<PAGE>
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, 1995
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)
Registrant's telephone and fax numbers, including area code:
301-773-1784 (tel); 301-322-3041 (fax)
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, 1995, the following number of shares of each of the
issuer's classes of common stock were outstanding:
Common Stock 1,150,989/Class B Common Stock 310,967
<PAGE>
PART I - FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements
- - -----------------------------
<TABLE>
CERBCO, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
- - -----------------------------------------------------------------
- - -------
<CAPTION>
For the three months ended 3/31 For the nine
months ended 3/31
-------------------------------
- - ------------------------------
<C> <C> <C>
<C>
1995 1994 1995
1994
<S>
Sales:
Sales of products $7,147,473 $3,934,405 $21,973,673
$15,379,437
Sales of services
and supplies 2,467,793 1,887,982 6,925,258
5,468,938
---------- ---------- -----------
- - -----------
TOTAL SALES 9,615,266 5,822,387 28,898,931
20,848,375
---------- ---------- -----------
- - -----------
Costs and Expenses:
Cost of products
sold 4,714,895 3,437,012 15,307,765
11,920,268
Cost of services
and supplies 1,239,345 987,967 3,396,032
2,803,008
Selling, general
and
administrative
expenses 2,336,798 1,739,735 6,251,206
5,097,186
--------- --------- ---------
---------
Total Costs and
Expenses 8,291,038 6,164,714 24,955,003
19,820,462
--------- --------- ----------
----------
Operating Profit
(Loss) 1,324,228 (342,327) 3,943,928
1,027,913
Investment Income 47,909 34,767 143,541
205,379
Equity in Earnings
of
Unconsolidated
Affiliate 141,223 26,574 554,600
177,340
Interest Expense (4,976) (25,298) (25,901)
(81,022)
Other Income
(Expense)
- net 46,444 32,953 81,764
67,777
-------- -------- --------
---------
Earnings (Loss)
before Income
Taxes and
Non-owned
Interests 1,554,828 (273,331) 4,697,932
1,397,387
Provision (Credit)
for Income Taxes 789,000 (31,000) 2,236,000
699,000
-------- --------- ----------
--------
Earnings (Loss) before
Non-owned Interests 765,828 (242,331) 2,461,932
698,387
Non-owned Interests in
Earnings (Loss)
of Consolidated
Subsidiaries 564,486 (165,578) 1,589,710
193,877
-------- --------- ----------
--------
Earnings (Loss) from
Continuing Operations 201,342 (76,753) 872,222
504,510
Discontinued Operations:
Estimated gain on
disposal of
discontinued
operations - net 3,648 0 151,349
596,706
-------- -------- ----------
----------
NET EARNINGS (LOSS) $204,990 $(76,753) $1,023,571
$1,101,216
-------- -------- ----------
----------
-------- -------- ----------
----------
Net Earnings (Loss) per
Share of Common
Stock:
Earnings (loss) from
continuing
operations $.14 $(.05) $.60
$.35
Estimated gain on
disposal .00 .00 .10
.41
---- ---- ----
----
Net Earnings (Loss)
per Share $.14 $(.05) $.70
$.76
---- ---- ----
----
---- ---- ----
----
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
- - --------------------------------------------------------------
<CAPTION>
<C>
<C>
As of 3/31/95
As of 6/30/94
-------------
- - -------------
<S>
ASSETS
- - ------
Current Assets:
Cash and cash equivalents $4,191,431
$2,215,624
Temporary investments 979,514
2,292,036
Accounts receivable 6,305,954
6,675,386
Inventories 2,835,754
2,069,309
Prepaid and refundable taxes 101,720
516,239
Deferred income taxes 63,000
63,000
Prepaid expenses and other 395,000
344,464
----------
----------
Total Current Assets 14,872,373
14,176,058
----------
----------
Property, Plant and Equipment - at cost
Less accumulated depreciation of $8,808,851
at 3/31/95 and $8,282,201 at 6/30/94 9,387,737
9,157,596
----------
----------
Other Assets:
Excess of acquisition cost over value of net
assets acquired - net of accumulated
amortization of $1,416,094 at 3/31/95
and $1,296,614 at 6/30/94 4,927,795
5,047,275
Investment in unconsolidated affiliate 1,297,528
866,178
Deferred income taxes 30,000
30,000
Deposits and other 401,991
229,556
-----------
-----------
Total Other Assets 6,657,314
6,173,009
-----------
-----------
Total Assets $30,917,424
$29,506,663
-----------
-----------
-----------
-----------
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
- - --------------------------------------------------------------
<CAPTION>
<C>
<C>
As of 3/31/95
As of 6/30/94
-------------
-------------
<S>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities:
Loans payable $0
$561,000
Accounts payable and accrued liabilities 2,805,871
3,590,406
Deferred revenue 512,159
495,605
Current portion of long-term debt 18,479
16,959
Current portion of capital lease obligations 36,549
32,584
----------
----------
Total Current Liabilities 3,373,058
4,696,554
----------
---------
Long-term Liabilities
Long-term debt (less current portion shown
above) 10,195
24,119
