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: March 31, 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 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 May 5, 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 Nine Months Ended March 31, 2000 and March 31, 1999
(unaudited)........................................................ 3
Condensed Consolidated Balance Sheets as of March 31, 2000 and
June 30, 1999 (unaudited).......................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 2000 and March 31, 1999 (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................................... 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
For the three months ended Mar. 31 For the nine months ended Mar. 31
---------------------------------- ---------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $4,762,450 $4,993,149 $16,749,172 $16,939,195
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 5,298,881 5,325,240 16,293,720 15,406,481
Selling, general and
administrative expenses 1,186,687 1,365,512 3,661,720 3,821,849
----------- ----------- ----------- -----------
Total Costs and Expenses 6,485,568 6,690,752 19,955,440 19,228,330
----------- ----------- ----------- -----------
Operating Loss (1,723,118) (1,697,603) (3,206,268) (2,289,135)
Investment Income 178,904 192,699 477,642 678,807
Interest Expense (228) (7,075) (16,186) (30,973)
Other Income - net 253,124 147,864 701,576 250,505
----------- ----------- ----------- -----------
Loss Before Non-Owned
Interests and Income Taxes (1,291,318) (1,364,115) (2,043,236) (1,390,796)
Non-Owned Interest in Pretax
Loss of Midsouth Partners 0 430,060 19,889 512,408
----------- ----------- ----------- -----------
Loss Before Non-Owned
Interests in Insituform
East, Inc. and Income
Taxes (1,291,318) (934,055) (2,023,347) (878,388)
Provision (Credit) for Income Taxes 37,000 (392,000) (164,000) (358,000)
----------- ----------- ----------- -----------
Loss Before Non-Owned
Interests in Insituform
East, Inc. (1,328,318) (542,055) (1,859,347) (520,388)
Non-Owned Interests in Loss
of Insituform East, Inc. 915,144 400,018 1,504,492 395,184
----------- ----------- ----------- -----------
NET LOSS $ (413,174) $ (142,037) $ (354,855) $ (125,204)
=========== =========== =========== ===========
Net Loss per Share of Common Stock:
Basic Loss per Share $ (0.28) $ (0.10) $ (0.24) $ (0.08)
Diluted Loss per Share $ (0.28) $ (0.10) $ (0.24) $ (0.08)
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
As of
-------------------------------------------
Mar. 31, 2000 June 30, 1999
------------------- -------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $13,804,365 $17,050,119
Accounts receivable 5,973,230 6,592,913
Inventories 1,329,571 1,273,402
Prepaid and refundable taxes 88,490 550,453
Prepaid expenses and other 287,393 339,928
------------ -----------
Total Current Assets 21,483,049 25,806,815
------------ -----------
Property, Plant and Equipment - at cost less accumulated
depreciation of $16,719,142 at March 31, 2000 and
$15,432,983 at June 30, 1999 10,744,776 11,511,536
------------ -----------
Other Assets:
Excess of acquisition cost over value of net assets
acquired less accumulated amortization of $1,420,089 at March 31,
2000 and $1,253,580 at June 30, 1999 1,668,286 1,998,822
Deferred income taxes - net of valuation
allowance of $825,000 at March 31, 2000 and
$0 at June 30, 1999 0 0
Cash surrender value of SERP life insurance 2,605,156 1,730,964
Deposits and other 84,163 70,489
------------ -----------
Total Other Assets 4,357,605 3,800,275
------------ -----------
Total Assets $36,585,430 $41,118,626
============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
As of
------------------------------------------
Mar. 31, 2000 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 2,667,483 2,958,136
Income taxes payable 1,107,432 1,508,353
Current portion of capital lease obligations 31,318 42,167
----------- -----------
Total Current Liabilities 3,806,233 4,908,656
----------- -----------
Long-Term Liabilities:
Accrued SERP liability 1,032,975 847,560
Capital lease obligations (less current
portion shown above) 42,677 62,662
Deferred income taxes 0 219,000
----------- -----------
Total Long-Term Liabilities 1,075,652 1,129,222
----------- -----------
Total Liabilities 4,881,885 6,037,878
----------- -----------
Commitments and Contingencies
Non-Owned Interests in Consolidated Subsidiary 7,239,971 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 16,788,001 17,142,856
----------- ------------
Total Stockholders' Equity 24,463,574 24,818,429
----------- ------------
Total Liabilities and Stockholders' Equity
$36,585,430 $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 nine months ended Mar. 31
-----------------------------------------
2000 1999
