432,921)
----------------- ----------------
Net Cash Used in Operating Activities (175,762) (176,689)
----------------- ----------------
Cash Flows from Investing Activities:
Capital expenditures, net (131,543) (694,489)
Purchase of marketable securities (3,203,122) 0
Redemption of marketable securities 4,359,458 0
Purchase of remaining interests in Midsouth Partners 0 (948,707)
Increase in investment in Insituform East (2,930) (29,265)
Increase in other assets 0 (20,000)
Increase in cash surrender value of SERP life insurance (22,275) (75,405)
Increase in accrued SERP liability 66,748 59,333
----------------- ----------------
Net Cash Provided by (Used in) Investing Activities 1,066,336 (1,708,533)
----------------- ----------------
Cash Flows from Financing Activities:
Repayment of loans to Midsouth Partners from non-owned interests 0 (400,000)
Principal payments under capital lease obligations (7,031) (9,777)
Dividends paid (148,296) (148,296)
----------------- ----------------
Net Cash Used in Financing Activities (155,327) (558,073)
----------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 735,247 (2,443,295)
Cash and Cash Equivalents at Beginning of Period 2,344,077 17,050,119
----------------- ----------------
Cash and Cash Equivalents at End of Period $ 3,079,324 $14,606,824
================= ================
Supplemental disclosure of cash flow information:
Interest paid $ 3,437 $ 58,221
================= ================
Income taxes paid (refunded) $ 210,000 $ (5,855)
================= ================
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," together with
CERBCO, the "Company"). All significant intercompany accounts and transactions
have been eliminated.
The Condensed Consolidated Balance Sheet as of September 30, 2000, the
Condensed Consolidated Statements of Earnings for the three months ended
September 30, 2000 and 1999, and the Condensed Consolidated Statements of Cash
Flows for the three months ended September 30, 2000 and 1999 have been prepared
by the Company without audit. The Condensed Consolidated Balance Sheet as of
June 30, 2000 (unaudited) has been derived from the Company's June 30, 2000
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 September 30,
2000 and for all periods presented have been made.
These statements have been prepared in accordance with the instructions
to Form 10-QSB 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, 2000. Operating results for interim periods
are not necessarily indicative of operating results for an entire fiscal year.
2. Earnings Per Share
Basic earnings per share data are computed based upon the weighted
average number of common shares outstanding during each period. Diluted earnings
per share data 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
ended September 30, 2000 and 1999 include no net shares associated with
unexercised dilutive stock options. The following numbers of shares have been
used in the earnings per share computations:
For the three months ended Sept. 30
-----------------------------------
2000 1999
---- ----
Basic 1,482,956 1,482,956
========= =========
Diluted 1,482,956 1,482,956
========= =========
3. Marketable Securities
Marketable securities consist of:
Sept. 30, 2000 June 30, 2000
--------------- -----------------
Current:
U.S. Government and agencies $ 6,677,576 $ 5,844,593
Corporate 3,500,000 4,000,000
----------------- --------------
10,177,576 9,844,593
Non-current:
U.S. Government and agencies 741,733 2,231,052
----------------- --------------
Total marketable securities $10,919,309 $12,075,645
================= ==============
4. Accounts Receivable
Accounts receivable consist of:
Sept. 30, 2000 June 30, 2000
Due from customers $6,333,538 $5,400,317
Miscellaneous 583,879 894,338
---------- -----------
6,917,417 6,294,655
Less: Allowance for doubtful accounts 0 0
---------- -----------
$6,917,417 $6,294,655
========== ===========
5. Equity in Insituform East
At September 30, 2000, CERBCO beneficially held 1,414,850 shares of
Insituform East Common Stock, par value $0.04 per share (the "Common Stock"),
and 296,141 shares of convertible Insituform East Class B Common Stock, par
value $0.04 per share (the "Class B Common Stock"), representing approximately
34.9% of the Common Stock, 99.5% of the Class B Common Stock, 39.3% of the total
equity and 62.2% 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 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 quarter ended September 30, 2000, CERBCO acquired 2,000
shares of Insituform East Common Stock for $2,929. The difference between the
cost of the stock and the net book value thereof, $2,361, 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 three months ended September
30, 2000. If all the options outstanding at September 30, 2000 were exercised,
the resulting percentages of CERBCO's equity ownership and total voting power
would be 35.6% and 58.5%, 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 three months ended September 30, 2000.
