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: September 30, 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) (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 October 30, 1995, the following number of shares of each of
the issuer's classes of common stock were outstanding:
Common Stock 1,151,001
Class B Common Stock 310,955
Total 1,461,956
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<CAPTION> For the three months ended
Sept. 30
1995 1994
Sales
<S> <C> <C>
Sales of products $ 8,535,794 $6,760,163
Sales of services and supplies 2,482,213 2,098,495
----------- ----------
TOTAL SALES 11,018,007 8,858,658
----------- ----------
Costs and Expenses:
Cost of products sold 5,897,992 4,829,357
Cost of services and supplies 1,240,666 1,000,142
Selling, general and administrative
expenses 2,107,357 1,815,831
----------- ----------
Total Costs and Expenses 9,246,015 7,645,330
----------- ----------
Operating Profit 1,771,992 1,213,328
Investment Income 70,593 43,731
Equity in Earnings of Unconsolidated
Affiliate 185,951 173,645
Interest Expense (4,425) (12,155)
Other Income - net 74,682 15,880
Earnings Before Incomes Taxes and ----------- ----------
Non-Owned Interests 2,098,793 1,434,429
Provision for Income Taxes 835,000 649,000
----------- ----------
Earnings Before Non-Owned Interests 1,263,793 785,429
Non-Owned Interests in Earnings of
Consolidated Subsidiaries 672,976 444,768
----------- ----------
NET EARNINGS $ 590,817 $ 340,661
=========== ==========
Net Earnings per Share of Common Stock $0.40 $0.23
===== =====
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION> As of
Sept. 30, 1995 June 30, 1995
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 4,763,354 $ 5,197,549
Temporary investments 981,917 1,760,950
Accounts receivable 8,473,655 6,386,343
Inventories 3,021,714 2,832,003
Prepaid and refundable taxes 63,782 53,568
Deferred income taxes 82,000 82,000
Prepaid expenses and other 526,875 325,013
----------- -----------
Total Current Assets 17,913,297 16,637,426
----------- -----------
Property, Plant and Equipment -
at cost
Less accumulated depreciation of
$9,339,301 at September 30, 1995
and $9,094,562 at June 30, 1995 9,498,844 9,556,139
----------- -----------
Other Assets:
Excess of acquisition cost over
value of net assets acquired -
net of accumulated amortization of
$1,495,747 at September 30, 1995
and $1,455,921 at June 30, 1995 4,848,142 4,887,968
Investment in unconsolidated
affiliate 1,667,677 1,481,726
Deferred income taxes 27,000 27,000
Deposits and other 400,522 389,821
----------- -----------
Total Other Assets 6,943,341 6,786,515
----------- -----------
Total Assets $34,355,482 $32,980,080
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION> As of
Sept. 30, 1995 June 30, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Accounts payable and accrued
liabilities $4,160,665 $3,952,543
Deferred revenue 451,840 479,858
Current portion of long-term debt 19,879 19,015
Current portion of capital lease
obligations 29,454 34,156
----------- -----------
Total Current Liabilities 4,661,838 4,485,572
----------- -----------
Long-Term Liabilities:
Long-term debt (less current
portion shown above) 0 5,104
Capital lease obligations (less
current portion shown above) 33,483 37,129
Deferred income taxes 911,000 985,000
Other long-term liabilities 117,765 99,672
----------- -----------
Total Long-term Liabilities 1,062,248 1,126,905
----------- -----------
Total Liabilities 5,724,086 5,612,477
----------- -----------
Commitments and Contingencies
Non-Owned Interests in Consolidated
Subsidiaries 13,040,320 12,367,344
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value
Authorized: 3,500,000 shares
Issued and outstanding:
1,150,989 shares 115,099 115,099
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 7,413,054 7,413,054
Retained earnings 8,031,827 7,441,010
----------- -----------
Total Stockholders' Equity 15,591,076 15,000,259
Total Liabilities and ----------- -----------
Stockholders' Equity $34,355,482 $32,980,080
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION> For the three months
ended Sept. 30
1995 1994<PAGE>
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings $ 590,817 $ 340,661
Adjustments to reconcile net
earnings to net cash provided by
(used in) operations:
Depreciation and amortization 373,212 327,573
Equity in earnings of
unconsolidated affiliate (185,951) (173,645)
Amounts attributable to non-owned
interests 672,976 444,768
Deferred income taxes (74,000) (10,000)
(Increase) decrease in other assets (14,701) 3,908
Increase in long-term liabilities 18,093 15,870
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (2,087,312) 408,584