Capital lease obligations (less current
portion shown above) 44,040
71,537
Deferred income taxes 1,038,000
919,000
Other long-term liabilities 81,578
31,740
-----------
-----------
Total Long-term Liabilities 1,173,813
1,046,396
-----------
-----------
Total Liabilities 4,546,871
5,742,950
-----------
-----------
Commitments and Contingencies
Non-owned Interests in Consolidated Subsidiaries 11,889,228
10,318,334
-----------
-----------
Stockholders' Equity:
Common stock, $.10 par value
Authorized: 3,500,000 shares
Issued and outstanding: 1,150,989 shares
(at 3/31/95) 115,099
Issued and outstanding: 1,146,489 shares
(at 6/30/94)
114,649
Class B Common stock (convertible),
$.10 par value
Authorized: 700,000 shares
Issued and outstanding: 310,967 shares 31,096
31,096
Additional paid-in capital 7,412,937
7,401,012
Retained earnings 6,922,193
5,898,622
-----------
-----------
Total Stockholders' Equity 14,481,325
13,445,379
-----------
-----------
Total Liabilities and Stockholders'
Equity $30,917,424
$29,506,663
-----------
-----------
-----------
-----------
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 3/31
- - ------------------------------
<C>
<C>
1995
1994
<S>
Cash Flows from Operating Activities:
Earnings from continuing operations $872,222
$504,510
Estimated gain on disposal 151,349
596,706
---------
---------
Net earnings 1,023,571
1,101,216
Adjustments to reconcile net earnings to net cash
provided by (used in) operations:
Depreciation and amortization 999,911
985,750
Change in net assets of discontinued operations 0
261,183
Amounts provided by non-owned interests 1,589,710
164,640
Deferred income taxes 119,000
318,000
Equity in (earnings) loss of unconsolidated
affiliate (554,600)
(177,340)
Decrease in other assets (132,586)
(88,147)
Increase in long-term liabilities 49,838
15,870
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 369,432
30,823
(Increase) decrease in inventories and
prepaid expenses (454,311)
(81,467)
Increase (decrease) in accounts payable
and accrued expenses (1,061,941)
(729,659)
Increase (decrease) in income taxes payable 425,442
(66,406)
Increase (decrease) in deferred revenue 16,554
101,310
---------
---------
Net Cash Provided by Operating Activities 2,390,020
1,835,773
---------
---------
Cash Flows from Investing Activities:
Capital expenditures, net (1,098,572)
(488,382)
Change in temporary investments 1,312,522
0
Cash distribution from unconsolidated affiliate 123,250
0
Acquisition of non-owned interest in
consolidated subsidiary (18,816)
0
Proceeds from sale of assets of discontinued
operations 0
134,360
---------
---------
Net Cash Provided by (Used in)
Investing Activities 318,384
(354,022)
---------
---------
Cash Flows from Financing Activities:
Proceeds from revolving lines of credit
and long-term borrowings 2,150,000
5,552,582
Principal payments on revolving lines of credit,
capital lease obligations and long-term
borrowings (2,746,936)
(5,785,983)
Proceeds from exercise of stock options 12,375
0
Dividends paid (148,036)
(148,036)
----------
----------
Net Cash Used in Financing Activities (732,597)
(381,437)
----------
----------
Net Increase in Cash and Cash Equivalents 1,975,807
1,100,314
Cash and Cash Equivalents at Beginning of Period 2,215,624
4,116,624
----------
----------
Cash and Cash Equivalents at End of Period $4,191,431
$5,216,938
----------
----------
----------
----------
Supplemental disclosure of cash flow information:
Interest paid $25,901
$78,545
Income taxes paid (refunded) - net $1,316,747
$286,452
Supplemental disclosure of non-cash investing and
financing activities:
Additions to capital leases $0
$40,632
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
CERBCO, Inc.
- - ------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
- - ----------------------------------------------------------------
1. Financial Information
---------------------
The accompanying condensed consolidated financial statements
include the accounts of CERBCO, Inc. ("CERBCO"); its
majority-owned subsidiary, Capitol Copy Products, Inc. ("Capitol
Copy"); and its majority-controlled subsidiary, Insituform East,
Incorporated ("Insituform East"). The condensed consolidated
Balance Sheet as of March 31, 1995, the condensed consolidated
Statements of Operations for the three months and nine months
ended March 31, 1995 and 1994, and the condensed consolidated
Statements of Cash Flows for the nine months ended March 31, 1995
and 1994 have been prepared by the Company without audit. The
condensed consolidated Balance Sheet as of June 30, 1994
(unaudited) has been derived from the Company s June 30, 1994
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, 1995 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, 1994. Operating
results for interim periods are not necessarily indicative of
operating results for an entire fiscal year.