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of:
Sept. 30, 2000 June 30, 2000
-------------- -------------
Accounts payable $1,574,534 $1,633,378
Accrued compensation and related expenses 1,042,346 1,180,253
Dividends payable 0 148,296
---------- ----------
$2,616,880 $2,961,927
========== ==========
7. Contingencies
Dispute with ITI - United States District Court for the Middle District of
Tennessee
As previously reported, on December 3, 1999, Insituform Technologies,
Inc. and its Netherlands affiliate (collectively, "ITI") filed suit in the
United States District Court for the Middle District of Tennessee against
Insituform East and its subsidiary Midsouth Partners. In its Amended Complaint,
which was filed on June 13, 2000, ITI contends that Midsouth Partners has
violated a Settlement Agreement entered into in July 1999 (the "Settlement
Agreement") with respect to certain litigation initiated earlier in 1999 by
allegedly using or failing to timely remove from certain materials and equipment
the Insituform(R) trademark. ITI contends that these alleged breaches of the
Settlement Agreement also constitute violations of the Lanham Act, the Tennessee
Model Trademark Act, and applicable state law for the alleged unauthorized use
of the Insituform trademark. ITI seeks to terminate the Settlement Agreement and
with it Midsouth Partners' rights to continue to exploit the Insituform process
as provided in the Settlement Agreement. ITI seeks declarations (i) that
Midsouth Partners has committed one or more noncurable breaches of the
Settlement Agreement; (ii) that Midsouth Partners has violated the Lanham Act
and the Tennessee Model Trademark Act; (iii) that Midsouth Partners is no longer
entitled to exploit the Insituform process, to use certain tube labeled with the
name "Insituform," and to continue buying tube from ITI as provided in the
Settlement Agreement, and (iv) that the Settlement Agreement is or can be
terminated. ITI also seeks a declaration that the right of Insituform East and
its subsidiaries to perform certain subcontract work for Midsouth Partners
pursuant to the Settlement Agreement is or can be terminated and that the other
provisions of the Settlement Agreement remain in full force and effect. In
addition, ITI seeks unspecified damages.
ITI also contends that the various license agreements between
Insituform East and ITI bar Insituform East from exploiting the Insituform
process, using the Insituform trademark, or practicing any cured-in-place pipe
("CIPP") techniques outside of Insituform East's territories without payment of
the appropriate cross-over royalty and regular royalty totaling 20% (except as
otherwise provided by the Settlement Agreement) and that these restrictions
extend to Midsouth Partners as well, because Midsouth Partners and Insituform
East are allegedly alter egos of one another. ITI contends that Insituform East
is using Midsouth Partners to practice CIPP rehabilitation processes outside of
the territory provided for in the Settlement Agreement and that the failure to
pay a royalty and cross-over royalty constitutes a breach of Insituform East's
obligations under its license agreements with ITI. ITI seeks a declaration that
Insituform East and Midsouth Partners must pay ITI a royalty and cross-over
royalty totaling 20% (except as otherwise provided by the Settlement Agreement)
for any CIPP work performed in these so-called "Insituform Owner Reserved
Territories." ITI also seeks damages in the form of any and all unpaid royalties
and cross-over royalties that are allegedly owed.
In addition, ITI seeks a declaration that it is no longer obligated to
make payments to Insituform East under its August 4, 1980 agreement with
Insituform East's predecessor-in-interest (the "SAW Agreement"), under which ITI
agreed to pay Insituform East's predecessor-in-interest for recruiting potential
licensees of the Insituform process. ITI contends that its acquisition or merger
of several such licensees has extinguished its obligations under the SAW
Agreement to pay Insituform East, which was assigned the right to receive
payments for such licensees in April 1981.