(Increase) decrease in
inventories (189,711) (553,095)
(Increase) decrease in prepaid
expenses and other current assets (212,076) (215,609)
Increase (decrease) in accounts
payable and accrued expenses (27,719) 43,231
Increase (decrease) in income
taxes payable 413,484 578,900
Increase (decrease) in deferred
revenue (28,018) (12,257)
Net Cash Provided by (Used in) ---------- ----------
Operating Activities (750,906) 1,198,889
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (272,091) (181,312)
Redemption (purchase) of temporary
investments - net 779,033 (684,761)
Net Cash Provided by (Used in) ---------- ----------
Investing Activities 506,942 (866,073)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from revolving lines of
credit and long-term borrowings 0 1,010,000
Principal payments on revolving
lines of credit, capital lease
obligations and long-term borrowings (12,588) (1,512,683)
Dividends paid (177,643) (148,036)
---------- ----------
Net Cash Used in Financing Activities (190,231) (650,719)
---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents (434,195) (317,903)
Cash and Cash Equivalents at
Beginning of Period 5,197,549 2,215,624
Cash and Cash Equivalents at ---------- ----------
End of Period $4,763,354 $1,897,721
========== ==========
Supplemental disclosure of cash
flow information:
Interest paid $ 4,425 $ 11,355
========== ==========
Income taxes paid $ 514,377 $ 427,674
========== ==========
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 September 30, 1995, the condensed consolidated Statements of
Earnings for the three months ended September 30, 1995 and 1994,
and the condensed consolidated Statements of Cash Flows for the
three months ended September 30, 1995 and 1994 have been prepared
by the Company without audit. The condensed consolidated Balance
Sheet as of June 30, 1995 (unaudited) has been derived from the
Company s June 30, 1995 audited financial statements. In the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at September 30,
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, 1995. Operating results for interim periods
are not necessarily indicative of operating results for an entire
fiscal year.
2. Earnings Per Share
Earnings 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:
For the three months ended Sept. 30
1995 1994
1,461,956 1,457,456
========= =========
3. Accounts Receivable
<TABLE>
Accounts receivable consist of:
<CAPTION>
Sept. 30, 1995 June 30, 1995
<S> <C> <C>
Due from municipal and commercial
customers $8,141,341 $6,195,486
Miscellaneous 387,314 245,857
---------- ----------
8,528,655 6,441,343
Less: Allowance for doubtful accounts (55,000) (55,000)
---------- ----------
$8,473,655 $6,386,343
========== ==========
</TABLE>
4. Inventories
<TABLE>
Inventories consist of:
<CAPTION> Sept. 30, 1995 June 30, 1995
<S> <C> <C>
Pipeline rehabilitation materials $1,075,039 $1,111,202
Copier and facsimile equipment 1,439,262 1,274,977
Copier and facsimile supplies 231,158 172,908
Copier and facsimile parts 276,255 272,916
---------- ----------
$3,021,714 $2,832,003
========== ==========
</TABLE>
5. Equity in Insituform East
At September 30, 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 options.
Changes in capital structure resulting from such additional stock
issues decrease CERBCO s equity ownership. No additional shares
were issued during the three months ended September 30, 1995. If
all the options outstanding at September 30, 1995 were exercised,
the resulting percentages of CERBCO s equity ownership and total
voting power would be 29.7% and 55.0%, respectively.
From time to time, Insituform East purchases shares of its
common stock for treasury. Changes in capital structure resulting
from such stock purchases increase CERBCO s equity ownership.
Insituform East did not purchase any shares during the three months
ended September 30, 1995.
6. Equity in Capitol Copy
At September 30, 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.
7. Accounts Payable and Accrued Liabilities
<TABLE>
Accounts payable and accrued liabilities consist of:
<CAPTION> Sept. 30, 1995 June 30, 1995
<S> <C> <C>
Accounts payable $1,619,479 $1,366,338
Accrued compensation and
related expenses 1,604,736 1,885,596
Dividends payable 0 177,643
Income taxes payable 936,450 522,966
---------- ----------
$4,160,665 $3,952,543
========== ==========
</TABLE>
8. 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 sought (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 deemed appropriate. In addition, the Complaint
asserted a claim against the individual defendants alleging that
the Company had forgone a corporate opportunity by the continued
failure to pursue a transaction with ITI.