2. Earnings Per Share
------------------
Earnings (loss) per share data have been computed based upon
the weighted average number of common shares outstanding and
common share equivalents outstanding (when dilutive) during each
period. The following numbers of shares have been used in the
computations:
<TABLE>
<CAPTION>
For the three months ended 3/31 For the nine months ended 3/31
- - ------------------------------- ------------------------------
<C> <C> <C> <C>
<S>
1995 1994 1995 1994
- - --------- --------- --------- ---------
1,461,956 1,457,456 1,459,137 1,457,456
</TABLE>
3. Accounts Receivable
-------------------
Accounts receivable consist of:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<C> <C>
<S>
Due from municipal and
commercial customers $6,053,157 $6,514,133
Miscellaneous 282,797 216,253
---------- ----------
6,335,954 6,730,386
Less: Allowance for doubtful
accounts (30,000) (55,000)
---------- ----------
$6,305,954 $6,675,386
---------- ----------
---------- ----------
</TABLE>
4. Inventories
-----------
Inventories consist of:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<C> <C>
<S>
Pipeline rehabilitation
materials $986,034 $764,938
Copier and facsimile equipment 1,280,642 808,956
Copier and facsimile supplies 278,358 251,616
Copier and facsimile parts 290,720 243,799
---------- ----------
$2,835,754 $2,069,309
---------- ----------
---------- ----------
</TABLE>
5. Discontinued Operations
-----------------------
On March 31, 1991, the Company adopted a formal plan to
discontinue the operations and dispose of assets and liabilities
of its defense contract services segment conducted through its
wholly-owned subsidiary, CERBERONICS, Inc. ("CERBERONICS"). On
June 30, 1991, CERBERONICS ceased all operations. Since that
date, the Company has continued to receive payment on accounts
receivable and process other open items pertaining to
CERBERONICS's final contracts. There were no such receipts
during the quarter ended March 31, 1994. During the nine months
ended March 31, 1994, the Company obtained payment of $991,520,
consisting of a judgment for $871,649 plus interest, resulting
from settlement of a lawsuit against the U.S. Navy in connection
with open proposals under CERBERONICS's former C-9 contract. The
Company recognized $610,466 as a gain on disposal of discontinued
operations, which had not been recognized as revenue in prior
years. During the quarter and the nine months ended March 31,
1995, the Company obtained payments of $3,648 and $151,349,
respectively, pertaining to other former contracts. These
payments are included in gain on disposal of discontinued
operations in the accompanying Condensed Consolidated Statements
of Operations. Although there are several open items remaining
that pertain to other former contracts of CERBERONICS, none are
considered material.
On June 11, 1993, the Company adopted a formal plan to
discontinue providing cement mortar lining services conducted
through its pipeline rehabilitation segment, Insituform East.
This plan included declining to bid on future cement mortar
lining contracts, fulfilling existing commitments and selling
remaining equipment and materials associated with this service
capability. Insituform East substantially completed two existing
contracts in progress and sold substantially all remaining
equipment and materials during the fiscal year ended June 30,
1994.
During the quarter and year ended June 30, 1993, Insituform
East established an estimated loss on the disposal of
discontinued operations of -$391,000, net of an income tax
benefit of $250,000. CERBCO's loss on the disposal of this
capability, net of non-owned interests, was -$125,120 in
fiscal year 1993. Insituform East s estimated loss on disposal
was increased -$43,000, net of an income tax benefit of $27,000,
during the quarter ended September 30, 1993 to increase the
provision for additional operating losses to complete remaining
contracts during fiscal year 1994. CERBCO's loss on the
disposal, net of non-owned interests, was increased -$13,760,
during the quarter ended September 30, 1993.
The Company's cement mortar lining activities for the quarter
and the nine months ended March 31, 1994 are presented separately
in the accompanying Condensed Consolidated Statements of
Operations. There were no sales from cement mortar lining
activities during the quarter ended March 31, 1994. Sales from
cement mortar lining activities for the nine months ended March
31, 1994 were $830,822. This amount is not included in sales in
the accompanying Condensed Consolidated Statements of Operations.
6. Equity in Insituform East
-------------------------
At March 31, 1995, CERBCO beneficially held 1,100,000 shares
of Insituform East Common Stock and 296,141 shares of convertible
Insituform East Class B Common Stock representing approximately
27.1% of the Common Stock, 99.5% of the Class B Common Stock,
32.0% of the total equity and 57.7% 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.
From time to time, Insituform East issues additional shares
of stock as a result of stock dividends and exercised stock
operations. Changes in capital structure resulting from such
additional stock issues decrease CERBCO's equity ownership. No
such changes in capital structure occurred during the nine
months ended March 31, 1995. If all the options outstanding at
March 31, 1995 were exercised, the resulting percentages of
CERBCO's equity ownership and total voting power would be 29.7%
and 55.5%, 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 nine months ended March 31, 1995.
7. Equity in Capitol Copy
----------------------
At March 31, 1995, CERBCO beneficially held 800 shares, and
Capitol Copy's president held 400 shares, of Capitol Copy Class B
Stock, representing 66 2/3% and 33 1/3%, respectively, of the one
outstanding class of Capitol Copy stock.
8. Accounts Payable and Accrued Liabilities
----------------------------------------
Accounts payable and accrued liabilities consist of:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<C> <C>
<S>
Accounts payable $1,111,012 $1,946,792
Accrued compensation and related
expenses 1,157,773 1,383,934
Dividends payable 0 148,036
Income taxes payable 537,086 111,644
---------- ----------
$2,805,871 $3,590,406
---------- ----------
---------- ----------
</TABLE>
9. Contingencies
-------------
In March 1990, the controlling stockholders of the Company,
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, Insituform East, Capitol Copy, and CERBERONICS. 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.
In August 1990, a complaint against the Company and the
Eriksons was filed in the Delaware Court of Chancery by two
stockholders of the Company, on their own behalf and derivatively
on behalf of the Company, which seeks (i) damages against the
individual defendants for alleged breach of fiduciary duties in
an amount not less than $6,000,000, together with interest
thereon from March 12, 1990; (ii) to permanently enjoin the
Eriksons from completing any transaction with ITI similar in
substance to the Proposed Transaction; (iii) a declaration
of the invalidity of the 1982 authorization for and issuance of
the Company's Class B Common Stock, and, therefore, of the
entitlement of holders of Class B Common Stock to elect any
members of the Company s Board; (iv) a declaration of the
invalidity of the 1990 election of the Company's directors and
the issuance of new proxy materials that fully and fairly
disclose all facts which plaintiffs claim are material to the
election of such directors; (v) an award to the plaintiffs of
their costs of bringing the action, including reasonable
attorneys' fees; and (vi) an award to plaintiffs of such further
relief as the Court of Chancery deems appropriate. In addition,
the Complaint asserts a claim against the individual defendants
alleging that the Company has forgone a corporate opportunity by
the continued failure to pursue a transaction with ITI.