-------------- --------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $ (354,855) $ (125,204)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 1,813,674 1,606,265
Amounts attributable to non-owned interests (1,524,381) (907,592)
Deferred income taxes (219,000) (183,000)
Decrease in other assets 0 17,990
Increase in accrued SERP liability 185,415 182,224
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 619,683 (1,390,569)
(Increase) decrease in inventories (56,169) (78,980)
(Increase) decrease in prepaid expenses and other
current assets 514,498 237,236
Increase (decrease) in accounts payable and
accrued expenses (142,357) 362,724
Decrease in income taxes payable (400,921) (289,393)
----------- -----------
Net Cash Provided by (Used in) Operating Activities 435,587 (568,299)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures, net (986,997) (1,679,957)
Increase in investment in Insituform East (272,315) (104,401)
Purchase of remaining interests in Midsouth Partners (948,707) 0
Increase in cash surrender value of life insurance (874,192) (371,638)
Increase in other assets (20,000) 0
----------- -----------
Net Cash Used in Investing Activities (3,102,211) (2,155,996)
----------- -----------
Cash Flows from Financing Activities:
Principal payments on capital lease obligations (30,834) (25,313)
Proceeds from loans to Midsouth Partners from non-
owned interests 0 200,000
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 (579,130) (223,609)
----------- -----------
Net Decrease in Cash and Cash Equivalents (3,245,754) (2,947,904)
Cash and Cash Equivalents at Beginning of Period 17,050,119 20,405,039
----------- -----------
Cash and Cash Equivalents at End of Period $13,804,365 $17,457,135
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 213,569 $ 42,232
Income taxes paid (refunded), net $ (6,042) $ (46,197)
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," the "Company" or
"Registrant"), 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 March 31, 2000, the
Condensed Consolidated Statements of Operations for the three months and nine
months ended March 31, 2000 and 1999, and the Condensed Consolidated Statements
of Cash Flows for the nine months ended March 31, 2000 and 1999 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 March 31, 2000
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 nine months ended March 31, 2000 and 1999 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:
For the three months ended Mar. 31 For the nine months ended Mar. 31
---------------------------------- ---------------------------------
2000 1999 2000 1999
---- ---- ---- ----
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
========= ========= ========= =========
3. Income Taxes
The calculation of Insituform East's Credit for Income Taxes for the
nine months ended March 31, 2000, 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 $825,000 at March 31, 2000, has
been reduced by a valuation allowance of $825,000 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:
Mar. 31, 2000 June 30, 1999
------------- -------------
Due from customers $5,792,494 $6,514,843
Miscellaneous 180,736 78,070
---------- ----------
5,973,230 6,592,913
Less: Allowance for doubtful accounts 0 0
---------- ----------
$5,973,230 $6,592,913
========== ==========
5. Equity in Insituform East
At March 31, 2000, CERBCO beneficially held 1,393,950 shares of
Insituform East Common Stock and 296,141 shares of convertible Insituform East
Class B Common Stock representing approximately 34.3% of the Common Stock, 99.5%
of the Class B Common Stock, 38.8% of the total equity and 61.9% 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 nine months ended March 31, 2000, CERBCO acquired 167,550
shares of Insituform East Common Stock for $272,315. The difference between the
cost of the stock and the net book value thereof, $276,945, 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 nine months ended March 31,
2000. If all the options outstanding at March 31, 2000 were exercised, the
resulting percentages of CERBCO's equity ownership and total voting power would
be 34.6% 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 nine months ended March 31, 2000.
6. Acquisition of Remaining Interests in Midsouth Partners
CERBCO's condensed consolidated financial statements as of March 31,
2000 and June 30, 1999, and for the three months and nine months ended March 31,
2000 and 1999, 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.
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:
For the three months ended For the nine months ended
Mar. 31 Mar. 31
-------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
Sales $4,762,450 $4,993,149 $16,749,172 $16,939,195
Net Loss $ (413,174) $ (233,111) $ (362,570) $ (234,123)
Net Loss per Share:
Basic $(0.28) $(0.16) $(0.24) $(0.15)
Diluted $(0.28) $(0.16) $(0.24) $(0.15)
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.