All but one of the plaintiffs' claims subsequently were
dismissed. The claim remaining in the litigation was 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 February 21, 1995.
Following post-trial briefing and argument, Chancellor Allen
issued an opinion on August 9, 1995, in which he ruled in favor of
the Eriksons. The court determined that, while the Eriksons failed
in certain limited respects to meet the standards of loyalty
required of them under Delaware corporate law, that "deviation from
proper corporate practice" neither caused injury to CERBCO nor
resulted in any substantial gain to the Eriksons. The Court also
found that the Eriksons met their burden of showing that their
conduct was "wholly fair to the corporation." With the decision,
all of the plaintiffs' claims have been resolved in favor of CERBCO
and/or the Eriksons.
On August 25, 1995, the Court of Chancery issued its
Memorandum and Order on Final Judgment and a corresponding Final
Order and Judgment, which latter document formally entered judgment
in favor of the Eriksons and denied in toto the plaintiffs' request
for legal fees and expenses totaling $1,513,499. The Court
concluded that the litigation conferred no substantial benefit on
CERBCO, so that it would be inappropriate to require CERBCO and its
stockholders to share the costs that plaintiffs incurred.
Plaintiffs filed a Notice of Appeal with the Delaware Supreme
Court on August 30, 1995 and filed their opening appellant brief
with such court on October 13, 1995. Defendants' brief was filed
on November 13, 1995. Plaintiffs' reply is due on November 28,
1995.
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 interests 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.
Motions to dismiss this case by the Company and Rogers & Wells
were denied, but a stay in the proceedings was granted until after
the Delaware trial. After the Court of Chancery's August 9, 1995
opinion was rendered, the parties to the Superior Court action
filed status reports. On November 13, 1995, plaintiffs agreed to a
stay in the Superior Court action pending the outcome of the appeal
to the Delaware Supreme Court. The Superior Court will set a date
for status reports some time in the future.
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.
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 prior written
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,
seek dissolution of the partnership, replace Management Committee
appointees of the defaulting partner, or exercise any combination
of these rights and other remedies. Insituform East has filed with
the American Arbitration Association a demand for arbitration
alleging a breach of the Partnership Agreement by E-Midsouth, Inc.
and intends to seek one or more of the foregoing remedies,
including replacement of a Management Committee appointee of 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), 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. Concurrently, representatives of
ITI and IMA were engaged in discussions and negotiations regarding
a potential merger of these two companies.
On May 24, 1995, ITI and IMA jointly announced that they had
entered into a definitive agreement providing for the combination
of ITI and IMA which, when completed on October 25, 1995, resulted
in IMA becoming a wholly-owned subsidiary of ITI. The ITI
acquisition of IMA, which resulted in a second change in the
control of Enviroq and E-Midsouth, Inc., was made without the prior
written consent of one of the Partnership's partners, the special
purpose subsidiary of Insituform East.
Insituform East intends to seek to amend its demand for
arbitration alleging, among other things, a breach of the
Partnership Agreement by ITI's special purpose subsidiary,
Insituform California, Inc. ("ICI") in connection with ICI's
wrongfully seeking to deny Insituform East's special purpose
subsidiary the rights and remedies to which it is entitled as a
non-defaulting partner under the 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.
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.
9. 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>
(in thousands) For the three months
ended Sept. 30
1995 1994
<S> <C> <C>
Sales to Unaffiliated Customers:
Pipeline rehabilitation $ 6,209 $4,895
Copier equipment products and services 4,809 3,964
------- ------
Total Sales $11,018 $8,859
======= ======
Earnings (Loss) before Income Taxes:
Pipeline rehabilitation $ 801 $ 384
Copier equipment products and services 1,082 1,007
General corporate expenses (111) (178)
------- ------
Operating Profit 1,772 1,213
Equity in earnings (loss) of
unconsolidated affiliate 186 174
Other income 185 99
Other expenses (44) (52)
------- ------
Earnings before income taxes $ 2,099 $1,434
======= ======
Net Earnings (Loss) Contribution by Segment:
Pipeline rehabilitation $ 212 $ 119
Copier equipment products and services 446 383
Corporate (67) (161)
------- ------
Net earnings $ 591 $ 341
======= ======
</TABLE>
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations
Overview and Outlook
The Company realized consolidated net earnings of $590,817
($.40 per share) for the first quarter of fiscal year 1996, as
compared to consolidated net earnings of $340,661 ($.23 per share)
for the first quarter of fiscal year 1995. The upsurge in
comparable period results is attributable to both increases in the
earnings contributions from the Company s two operating
subsidiaries, each of which is in a separate industry segment, and
a decrease in parent holding company expenses.