All but one of the plaintiffs' claims subsequently have been
dismissed. The claim remaining in the litigation is plaintiffs'
allegation that the Proposed Transaction was an opportunity
belonging to the Company and that the Eriksons breached their
duty to the Company by precluding the Company from taking
advantage of that opportunity so that the Eriksons might have a
chance to do so. Trial in this matter was held beginning on
February 21, 1995. The parties are submitting post-trial briefs
to the Court, and oral argument is scheduled for May 23, 1995.
Following oral argument, the Court will issue its written
decision.
In January 1993, a separate 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
District of Columbia. The plaintiffs are the same two
stockholders, and a former director of the Company, and have
alleged that Rogers & Wells breached its duty of loyalty and care
to the Company by representing allegedly conflicting interest of
the Eriksons in the Proposed Transaction with ITI. The
plaintiffs also claim that Rogers & Wells committed malpractice
by allegedly making misrepresentations to the Company's Board and
allegedly failing to properly inform the Company's Board. The
plaintiffs claim 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 complaint seeks 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
$6,000,000 for the loss of the opportunity for the Company to
sell its control of Insituform East to ITI, and (iii) punitive
damages. Although the complaint states 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 in the
complaint.
To date, motions to dismiss this case by the Company and
Rogers & Wells have been denied, but a stay in the proceedings
has been granted until after the Delaware trial. A status report
was submitted by the parties on April 3, 1995.
Management believes there are valid defenses to all of
plaintiffs' allegations in each of the above actions and that
ultimate resolution of these matters will not have a material
effect on the financial statements. Accordingly, no provision
for these contingencies has been reflected therein.
CERBCO is involved in other contingencies, none of which
could, in the opinion of management, materially affect the
Company's financial position or results of operations.
10. Segment Data and Reconciliation
-------------------------------
CERBCO's operations are classified into two principal
industry segments: pipeline rehabilitation and copier equipment
products and services. The following is a summary of pertinent
industry segment information. General corporate expenses include
items which are of an overall holding company nature and are not
allocated to the segments.
<TABLE>
<CAPTION>
For the three months For the nine months
ended 3/31 ended 3/31
-------------------- -------------------
<C> <C> <C> <C>
1995 1994 1995 1994
(in thousands)
<S>
Sales to Unaffiliated
Customers:
Pipeline
rehabilitation $5,317 $2,173 $15,536 $9,870
Copier equipment
products and
services 4,298 3,649 13,363 10,978
------ ------ ------- -------
Total Sales $9,615 $5,822 $28,899 $20,848
------ ------ ------- -------
------ ------ ------- -------
Earnings (Loss) before
Income Taxes:
Pipeline
rehabilitation $664 $(855) $1,656 $(857)
Copier equipment
products and
services 1,059 657 3,142 2,217
General corporate
expenses - net (399) (144) (854) (332)
------ ------ ------ ------
Operating Profit
(Loss) 1,324 (342) 3,944 1,028
Equity in earnings
of unconsolidated
affiliate 141 27 554 177
Other income 134 108 345 393
Other expenses (44) (66) (145) (201)
------ ------ ------ ------
Earnings before
Income Taxes $1,555 $(273) $4,698 $1,397
------ ------ ------ ------
------ ------ ------ ------
Net Earnings (Loss)
Contribution by
Segment:
Pipeline
rehabilitation $168 $(176) $461 $(95)
Copier equipment
products and
services 407 233 1,204 789
Corporate (374) (134) (793) (189)
------ ------ ------ ------
Earnings (loss) from
continuing
operations 201 (77) 872 505
Discontinued
operations 4 0 152 596
------ ------ ------ ------
Net Earnings
(Loss) $205 $(77) $1,024 $1,101
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
11. Subsequent Event
----------------
On April 18, 1995, Insituform Mid-America, Inc. ("IMA")
acquired the pipeline rehabilitation business of ENVIROQ
Corporation ("Enviroq"), including Enviroq's 42.5% interest in
MIDSOUTH Partners which is held through Enviroq's special purpose
subsidiary, E-Midsouth, Inc. Under the MIDSOUTH Partners'
Partnership Agreement, it is an event of default if, among other
things, a change in the control of any partner occurs without the
prior written consent of all the other partners. The IMA
acquisition of Enviroq, which resulted in a change in the control
of Enviroq and E-Midsouth, Inc. was made without the consent of
the Partnership's two other partners, special purpose
subsidiaries of Insituform East and Insituform Technologies, Inc.
("ITI").
The Partnership Agreement grants non-defaulting partners the
right to require compliance with the agreement, enjoin any breach
or seek dissolution of the partnership, among other alternatives.
Insituform East has filed with the American Arbitration
Association a demand for arbitration alleging a breach of the
Partnership Agreement by E-Midsouth, Inc. Separately, on April
4, 1995, ITI affiliated companies initiated action against
Enviroq and IMA in Tennessee Chancery Court regarding ITI's
rights as licensor to withhold consent to the assignment of
Insituform and NuPipe license agreements. Simultaneously with
the initiation of its suit, ITI entered into agreements with IMA
and Enviroq to postpone, through April 30, 1995 (subsequently
extended through May 31, 1995), the Tennessee court proceedings
as well as any other assertion by ITI of its rights under
Insituform and NuPipe license agreements and its rights under the
MIDSOUTH Partners' Partnership Agreement.