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of:
Mar. 31, 2000 June 30, 1999
------------- -------------
Accounts payable $1,492,919 $1,448,725
Accrued compensation and related expenses 1,174,564 1,361,115
Dividends payable 0 148,296
---------- ----------
$2,667,483 $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 was then referred to mediation in the District of Columbia.
During the mediation proceeding, the parties to the D.C. lawsuit
entered into settlement negotiations. On or about April 10, 2000, the parties
signed a stipulation of settlement of that lawsuit (the "Stipulation"). The
tentative settlement described in the Stipulation provides for a payment by
Rogers & Wells to the Company of $700,000 and for an exchange of mutual
releases, including releases of the Company by plaintiffs. The Stipulation
further provides that plaintiffs' counsel will petition the D.C. Superior Court
for an award of $233,333 in attorneys' fees (one-third of the proposed
settlement proceeds) and approximately $32,000 in expenses. As of the date
hereof, the Company has sent a notice of pendency of the D.C. lawsuit and of the
proposed settlement to the Company's stockholders. On May 31, 2000, the D.C.
Superior Court will hold a hearing to determine whether (i) the proposed
settlement described in the Stipulation should be approved as fair and
reasonable to the Company and its stockholders, and (ii) the requested
attorneys' fees and expenses should be awarded to plaintiffs.
Dispute with ITI - U.S. District Court for the Middle District of Tennessee
- ---------------------------------------------------------------------------
As previously reported by the Company, 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 a consolidated net loss of -$413,174 (-$0.28 per
share) on sales of $4.8 million for the third quarter and a consolidated net
loss of -$354,855 (-$0.24 per share) on sales of $16.7 million for the first
nine months of fiscal year 2000. In the prior fiscal year, the Company
recognized a consolidated net loss of -$142,037 (-$0.10 per share) on sales of
$5.0 million, and a consolidated net loss of -$125,204 (-$0.08 per share) on
sales of $16.9 million for the three months and nine months ended March 31,
1999, respectively.
The Company attributed its negative results during the three months and
nine months ended March 31, 2000 to the negative results during the same periods
of Insituform East, Inc. ("Insituform East"), the Company's majority-controlled
and only operating segment. For the three months ended March 31, 2000,
Insituform East recognized a consolidated net loss of -$1,495,126 on sales of
$4.8 million, contributing a loss of -$579,982 to CERBCO. For the nine months
ended March 31, 2000, Insituform East recognized a consolidated net loss of
- -$2,457,979 on sales of $16.7 million, contributing a loss of -$953,487 to
CERBCO. Insituform East attributed its negative results for the three months and
nine months ended March 31, 2000 primarily to a significant decrease in
immediately workable backlog during the second and third quarters of the fiscal
year.
CERBCO's negative results for the three months and nine months ended
March 31, 1999 were attributed to the negative results of Insituform East for
those periods as a result of that company's acceptance of additional job
completion costs on several incomplete projects, litigation costs and an
increase in discounted sales performed during the respective periods.
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 1999 lawsuit against
Insituform East and its subsidiaries 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 the December
litigation cannot be determined at this time, Insituform East intends to
continue to exercise its rights under its license agreements with ITI to expand
the market for the Insituform process within its exclusively licensed territory,
while Midsouth Partners intends to expand its offering of pipeline
rehabilitation processes outside its former territory.
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
continuing negative operating results for the fourth quarter of fiscal 2000,
with fiscal year 2001 operating results significantly dependent upon growth and
availability of immediately workable backlog. 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 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
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.
In response to continuing unfavorable operating margins, Insituform
East is embarking on an aggressive cost reduction program. Insituform East
intends going forward to provide a range of customer service and quality in
response to market demand, including being the efficient low-cost provider where
product price is the predominantly controlling procurement factor.
Results of Operations
Three Months Ended 3/31/00 Compared with Three Months Ended 3/31/99
Consolidated sales decreased $0.2 million (-5%) from $5.0 million for
the quarter ended March 31, 1999 to $4.8 million for the quarter ended March 31,
2000. Comparable period sales decreased primarily as a result of a significant
decrease in immediately workable backlog during the current quarter.
Consolidated operating losses increased approximately 2% in the quarter
ended March 31, 2000 due to an approximately 2% increase in Insituform East's
operating loss. Consolidated cost of sales showed a lesser decrease than the
decrease in sales (less than 1%) in the current quarter as compared to the same
quarter in the previous fiscal year, and as a result, negative gross profit as a
percentage of sales increased from -7% to -11% for the two comparative quarters.