Insituform East, the Company s pipeline rehabilitation
segment, experienced improved results from the combined impact of
expanded production capabilities, increased sales at normal
margins, installation performance in line with cost estimates and
continuing favorable operating results from MIDSOUTH Partners.
While there can be no assurances regarding future operating
performance, based on the volume and mix of Insituform East s
present and expected backlog of customer orders, the favorable
results experienced during the last six quarters are presently
anticipated to continue through fiscal year 1996. Insituform East
is expanding its production capabilities further during fiscal year
1996 to increase its Insituform installation capacity and to extend
its ability to provide complimentary products and services to its
trenchless rehabilitation customers.
Capitol Copy, the Company s copier and facsimile equipment
products and services segment, continued to experience increased
sales and earnings in the first quarter of fiscal year 1996,
primarily as a result of continued increases in both its copier
equipment sales, and service and supply activities. While again
there can be no assurances, sales revenues and earnings results are
anticipated to remain favorable, and the Company believes that the
future prospects of this majority-owned subsidiary remain
excellent. In July 1995, Capitol Copy expanded its territory to
include the contiguous Baltimore metropolitan area. The Company
anticipates it will take approximately four years to adequately
develop the additional territory. During territory development,
the Company presently anticipates lower margins and increased
development expenses approximately offset by increased total sales.
Accordingly, Capitol's net earnings for the current year are
estimated to remain even compared to fiscal year 1995.
CERBCO s current earnings remain impacted by legal fees and
expenses related to the demands made of, and derivative 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.
In August 1995, a Final Order and Judgment was rendered by the
Court in the Delaware derivative litigation in favor of the
defendants which has been appealed to the Delaware Supreme Court by
plaintiffs. In the first quarter of fiscal year 1996, CERBCO
experienced unallocated general corporate expenses in the amount of
$110,900, of which approximately $36,700 were legal fees and
expenses in connection with the derivative litigation. From
inception in 1990 through September 30, 1995, such legal fees and
expenses totaled approximately $2.0 million. In addition, in
August 1995, plaintiffs in the Delaware derivative litigation
asserted a claim directly against the Company for $1,513,499 for
their legal fees and expenses in the unsuccessful Delaware suit,
subsequently denied in the Court's Final Order and Judgment, but
reasserted in plaintiffs' appeal. The Company cannot, of course,
predict the outcome of pending litigation, including appeals. Any
outcome from the appeal resulting in an award to plaintiffs of
their legal fees and expenses could have a material adverse effect
on the earnings of the Company. For additional information on the
status of this litigation, see Part I, Item 1, "Notes to Condensed
Consolidated Financial Statements (unaudited) - Note 8.
Contingencies."
As discussed further in Part I, Item 1, "Notes to Condensed
Consolidated Financial Statements (unaudited) - Note 8.
Contingencies," the Company filed a demand for arbitration in
connection with the acquisition of control of a 42.5% interest in
MIDSOUTH Partners by Insituform Mid-America, Inc. on April 18,
1995. The Company intends to seek to amend this demand in
connection with the subsequent acquisition of control of this 42.5%
interest in MIDSOUTH Partners by Insituform Technologies, Inc.
("ITI") on October 25, 1995 and related actions taken by Insituform
California, Inc., ITI's special purpose subsidiary. Although the
Company cannot, at this time, predict the eventual outcome of these
matters and their impact on the Company's interest in the
Partnership, 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.
Results of Operations
First Quarter ended 9/30/95 Compared with First Quarter Ended
9/30/94
Consolidated sales increased $2.2 million (24.4%) in the first
quarter of fiscal year 1996 as compared to the first quarter of
fiscal year 1995. Insituform East s pipeline rehabilitation sales
increased $1.3 million (26.8%) to $6.2 million, primarily due to
expanded production capabilities and a strong workable backlog of
customer orders throughout the first quarter of fiscal year 1996.