Although the Company cannot, at this time, predict the
outcome of the matters described herein, any potential outcome
that resulted in the loss by the Company of its ability to
recognize its share of the results of operations of MIDSOUTH
Partners could have a material adverse effect on the future
earnings of the Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- - ----------------------------------------------------------
Overview and Outlook
- - --------------------
The Company realized consolidated earnings from continuing
operations of $201,342 ($.14 per share) and consolidated net
earnings of $204,990 ($.14 per share) for the third quarter of
fiscal year 1995, as compared to a consolidated loss from
continuing operations and a consolidated net loss of -$76,753
(-$.05 per share) for the third quarter of fiscal year 1994.
Consolidated earnings from continuing operations were $872,222
($.60 per share), and consolidated net earnings were $1,023,571
($.70 per share), for the first nine months of fiscal year 1995,
as compared to consolidated earnings from continuing operations
of $504,510 ($.35 per share) and consolidated net earnings of
$1,101,216 ($.76 per share) for the first nine months of fiscal
year 1994. The change in comparative consolidated results
from continuing operations is attributable to earnings
contributions from both of the Company's principal industry
segments, despite an increase in holding company expenses.
Insituform East, the Company's pipeline rehabilitation
segment, experienced a significant improvement in sales and
operating results in the comparable periods. Sales and operating
results of Insituform East's unconsolidated affiliate, MIDSOUTH
Partners, were also improved. Because a substantial portion of
Insituform East's and MIDSOUTH Partners' costs and expenses are
semi-fixed in nature, increased sales at normal margins can
significantly leverage positive earnings. While there can be no
assurances regarding future operating performance, based on the
volume and mix of both Insituform East's and MIDSOUTH Partners'
present and expected backlog of customer orders, the favorable
results experienced by Insituform East during the last four
quarters are presently anticipated to continue throughout the
remainder of calendar year 1995.
Capitol Copy, the Company's copier and facsimile equipment
products and services segment, continued to experience increased
sales and earnings in the third quarter of fiscal year 1995,
primarily as a result of continued increases both in its copier
equipment sales, and its service and supply activities. And
again while there can be no assurances, sales revenues and
earnings are anticipated to remain favorable for Capitol Copy,
and the Company believes that the future prospects of Capitol
Copy remain excellent.
CERBCO's potential future earnings continue to be impacted by
legal fees and expenses related to the demands made of, and
litigation being continued against, the Company by two
associated, minority stockholders in connection with the
unconsummated private sale of a controlling interest in the
Company abandoned in September 1990 (see Part I, Item 1, "Notes
to Condensed Consolidated Financial Statements (unaudited) - Note
9: Contingencies;" also Part II, Item 1, "Legal Proceedings").
In the third quarter of fiscal year 1995, CERBCO experienced
unallocated general corporate expenses in the amount of $398,870,
including approximately $244,000 in such legal fees and expenses.
From inception in 1990 through March 31, 1995, such legal fees
and expenses totaled approximately $1.9 million.
Results of Operations
- - ---------------------
Third Quarter ended 3/31/95 Compared with Third Quarter Ended
3/31/94
- - -------------------------------------------------------------
Consolidated sales increased $3.8 million (65.1%) in the
third quarter of fiscal year 1995 as compared to the third
quarter of fiscal year 1994. Insituform East's pipeline
rehabilitation sales increased $3.1 million (144.7%). This
increase was primarily due to available work and an expanded
production capacity associated with the addition of another
installation crew during the second quarter of fiscal year 1995.
In addition, third quarter fiscal year 1994 sales were adversely
affected by a combination of severe weather conditions and delays
in customer work releases. Sales of copier equipment products
and services by Capitol Copy increased $.7 million (17.8%).
While equipment sales only increased 4.0%, service and supply
revenues increased 30.7%, primarily as a result of an expanding
customer base.
Consolidated operating profit was $1.3 million in the third
quarter of fiscal year 1995 as compared to a consolidated
operating loss of -$.3 million in the third quarter of fiscal
year 1994. Insituform East's increase in gross profit as a
percentage of sales from a negative gross profit of -.6% to a
gross profit of 32.8%, and the positive impact of a smaller
percentage increase (28.4%) in selling, general and
administrative expenses than sales, resulted in an increase in
operating profit in comparable three-month periods for that
subsidiary from an operating loss of -$.9 million to an operating
profit of $.7 million. Such increase reflects the absorption of
semi-fixed costs and expenses over increased sales for the third
quarter of fiscal year 1995. Capitol Copy's operating profit
increased $.4 million in comparable three-month periods,
primarily as a result of an increase in gross profit on equipment
sales from 29.0% to 37.5% due to special equipment discounts from
the manufacturer recorded in the third quarter of fiscal year
1995, and the positive impact of a smaller percentage increase
(13.6%) in general and administrative costs than sales. General
corporate expenses increased primarily due to an increase in
unallocated corporate legal expenses resulting from the
litigation discussed above coming to trial.
Insituform East's equity in the operating results of MIDSOUTH
Partners increased from pretax earnings of $26,574 for the third
quarter of fiscal year 1994 to pretax earnings of $141,223 for
the third quarter of fiscal year 1995, primarily due to a 61.1%
increase in comparable period revenues, from $1.3 million to $2.1
million.
Nine Months ended 3/31/95 Compared with Nine Months Ended 3/31/94
- - -----------------------------------------------------------------
Consolidated sales increased $8.1 million (38.6%) in the
first nine months of fiscal year 1995 as compared to the first
nine months of fiscal year 1994. Insituform East's sales
increased $5.7 million (57.4%), primarily as a result of improved
comparable third quarter results. Capitol Copy's sales increased
$2.4 million (21.7%), with equipment sales and service and supply
revenues increasing 16.9% and 26.6%, respectively, primarily as a
result of an expanding customer base and a richer mix of high
volume, high revenue producing units.