This decrease is due primarily to increased semi-fixed costs incurred to support
increased productive capacity, to include support costs associated with the
Company's Ohio branch office reestablished in March 1999. Insituform East's
selling, general and administrative expenses decreased 15%. The parent company's
unallocated general corporate expenses decreased slightly (less than 1%) in the
three months ended March 31, 2000.
The loss from operations for the third quarter of fiscal year 2000 was
significantly affected by recognition of 100% of the negative operating results
of Midsouth Partners after July 20, 1999 and the valuation allowance recorded by
Insituform East against the tax provision calculated at statutory rates. The
Company's -$1,364,115 Loss Before Non-owned Interests in Insituform East, Inc.
and Income Taxes for the three months ended March 31, 1999 was reduced by the
$430,060 allocation of Midsouth Partners pretax loss to non-owned interests and
a $392,000 credit for Income Taxes recorded by Insituform East. No credit for
income taxes was recorded by Insituform East for the three months ended March
31, 2000, as the $583,000 credit calculated using applicable enacted federal and
state tax rates of 39% of Insituform East's pretax loss was reduced by an equal
$583,000 valuation allowance recorded against the deferred tax asset during the
period.
Nine Months Ended 3/31/00 Compared With Nine Months Ended 3/31/99
Consolidated sales decreased $0.2 million (-1%) from $16.9 million for
the nine months ended March 31, 1999 to $16.7 million for the nine months ended
March 31, 2000. Comparable period sales decreased primarily as a result of the
sales decreases in the second and third quarters of the current fiscal year of
$1.2 million and $0.2 million respectively, which offset the increase of $1.2
million in the first quarter of the current fiscal year.
Consolidated operating losses increased $0.9 million from -$2.3 million
in the nine months ended March 31, 1999 to -$3.2 million in the nine months
ended March 31, 2000, due to a $0.9 million increase in Insituform East's
operating loss. Consolidated cost of sales increased $0.9 million (6%) in the
current nine month period as compared to the same period in the previous fiscal
year, and as a result when coupled with the decrease in sales over the same two
periods, gross profit as a percentage of sales decreased from 9% to 3%. This
decrease reflects the absorption of increased semi-fixed costs resulting from
increased productive capacity over an essentially static sales volume.
Insituform East's selling, general and administrative costs decreased 4%, while
the parent company's unallocated general corporate expenses decreased 3% in the
current nine-month period.
Other income increased $0.5 million (180%) primarily as a result of
significant increases in the cash surrender values of insurance policies funding
the parent company's supplemental retirement plan.
The loss from operations for the first nine months of fiscal year 2000
was significantly affected by the recognition of all but $19,889 of the negative
operating results of Midsouth Partners for the nine month period and the
valuation allowance recorded by Insituform East against the tax provision
calculated at statutory rates. The Company's -$1,390,796 Loss Before Non-owned
Interests in Insituform East, Inc. and Income Taxes for the nine months ended
March 31, 1999 was reduced by the $512,408 allocation of Midsouth Partners
pretax loss to non-owned interests and a $388,000 credit for income taxes
recorded by Insituform East. A credit for income taxes of $219,000, recorded by
Insituform East for the nine months ended March 31, 2000, is 8% of its pretax
loss of -$2,676,979 as the credit calculated using applicable federal and state
tax rates of 39% of Insituform East's pretax loss was reduced by a $825,000
valuation allowance recorded against the deferred tax asset during the period.
Financial Condition
During the nine months ended March 31, 2000, the Company's operating
activities provided $0.4 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 $1.8 million in depreciation and amortization expenses
included in operating results and the adjustment for the $1.5 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
$0.6 million decrease in accounts receivable and a $0.5 million decrease in
prepaid expenses, which increased cash, offset by a $0.1 million decrease in
accounts payable and a $0.4 million decrease in income taxes payable, which
decreased cash.
The Company used $3.1 million in cash in investing activities during
the nine months ended March 31, 2000, 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 $3.2 million net decrease in cash during the first nine months of
fiscal year 2000, the Company's liquidity remained strong with working capital
of $17.6 million and a current ratio of 5.6 to 1 at March 31, 2000.
Management anticipates that Insituform East may continue to incur
operating losses in the future which, along with increased production levels,
will require additional capital expenditures. 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 any additional cash flow requirements of Insituform East
in the foreseeable future.