Trial is currently scheduled for July 31, 2001, and discovery is
underway. Insituform East has counterclaimed for a determination in its favor
that all of its practices are lawful and in accord with existing agreements.
Insituform East seeks unspecified damages from ITI in its counterclaims. The
ultimate outcome and consequences of this suit cannot be ascertained at this
time.
While it is not possible at this time 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 opinion of management, 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 or to
practice any CIPP rehabilitation process methods without payment of royalty and
cross-over royalty to ITI, such event could have a material adverse effect on
the future financial position of Insituform East.
Summary and Other
Management believes ultimate resolution of the matters discussed above
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, the aggregate of which will not, in the opinion of
management, materially affect the Company's financial position or results of
operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview and Outlook
The Company reported consolidated net earnings of $95,640 ($0.06 per
share) on sales of $6.3 million for the first quarter of fiscal year 2001. For
the first quarter of the previous fiscal year, the Company recognized
consolidated net earnings of $45,501 ($0.03 per share) on sales of $7.3 million.
The Company attributed its improved first quarter results in fiscal
year 2001 primarily to the positive results of Insituform East, Inc.
("Insituform East"). Insituform East, the Company's majority-controlled
subsidiary and only operating segment, recognized consolidated net earnings of
$206,134 on sales of $6.3 million, contributing earnings of $80,951 to CERBCO.
In the first quarter of the prior fiscal year, Insituform East recognized
consolidated net earnings of $58,617 on sales of $7.3 million, contributing
earnings of $20,731 to CERBCO. Insituform East attributed its improved first
quarter results, and its dramatic turnaround from the previous three quarters,
to a consistent flow of immediately workable backlog and the impact of an
aggressive cost reduction program initiated during the fourth quarter of fiscal
year 2000.
With respect to forward-looking information, and while there can be no
assurances regarding the Company's future operating performance, the Company
presently anticipates that a combination of a favorable mix of work and a
consistently high volume of immediately workable backlog will be required to
sustain positive operating results through the remainder of fiscal year 2001.
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 or circumstance, the Company's
forward-looking results typically are anticipated to substantially parallel
CERBCO's approximate 39% 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
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.
In response to continuing unfavorable operating margins, Insituform
East embarked on an aggressive cost reduction program in the closing quarter of
fiscal year 2000 to return Insituform East to positive operating results in
fiscal year 2001. Additionally, Insituform East repositioned to provide a range
of customer service and quality in response to market demand, including being
the low-cost provider where price alone is the predominantly controlling
procurement factor.
As previously reported, Insituform East's Insituform process licensor
and former partner in the Midsouth Partners partnership, Insituform
Technologies, Inc. ("ITI") initiated a second calendar year 1999 lawsuit against
Insituform East and Midsouth Partners on December 3, 1999, following the July
20, 1999 settlement (the Midsouth Settlement Agreement) of earlier litigation
filed March 11, 1999. The newest litigation appears again targeted by ITI to
usurp for itself certain rights belonging to Insituform East or to Midsouth
Partners, including Insituform East's legitimate competitive rights as a
licensee and the competitive rights of Midsouth Partners acquired pursuant to
the Midsouth Settlement Agreement. While the ultimate outcome of any litigation,
including ITI's most recent December 1999 litigation, cannot be predetermined,
pending resolution Insituform East and Midsouth Partners intend to continue to
exercise their respective rights under license agreements and the Midsouth
Settlement Agreement as exercised prior to the instigation of such litigation.
Trial of the December 1999 litigation is currently scheduled for July 31, 2001.
Results of Operations
Three Months Ended 9/30/00 Compared with Three Months Ended 9/30/99
Consolidated sales decreased $1.0 million (13%) from $7.3 million for
the quarter ended September 30, 1999 to $6.3 million for the quarter ended
September 30, 2000, due primarily to the mix of work performed by Insituform
East. Work performed during the first quarter of fiscal year 2000 included a
higher volume of larger diameter work producing higher sales per installation.