Consolidated operating profit increased $2.9 million (283.7%)
in the first nine months of fiscal year 1995 as compared to the
first nine months of fiscal year 1994. Insituform East's
increase in gross profit from 17.9% to 29.8%, and the positive
impact of a smaller percentage increase (13.3%) in selling,
general and administrative expenses than sales, resulted in an
increase in operating profit in comparable nine-month periods for
that subsidiary from an operating loss of -$.9 million to an
operating profit of $1.7 million. As discussed for the
comparable quarters above, this increase reflects the absorption
of semi-fixed costs and expenses over increased sales for the
first nine months of fiscal year 1995. Capitol Copy's operating
profit increased $.9 million in comparable nine-month periods,
primarily due to the positive impact of a smaller percentage
increase (13.2%) in general and administrative costs than sales.
General corporate expenses increased primarily due to an increase
in corporate legal expenses.
Insituform East's equity in the operating results of MIDSOUTH
Partners increased from pretax earnings of $177,340 for the first
nine months of fiscal year 1994 to pretax earnings of $554,600
for the first nine months of fiscal year 1995, primarily as a
result of a 34.5% increase in comparable period sales, from $4.8
million to $6.5 million.
The gain on disposal of discontinued operations decreased
from $.6 million in the first nine months of fiscal year 1994 to
$.1 million in the first nine months of fiscal year 1995,
primarily due to the receipt of a substantial one-time payment in
1994 in connection with the discontinued operations of
CERBERONICS, resulting from the settlement of a lawsuit with the
U.S. Navy (see Part I, Item 1, "Notes to Condensed Consolidated
Financial Statements (unaudited) - Note 5: Discontinued
Operations").
Liquidity and Capital Resources
- - -------------------------------
The Company's operating activities provided $2.4 million in
cash during the first nine months of fiscal year 1995 as compared
to $1.8 million in the first nine months of fiscal year 1994.
The increase in cash provided by operating activities is
primarily due to the change from a net loss to net earnings by
Insituform East in the first nine months of fiscal year 1995, a
significant portion of which is reflected as amounts provided by
non-owned interests in 1995.
Net cash provided by investing activities was approximately
$.3 million in the first nine months of fiscal year 1995. The
primary source of such funds was proceeds from the sale of
temporary investments, offset by equipment purchases by
Insituform East. Net cash used in investing activities was
approximately $.3 million in the first nine months of fiscal year
1994. The primary use of such funds was for equipment purchases
by Insituform East.
Net cash used in financing activities was approximately $.7
million and $.4 million in the first nine months of fiscal years
1995 and 1994, respectively. The primary use of such funds were
paydowns on Capitol Copy's line of credit and payments of
dividends by Insituform East.
CERBCO believes that its two principal operating
subsidiaries, Insituform East and Capitol Copy, have cash
reserves, existing open bank lines of credit or borrowing
potential against unencumbered assets sufficient to meet the
respective cash flow requirements for operating funds and capital
expenditures of each operating company. Insituform East has
available as undrawn the amount of $3.0 million on its individual
line of credit. Capitol Copy did not deem it necessary to renew
its line of credit which expired January 31, 1995. The parent
holding company, CERBCO, also does not have a separate bank line
of credit, but has cash reserves in excess of $2.5 million which
are believed to be adequate to meet its own cash flow
requirements, or the requirements of its subsidiaries, in the
foreseeable future.
PART II - OTHER INFORMATION
- - ---------------------------
Item 1. Legal Proceedings
- - --------------------------
The only material pending legal proceedings to which the
Company is a party or any such legal proceedings contemplated of
which the Company is aware are (a) a previously disclosed lawsuit
pending in the Court of Chancery of the State of Delaware, and
(b) a previously disclosed lawsuit pending in the Superior Court
of the District of Columbia (see Part I, Item 1, "Notes to
Condensed Consolidated Financial Statements (unaudited) - Note 9.
Contingencies").
Item 2. Changes in Securities
- - ------------------------------
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:
28 - CERBCO, Inc. Consolidating Schedules: Statement of
Earnings Information for the three months ended March 31, 1995;
Statement of Earnings Information for the nine months ended March
31, 1995; Balance Sheet Information and Consolidating Elimination
Entries as of March 31, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the nine months
ended March 31, 1995.
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, 1995
CERBCO, Inc.
- - -------------------------------------
(Registrant)
/s/ ROBERT W. ERIKSON
- - -------------------------------------
Robert W. Erikson
President
(Principal Financial Officer)
/s/ ROBERT F. HARTMAN
- - -------------------------------------
Robert F. Hartman
Vice President & Controller
(Principal Accounting Officer)
Exhibits to CERBCO, Inc. Form 10-Q
- - ----------------------------------
Exhibit 28. CERBCO, Inc. Consolidating Schedules: Statement of
Earnings Information for the Three Months Ended March 31, 1995;
Statement of Earnings Information for the Nine Months Ended March
31, 1995; Balance Sheet Information and Consolidating Eliminating
Entries as of March 31, 1995.