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, and (b) a previously disclosed 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
On May 5, 2000, the Company reported that, commencing May 9, 2000,
trading in its shares of common stock will shift from the Nasdaq National
Market(R) to The Nasdaq SmallCap MarketSM. The Company's Nasdaq trading symbol,
CERB, remains unchanged. The shift in trading to The Nasdaq SmallCap Market was
implemented because the Company's present market size did not permit continued
maintenance under the rules of the larger National Market System.
The Company noted that The Nasdaq SmallCap Market offers both the
Company and its present and prospective shareholders continuous transaction data
in terms of price and volume activity similar to the Nasdaq National Market,
including vigorous competition among multiple market makers. Bid and asked
prices, last-sale prices and volume information are available throughout the
trading day. High, low and closing price information will continue to appear in
major newspapers such as The Wall Street Journal and The Washington Post.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule for the period ended March 31, 2000
99 - CERBCO, Inc. Consolidating Schedules: Statement of
Operations Information for the three months ended March 31,
2000; Statement of Operations Information for the nine months
ended March 31, 2000; Balance Sheet Information and
Consolidating Elimination Entries as of March 31, 2000.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended March
31, 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: May 12, 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)
- -------------------------------------------------------------------------------
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 March 31, 2000;
Statement of Operations Information for the Nine Months Ended
March 31, 2000; Balance Sheet Information and Consolidating
Elimination Entries as of March 31, 2000.
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 13,804
<SECURITIES> 0
<RECEIVABLES> 5,973
<ALLOWANCES> 0
<INVENTORY> 1,330
<CURRENT-ASSETS> 21,483
<PP&E> 27,464
<DEPRECIATION> 16,719
<TOTAL-ASSETS> 36,585
<CURRENT-LIABILITIES> 3,806
<BONDS> 0
<COMMON> 148
0
0
<OTHER-SE> 24,315
<TOTAL-LIABILITY-AND-EQUITY> 36,585
<SALES> 16,749
<TOTAL-REVENUES> 16,749
<CGS> 16,294
<TOTAL-COSTS> 16,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> (2,023)
<INCOME-TAX> (164)
<INCOME-CONTINUING> (354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (354)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENTS OF OPERATIONS INFORMATION
THREE MONTHS ENDED MARCH 31, 2000
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
<S> <C> <C> <C> <C>
Sales $4,762,450 $ 0 $ 0 $ 4,762,450
----------- ----------- --------- -----------
Costs and Expenses:
Cost of sales 5,298,881 0 0 5,298,881
Selling, general and administrative expenses 1,186,687 0 214,294 972,393
----------- ----------- --------- -----------
Total Costs and Expenses 6,485,568 0 214,294 6,271,274
----------- ----------- --------- -----------
Operating Loss (1,723,118) 0 (214,294) (1,508,824)
Investment Income 178,904 (A) (85,785) 258,166 6,523
Interest Expense (228) (A) 85,785 0 (86,013)
Other Income (Expense) - net 253,124 0 159,936 93,188
----------- ----------- --------- -----------
Earnings (Loss) Before Non-Owned Interests in
Insituform East and Income Taxes (1,291,318) 0 203,808 (1,495,126)
Credit for Income Taxes 37,000 0 37,000 0
----------- ----------- --------- -----------
Earnings (Loss) Before Non-Owned Interests in
Insituform East (1,328,318) 0 166,808 (1,495,126)
Non-Owned Interests in Loss of Insituform East 915,144 (B) 915,144 0 0
----------- ----------- --------- -----------
NET EARNINGS (LOSS) $ (413,174) (C) $915,144 $166,808 $(1,495,126)
=========== =========== ========= ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENTS OF OPERATIONS INFORMATION
NINE MONTHS ENDED MARCH 31, 2000
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
<S> <C> <C> <C> <C>
Sales $16,749,172 $ 0 $ 0 $16,749,172
----------- ----------- --------- -----------
Costs and Expenses:
Cost of sales 16,293,720 0 0 16,293,720
Selling, general and administrative expenses 3,661,720 0 556,823 3,104,897
----------- ----------- --------- -----------
Total Costs and Expenses 19,955,440 0 556,823 19,398,617
----------- ----------- --------- -----------