Consolidated operating results increased from an operating loss of
-$67,658 for the quarter ended September 30, 1999 to an operating profit of
$32,811 for the quarter ended September 30, 2000. The comparable periods both
benefited from a high volume of sales at normal margins and a correspondingly
low volume of sales at discounted margins. Consolidated cost of sales decreased
16% in the first quarter of fiscal year 2001 as compared to the first quarter of
fiscal year 2000. As a result, gross profit as a percentage of sales increased
from 16% of sales to 18% of sales. This increase is due primarily to reduced
semi-fixed operating costs during the first quarter of fiscal year 2001 as a
result of an aggressive cost reduction program initiated during the fourth
quarter of fiscal year 2000. Insituform East's selling, general and
administrative expenses also decreased 16% in the first quarter of fiscal year
2001, as a result of its aggressive cost reduction program. The parent company's
unallocated general corporate expenses increased 30% in the first quarter of
fiscal year 2001, primarily as a result of increased legal expenses.
Financial Condition
During the quarter ended September 30, 2000, the Company used $0.2
million in cash in operating activities, primarily due to a $0.6 million
increase in accounts receivable that more than offset the impact of $0.5 million
in depreciation and amortization expense included in net earnings that did not
require the outlay of cash. The increase in accounts receivable is due primarily
to an increase in Insituform East's sales from the quarter ended June 30, 2000
to the quarter ended September 30, 2000 and some delays in customer collections.
The Company's cash investing activities provided $1.0 million in cash
during the quarter ended September 30, 2000, primarily due to the timing between
purchases and redemptions of its investments in marketable debt securities. The
Company used cash of $0.2 million in its financing activities, primarily due to
the payment of dividends by the parent company, CERBCO.
The Company's liquidity remained strong with working capital of
approximately $18.0 million and a current ratio of 5.8 to 1 at September 30,
2000. The Company anticipates that Insituform East's increased production levels
in the future will require additional capital expenditures. The parent company,
CERBCO, has cash and temporary investments in excess of $13.0 million which,
pending longer term investment, it believes are more than adequate to meet its
own cash flow requirements and the temporary requirements of Insituform East in
the foreseeable future.
As previously disclosed, CERBCO may purchase additional shares of
Common Stock of Insituform East in the future. CERBCO expects that any such
purchases would be made in open market transactions, at the then-prevailing
market price, and executed through brokers. Any such purchases will require use
of CERBCO's working capital.
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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, "Notes to Condensed Consolidated Financial
Statements (unaudited) - Note 7. Contingencies" for details concerning a
previously disclosed lawsuit filed in the U.S. District Court for the Middle
District of Tennessee against Insituform East and Midsouth Partners.
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
99 - CERBCO, Inc. Consolidating Schedules: Statement of Earning
Information for the three months ended September 30, 2000;
Balance Sheet Information; and Consolidating Elimination Entries
as of September 30, 2000.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended September
30, 2000.
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: November 7, 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-QSB
Exhibit 27. CERBCO, Inc. Financial Data Schedule
Exhibit 99. CERBCO, Inc. Consolidating Schedules: Statement of Earnings
Information for the Three Months Ended September 30, 2000;
Balance Sheet Information; and Consolidating Elimination
Entries as of September 30, 2000.
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CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENTS OF EARNINGS INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2000
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
<S> <C> <C> <C> <C> <C>
Sales $6,332,089 $ 0 $ 0 $6,332,089
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 5,162,982 0 0 5,162,982
Selling, general and administrative expenses 1,136,296 0 199,140 937,156
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Total Costs and Expenses 6,299,278 0 199,140 6,100,138
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Operating Profit (Loss) 32,811 0 (199,140) 231,951
Investment Income 246,663 (A) (102,785) 335,608 13,840
Interest Expense (4,077) (A) 102,785 0 (106,862)
Other Income (expense) - net (8,574) 0 (75,779) 67,205
----------- ----------- ----------- -----------
Earnings Before Non-Owned Interests in Insituform
East and Income Taxes 266,823 0 60,689 206,134
Provision for Income Taxes 46,000 0 46,000 0
----------- ----------- ----------- -----------
Earnings Before Non-Owned Interests in Insituform
East 220,823 0 14,689 206,134
Non-Owned Interests in Earnings of Insituform East (125,183) (B) (125,183) 0 0
----------- ----------- ----------- -----------
NET EARNINGS $ 95,640 (D) $(125,183) $14,689 $ 206,134
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CERBCO, Inc.