<PAGE>
<TABLE>
CERBCO, Inc. CONSOLIDATING SCHEDULE - STATEMENT OF EARNINGS
INFORMATION
- - -----------------------------------------------------------------
- - ------
THREE MONTHS ENDED MARCH 31, 1995 (unaudited)
- - ---------------------------------------------
<CAPTION>
Insituform Capitol Copy
CERBCO, Inc. CERBCO, Inc. East,
Products,
Consolidated Eliminations Unconsolidated
Incorporated Inc.
<C> <C> <C> <C>
<C>
<S>
Sales $9,615,266 $0 $0
$5,316,915 $4,298,351
---------- ---------- ----------
- - ---------- ----------
Costs and
Expenses:
Cost of sales 5,954,240 0 0
3,570,488 2,383,752
Selling,
general and
admini-
strative
expenses 2,336,798 0 398,870
1,082,257 855,671
---------- ---------- ----------
- - ---------- ----------
Total Costs
and
Expenses 8,291,038 0 398,870
4,652,745 3,239,423
---------- ---------- ----------
- - ---------- ----------
Operating Profit
(Loss) 1,324,228 0 (398,870)
664,170 1,058,928
Investment Income 47,909 0 39,845
8,064 0
Equity in
Earnings of
Unconsolidated
Affiliate 141,223 0 0
141,223 0
Interest Expense (4,976) (A) 7,361 0
0 (12,337)
Other Income
(Expense) - net 46,444 (A) (7,361) (14,606)
80,670 (12,259)
---------- ---------- ----------
- - ---------- ----------
Earnings before
Income Taxes
and Non-owned
Interests 1,554,828 0 (373,631)
894,127 1,034,332
Provision for
Income Taxes 789,000 0 0
365,000 424,000
---------- ---------- ----------
- - ---------- ----------
Earnings (Loss)
Before
Non-owned
Interests 765,828 0 (373,631)
529,127 610,332
Non-owned
Interests in
Earnings of
Consolidated
Subsidiaries 564,486 (B) 560,626 0
3,860 0
---------- ---------- ----------
- - ---------- ----------
Earnings (Loss)
from
Continuing
Operations 201,342 (560,626) (373,631)
525,267 610,332
Discontinued
Operations:
Estimated gain
on disposal
- net 3,648 0 3,648
0 0
---------- ---------- ----------
- - ---------- ----------
NET EARNINGS
(LOSS) $204,990 (C)$(560,626) $(369,983)
$525,267 $610,332
---------- ---------- ----------
- - ---------- ----------
---------- ---------- ----------
- - ---------- ----------
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc. CONSOLIDATING SCHEDULE - STATEMENT OF EARNINGS
INFORMATION
- - -----------------------------------------------------------------
- - ------
NINE MONTHS ENDED MARCH 31, 1995 (unaudited)
- - --------------------------------------------
<CAPTION>
Insituform Capitol Copy
CERBCO, Inc. CERBCO, Inc. East,
Products,
Consolidated Eliminations Unconsolidated
Incorporated Inc.
<C> <C> <C> <C>
<C>
<S>
Sales $28,898,931 $0 $0
$15,535,981 $13,362,950
----------- ---------- ----------
- - ----------- -----------
Costs and
Expenses:
Cost of sales 18,703,797 0 0
10,908,143 7,795,654
Selling,
general and
admini-
strative
expenses 6,251,206 0 853,933
2,971,649 2,425,624
----------- ---------- ----------
- - ----------- -----------
Total Costs
and
Expenses 24,955,003 0 853,933
13,879,792 10,221,278
----------- ---------- ----------
- - ----------- -----------
Operating Profit
(Loss) 3,943,928 0 (853,933)
1,656,189 3,141,672
Investment Income 143,541 0 119,795
23,746 0
Equity in
Earnings of
Unconsolidated
Affiliate 554,600 0 0
554,600 0
Interest Expense (25,901) (D) 7,361 (1)
0 (33,261)
Other Income
(Expense) - net 81,764 (D) (7,361) (58,540)
185,849 (38,184)
----------- ---------- ----------
- - ----------- -----------
Earnings before
Income Taxes
and Non-owned
Interests 4,697,932 0 (792,679)
2,420,384 3,070,227
Provision for
Income Taxes 2,236,000 0 0
971,000 1,265,000
----------- ---------- ----------
- - ----------- -----------
Earnings (Loss)
Before
Non-owned
Interests 2,461,932 0 (792,679)
1,449,384 1,805,227
Non-owned
Interests in
Earnings of
Consolidated (E)
Subsidiaries 1,589,710 1,582,252 0
7,458 0
----------- ---------- ----------
- - ----------- -----------
Earnings (Loss)
from
Continuing
Operations 872,222 (1,582,252) (792,679)
1,441,926 1,805,227
Discontinued
Operations:
Estimated gain
on disposal
- net 151,349 0 151,349
0 0
----------- ---------- ----------
- - ----------- -----------
NET EARNINGS (G)
(LOSS) $1,023,571 $(1,582,252) $(641,330)
$1,441,926 $1,805,227
----------- ----------- ----------
- - ----------- -----------
----------- ----------- ----------
- - ----------- -----------
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc. CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
- - ---------------------------------------------------------------
MARCH 31, 1995 (unaudited)
- - --------------------------
<CAPTION>
Insituform Capitol Copy
CERBCO, Inc. CERBCO, Inc. East,
Products,
Consolidated Eliminations Unconsolidated
Incorporated Inc.