Sales of copier equipment products and services by Capitol Copy
increased $0.8 million (21.3%) to $4.8 million, as equipment sales
and service and supply revenues increased 24.8% and 18.3%,
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 $0.6 million (46.0%)
in the first quarter of fiscal year 1996 as compared to the first
quarter of fiscal year 1995, primarily as a result of an increase
in the operating profit of Insituform East. Insituform East's
operating profit increased $0.4 million (108.6%). Insituform
East's cost of sales increased 17.5%, a smaller percentage increase
than the increase in its sales and, as a result, gross profit as a
percentage of sales increased from 25.5% to 31.0%. This increase
in gross profit as a percentage of sales is due primarily to the
mix of work performed. During the first quarter of fiscal year
1995, Insituform East provided additional collateral services to
customers at gross profit margins lower than margins realized for
Insituform process installations. Insituform East's selling,
general and administrative expenses increased 29.9%, a slightly
larger percentage increase than the increase in its sales,
primarily as a result of increased costs to support expanded
production activities. Capitol Copy's operating profit increased
$0.1 million (7.4%). Capitol Copy's cost of sales increased 30.8%,
a larger percentage increase than the increase in its sales and, as
a result, gross profit as a percentage of sales decreased from
44.9% to 40.7%. This decrease in gross profit as a percentage of
sales is due primarily to a decrease in the gross profit margin on
equipment sales. Capitol Copy's selling, general and
administrative expenses only increased 12.9%, a smaller increase
than the increase in its sales, to partially offset its decreased
gross profit margin. Included in Capitol Copy's results are the
results of its efforts for its first three months in its new
Baltimore territory. Sales revenues attributable to the new
Baltimore territory for the first quarter of fiscal year 1996 were
$148,704, and total costs and expenses for such territory exceeded
revenues by $18,379. The parent company's operating loss decreased
approximately $66,700 (37.6%), primarily as a result of a decrease
in unallocated corporate legal expenses.
Insituform East s equity in the operating results of MIDSOUTH
Partners increased 7.1% from pretax earnings of $173,645 for the
first quarter of fiscal year 1995 to pretax earnings of $185,951
for the first quarter of fiscal year 1996, primarily as a result of
increased comparable period sales, offset to some extent by reduced
gross profit margins. The Partnership's sales increased 36.7% from
$1,805,292 during the three months ended September 30, 1994 to
$2,468,639 for the three months ended September 30, 1995 primarily
as a result of increased sales to Federal government customers and
an increase in collateral services performed in addition to
Insituform process installations, principally manhole
rehabilitation and lateral reconstruction services. The
Partnership's gross profit as a percentage of sales decreased from
34.9% of sales for the first quarter of fiscal year 1995 to 28.4%
of sales for the first quarter of fiscal year 1996 primarily as a
result of the mix of work performed, to include increased manhole
rehabilitation and lateral reconstruction services, collateral
services generally performed at gross profit margins lower than
margins realized for Insituform process installations.
Liquidity and Capital Resources
The Company s operating activities used $0.8 million in cash
during the first three months of fiscal year 1996 as compared to
providing $1.2 million in the first three months of fiscal year
1995. The decrease in cash is primarily due to an increase in
Insituform East's accounts receivable resulting from a temporary
delay in billings and collections for several larger projects
performed during the first quarter of fiscal year 1996.
Net cash in the amount of $0.5 million was provided by
investing activities in the first three months of fiscal year 1996
due to the redemption by the parent holding company of temporary
investments, offset by capital expenditures by Insituform East.
Net cash in the amount of $0.9 million was used in investing
activities in the first three months of fiscal year 1995 primarily
due to the purchase by the parent holding company of temporary
investments and capital expenditures by Insituform East.
Net cash used in financing activities was approximately $0.2
million and $0.7 million in the first three months of fiscal years
1996 and 1995, respectively. The primary use of such funds in the
first three months of fiscal year 1996 was the payment of dividends
by Insituform East. The primary use of such funds in the first
three months of fiscal year 1995 was paydowns on Capitol Copy s
line of credit and the payment of dividends by Insituform East.
CERBCO believes that its two principal operating subsidiaries,
Insituform East and Capitol Copy, have existing open bank lines of
credit or borrowing potential against unencumbered assets
sufficient to meet the respective cash flow requirements of each
operating company. Insituform East has available as undrawn the
amount of $3.0 million on its individual line of credit. Capitol
Copy and the parent holding company, CERBCO, do not have separate
bank lines of credit, but have cash reserves in excess of $1.6
million and $2.1 million, respectively, which are believed to be
adequate to meet their respective cash flow requirements in the
foreseeable future, including continuing legal fees and expenses of
the parent in connection with the stockholder litigation now on
appeal to the Delaware Supreme Court. The Company cannot, of
course, predict the outcome of pending litigation, including
appeals. Any outcome that resulted in an award to plaintiffs of
their legal fees and expenses, however, could have a material
adverse effect on the future liquidity of the Company.