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
SEPTEMBER 30, 2000
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 3,079,324 $ 0 $ 2,212,898 $ 866,426
Marketable securities 10,177,576 0 10,177,576 0
Accounts receivable 6,917,417 0 210,087 6,707,330
Inventories 1,256,734 0 0 1,256,734
Prepaid and refundable taxes 22,895 0 0 22,895
Prepaid expenses and other 313,467 0 7,000 306,467
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TOTAL CURRENT ASSETS 21,767,413 0 12,607,561 9,159,852
Investment in and Advances to Subsidiary:
Investment in subsidiary 0 (C) (6,125,965) 6,125,965 0
Intercompany receivables and payables 0 0 4,838,130 (4,838,130)
Property, Plant and Equipment - net of accumulated 27,268,723 0 236,291 27,032,432
depreciation (17,341,561) 0 (161,045) (17,180,516)
Other Assets:
Excess of acquisition cost over value of net assets
acquired - net 1,599,942 (C) 1,599,942 0 0
Cash surrender value of SERP life insurance 2,409,562 0 2,161,779 247,783
Marketable securities 741,733 0 741,733 0
Deposits and other 57,756 0 44,489 13,267
----------- ----------- ----------- -----------
TOTAL ASSETS $36,503,568 $(4,526,023) $26,594,903 $14,434,688
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 2,616,880 $ 0 $ 99,323 $ 2,517,557
Income taxes payable 1,107,708 0 1,097,708 10,000
Current portion of capital lease obligations 30,976 0 0 30,976
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 3,755,564 0 1,197,031 2,558,533
----------- ----------- ----------- -----------
Long-Term Liabilities:
Capital lease obligations 34,754 0 0 34,754
Accrued SERP liability 1,166,468 0 1,056,248 110,220
----------- ----------- ----------- -----------
TOTAL LONG-TERM LIABILITIES 1,201,222 0 1,056,248 144,974
----------- ----------- ----------- -----------
TOTAL LIABILITIES 4,956,786 0 2,253,279 2,703,507
----------- ----------- ----------- -----------
Non-Owned Interests 7,124,207 (B)(C) 7,124,207 0 0
----------- ----------- ----------- -----------
Stockholders' Equity:
Common stock 118,947 (C) (175,486) 118,947 175,486
Class B Common stock 29,348 (C) (11,904) 29,348 11,904
Additional paid-in capital 7,527,278 (C) (4,000,424) 7,527,278 4,000,424
Retained earnings 16,747,002 (C)(D) (8,652,029) 16,666,051 8,732,980
Treasury stock 0 (C) 1,189,613 0 (1,189,613)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 24,422,575 (11,650,230) 24,341,624 11,731,181
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $36,503,568 $(4,526,023) $26,594,903 $14,434,688
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CERBCO, Inc.
CONSOLIDATING ELIMINATION ENTRIES
SEPTEMBER 30, 2000
(unaudited)
<CAPTION>
(A)
<S> <C> <C>
Investment income $ 102,785
Interest expense $ 102,785
To eliminate interest expense paid by Insituform East to CERBCO in the
three months ended September 30, 2000.
(B)
Non-owned interests in earnings of subsidiary $ 125,183
Non-owned interests $ 125,183
To record non-owned interests in earnings of Insituform East
for the three months ended September 30, 2000.
(C)
Common stock $ 175,486
Class B stock 11,904
Additional paid-in capital 4,000,424
Retained earnings 8,526,846
Excess of acquisition cost over value of net assets acquired 1,599,942
Treasury stock $1,189,613
Non-owned interests 6,999,024
Investment in subsidiary 6,125,965
To eliminate investments in consolidated subsidiaries.
(D)
Retained Earnings $ 125,183
Current year earnings adjustments $125,183 To close out impact of current
quarter's statement of earnings.
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