Operating Loss (3,206,268) 0 (556,823) (2,649,445)
Investment Income 477,642 (D) (229,546) 676,659 30,529
Interest Expense (16,168) (D) 229,546 0 (245,732)
Other Income (Expense) - net 701,576 0 533,796 167,780
----------- ----------- --------- -----------
Earnings (Loss) Before Non-Owned Interests and
Income Taxes (2,043,236) 0 653,632 (2,696,868)
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 (2,023,347) 0 653,632 (2,676,979)
Provision (Credit) for Income Taxes 164,000 0 55,000 (219,000)
----------- ----------- --------- -----------
Earnings (Loss) Before Non-Owned Interests in
Insituform East (1,859,347) 0 598,632 (2,457,979)
Non-Owned Interests in Loss of Insituform East 1,504,492 (E) 1,504,492 0 0
----------- ----------- --------- -----------
NET EARNINGS (LOSS) $(354,855) (G) $1,504,492 $ 598,632 $(2,457,979)
=========== ========== ========= ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
MARCH 31, 2000
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East,
Consolidated Eliminations Unconsolidated Incorporated
ASSETS
- ----------------------------------------------------------------------------
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $13,804,365 $ 0 $13,279,027 $ 525,338
Accounts receivable 5,973,230 0 2,644 5,970,586
Inventories 1,329,571 0 0 1,329,571
Prepaid and refundable taxes 88,490 0 0 88,490
Prepaid expenses and other 287,393 0 0 287,393
---------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 21,483,049 0 13,281,671 8,201,378
Investment in and Advances to Subsidiary:
Investment in subsidiary 0 (F) (7,210,176) 7,210,176 0
Intercompany receivables and payables 0 0 4,532,332 (4,532,332)
Property, Plant and Equipment - net of
accumulated depreciation 10,744,776 0 79,480 10,665,296
Other Assets:
Excess of acquisition cost over value of net
assets acquired - net 1,668,286 (F) 1,668,286 0 0
Cash surrender value of SERP life insurance 2,605,156 0 2,430,785 174,371
Deposits and other 84,163 0 44,489 39,674
---------- ----------- ----------- -----------
TOTAL ASSETS $36,585,430 $(5,541,890) $27,578,933 $14,548,387
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities $ 2,667,483 $ 0 $ 124,475 $ 2,543,008
Income taxes payable 1,107,432 0 1,091,708 15,724
Current portion of capital lease obligations 31,318 0 0 31,318
---------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 3,806,233 0 1,216,183 2,590,050
Long-Term Liabilities:
Accrued SERP liability 1,032,975 0 945,689 87,286
Capital lease obligations 42,677 0 0 42,677
---------- ----------- ----------- -----------
TOTAL LIABILITIES 4,881,885 0 2,161,872 2,720,013
---------- ----------- ----------- -----------
Non-Owned Interests: 7,239,971 (E)(F) 7,239,971 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 16,788,001 (F)(G) (9,783,660) 17,741,488 8,830,173
Treasury stock 0 (F) 1,189,613 0 (1,189,613)
---------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 24,463,574 (12,781,861) 25,417,061 11,828,374
---------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $36,585,430 $ (5,541,890) $27,578,933 $14,548,387
=========== ============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING ELIMINATION ENTRIES
MARCH 31, 2000
(unaudited)
<CAPTION>
(A)
<S> <C> <C>
Investment income $85,785
Interest expense $85,785
To eliminate interest expense paid by Insituform East to CERBCO in the
three months ended March 31, 2000.
(B)
Non-owned interests $915,144
Non-owned interests in loss of subsidiary $915,144
To record non-owned interests in loss of Insituform East for the three
months ended March 31, 2000.
(C)
Current quarter loss adjustments $915,144
Retained earnings $915,144
To close out impact of eliminating entries on three months' statement
of operations.
(D)
Investment income $229,546
Interest expense $229,546
To eliminate interest expense paid by Insituform East to CERBCO in the
nine months ended March 31, 2000.
(E)
Non-owned interests $1,504,492
Non-owned interests in loss of subsidiary $1,504,492
To record non-owned interests in loss of Insituform East for the nine
months ended March 31, 2000.
(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 1,668,286
Treasury stock $1,189,613
Non-owned interests 8,744,463
Investment in subsidiary 7,210,176
To eliminate investments in consolidated subsidiaries.
(G)
Current period loss adjustments $1,504,492
Retained Earnings $1,504,492
To close out impact of eliminating entries on nine months' statement of
operations.
</TABLE>