<C> <C> <C> <C>
<C>
<S>
ASSETS
- - ------
Current Assets:
Cash and cash
equivalents $4,191,431 $0 $1,659,195
$1,726,157 $806,079
Temporary
investments 979,514 0 979,514
0 0
Accounts
receivable 6,305,954 0 576
4,498,944 1,806,434
Inventories 2,835,754 0 0
986,034 1,849,720
Prepaid and
refundable
taxes 101,720 0 48,292
53,428 0
Deferred
income taxes 63,000 0 0
0 63,000
Prepaid expenses
and other 395,000 0 0
299,312 95,688
---------- ---------- ----------
- - ---------- ----------
TOTAL
CURRENT
ASSETS 14,872,373 0 2,687,577
7,563,875 4,620,921
Investment in
and Advances
to Subsidiaries:
Investment in (F)
subsidiaries 0 (9,426,619) 9,426,619
0 0
Intercompany
receivables
and payables 0 0 507,361
12,539 (519,900)
Property, Plant
and Equipment -
net of
accumulated
depreciation 9,387,737 0 103,430
8,987,210 297,097
Other Assets:
Excess of
acquisition
cost over
value of
net assets
acquired (F)
- net 4,927,795 2,606,211 0
0 2,321,584
Investment in
unconsoli-
dated
affiliate 1,297,528 0 0
1,297,528 0
Deferred
income taxes 30,000 0 0
0 30,000
Deposits and
other 401,991 0 300,738
75,000 26,253
----------- ----------- -----------
- - ----------- ----------
TOTAL
ASSETS $30,917,424 $(6,820,408) $13,025,725
$17,936,152 $6,775,955
----------- ----------- -----------
- - ----------- ----------
----------- ----------- -----------
- - ----------- ----------
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc. CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
- - ---------------------------------------------------------------
MARCH 31, 1995 (unaudited)
- - --------------------------
<CAPTION>
Insituform Capitol Copy
CERBCO, Inc. CERBCO, Inc. East,
Products,
Consolidated Eliminations Unconsolidated
Incorporated Inc.
<C> <C> <C> <C>
<C>
<S>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities:
Accounts payable
and accrued
liabilities $2,805,871 $0 $127,723
$2,193,215 $484,933
Deferred
revenue 512,159 0 0
0 512,159
Current portion
of long-term
debt 18,479 0 0
0 18,479
Current portion
of capital
lease
obligations 36,549 0 0
0 36,549
---------- ---------- ----------
- - ---------- ----------
TOTAL
CURRENT
LIABILITIES 3,373,058 0 127,723
2,193,215 1,052,120
Long-term Liabilities
Long-term debt 10,195 0 0
0 10,195
Capital lease
obligations 44,040 0 0
0 44,040
Deferred
income taxes 1,038,000 0 0
1,038,000 0
Other long-
term
liabilities 81,578 0 81,578
0 0
---------- ---------- ----------
- - ---------- ----------
TOTAL
LIABILITIES 4,546,871 0 209,301
3,231,215 1,106,355
---------- ---------- ----------
- - ---------- ----------
Non-owned (E)(F)
Interests 11,889,228 11,889,228 0
0 0
---------- ---------- ----------
- - ---------- ----------
Stockholders'
Equity: (F)
Common stock 115,099 (175,486) 115,099
175,486 0
Class B Common (F)
stock 31,096 (12,024) 31,096
11,904 120
Additional
paid-in (F)
capital 7,412,937 (4,750,304) 7,412,937
4,000,424 749,880
Retained (E)(F)
earnings 6,922,193 (14,961,435) 5,257,292
11,706,736 4,919,600
(F)
Treasury stock 0 1,189,613 0
(1,189,613) 0
---------- ---------- ----------
- - ---------- ----------
TOTAL
STOCKHOLDERS'
EQUITY 14,481,325 (18,709,636) 12,816,424
14,704,937 5,669,600
---------- ---------- ----------
- - ---------- ----------
TOTAL
LIABILITIES
AND
STOCKHOLDERS'
EQUITY $30,917,424 $(6,820,408) $13,025,725
$17,936,152 $6,775,955
----------- ----------- -----------
- - ----------- ----------
----------- ----------- -----------
- - ----------- ----------
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc. CONSOLIDATING ELIMINATION ENTRIES
- - ----------------------------------------------
MARCH 31, 1995 (unaudited)
- - --------------------------
<CAPTION>
<C>
<C>
<S>
(A)
Other income
$7,361
Interest expense
$7,361
To eliminate interest expense paid by Capitol Copy to
CERBCO for the three months ended March 31, 1995.
(B)
Non-owned interests in earnings of subsidiaries
$560,626
Non-owned interests
$560,626
To record non-owned interests in earnings of subsidiaries
for the three months ended March 31, 1995.
(C)
Retained earnings
$560,626
Current quarter earnings adjustments
$560,626
To close out impact of eliminating entries on current
quarter s statement of earnings.
(D)
Other income
$7,361
Interest expense
$7,361
To eliminate interest expense paid by Capitol Copy to
CERBCO for the nine months ended March 31, 1995.
(E)
Non-owned interests in earnings of subsidiaries
$1,582,252
Non-owned interests
$1,582,252
To record non-owned interests in earnings of subsidiaries
for the nine months ended March 31, 1995.
(F)
Common stock
$175,486
Class B Common stock
12,024
Additional paid-in capital
4,750,304
Retained earnings
13,379,183
Excess of acquisition cost over value of net assets
acquired
2,606,211
Treasury stock
$1,189,613
Non-owned interests
10,306,976
Investment in subsidiaries
9,426,619
To eliminate investments in consolidated subsidiaries.
(G)
Retained earnings
$1,582,252
Current quarter earnings adjustments
$1,582,252
To close out impact of eliminating entries on nine months
statement of earnings.
</TABLE>