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
in which judgment was rendered in favor of the Company but
subsequently appealed to the Delaware Supreme Court by plaintiffs
(the Delaware Complaint ), and (b) a previously disclosed lawsuit
pending in the Superior Court of the District of Columbia (the
D.C. Complaint ) [see Part I, Item 1, Notes to Condensed
Consolidated Financial Statements (unaudited) - Note 8.
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:
27 - Financial Data Schedule
99 - CERBCO, Inc. Consolidating Schedules: Statement of
Earnings Information for the three months ended September 30, 1995;
Balance Sheet Information; and Consolidating Elimination Entries as
of September 30, 1995.
(b) Reports on Form 8-K:
CERBCO filed one report on Form 8-K during the quarter ended
September 30, 1995. The report, which did not include any
financial statements, reported on the following item:
Item 5. Other Events
Press releases announcing rulings in Delaware Court of
Chancery in favor of the Company and its two controlling
stockholders, and denying plaintiffs' petition for fees and
expenses.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 14, 1995
CERBCO, Inc.
(Registrant)
Robert W. Erikson
President
(Principal Financial Officer)
Robert F. Hartman
Vice President & Controller
(Principal Accounting Officer)
<PAGE>
Exhibits to CERBCO, Inc. Form 10-Q
Exhibit 27. CERBCO, Inc. Financial Data Schedule
Exhibit 99. CERBCO, Inc. Consolidating Schedules:
Statement of Earnings Information for the Three Months
Ended September 30, 1995; Balance Sheet Information; and
Consolidating Elimination Entries as of September 30,
1995.
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 4,763
<SECURITIES> 982
<RECEIVABLES> 8,529
<ALLOWANCES> 55
<INVENTORY> 3,022
<CURRENT-ASSETS> 17,913
<PP&E> 18,838
<DEPRECIATION> 9,339
<TOTAL-ASSETS> 34,355
<CURRENT-LIABILITIES> 4,662
<BONDS> 0
<COMMON> 146
0
0
<OTHER-SE> 15,445
<TOTAL-LIABILITY-AND-EQUITY> 34,355
<SALES> 11,018
<TOTAL-REVENUES> 11,018
<CGS> 7,139
<TOTAL-COSTS> 9,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 2,099
<INCOME-TAX> 835
<INCOME-CONTINUING> 591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 591
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
<TABLE>
CERBCO, INC.
CONSOLIDATING SCHEDULE - STATEMENT OF EARNINGS INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 1995
(unaudited)
<CAPTION> Insituform
CERBCO, Inc. CERBCO, Inc. East, Capitol Copy
Consolidated Eliminations Unconsolidated Incorporated Products, Inc.
<S> <C> <C> <C> <C> <C>
Sales $11,018,007 $0 $0 $6,208,659 $4,809,348
Costs and Expenses:
Cost of sales 7,138,658 0 0 4,284,771 2,853,887
Selling, general and
administrative expenses 2,107,357 0 110,877 1,122,636 873,844
----------- ---------- ---------- ---------- ----------
Total Costs and Expenses 9,246,015 0 110,877 5,407,407 3,727,731
----------- ---------- ---------- ---------- ----------
Operating Profit (Loss) 1,771,992 0 (110,877) 801,252 1,081,617
Investment Income 70,593 0 45,152 25,441 0
Equity in Earnings of
Unconsolidated Affiliate 185,951 0 0 185,951 0
Interest Expense (4,425) 0 0 0 (4,425)
Other Income (Expense) - net 74,682 0 (1,656) 72,658 3,680
Earnings (Loss) Before ----------- ---------- ---------- ---------- ----------
Income Taxes and
Non-Owned Interests 2,098,793 0 (67,381) 1,085,302 1,080,872
Provision for Income Taxes 835,000 0 0 424,000 411,000
----------- ---------- ---------- ---------- ----------
Earnings (Loss) Before
Non-Owned Interests 1,263,793 0 (67,381) 661,302 669,872
Non-Owned Interests in
Earnings of Consolidated
Subsidiaries 672,976 (A) 672,976 0 0 0
----------- ---------- ---------- ---------- ----------
NET EARNINGS $590,817 (C) $(672,976) $(67,381) $661,302 $669,872
=========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
SEPTEMBER 30, 1995
(unaudited)
<CAPTION> Insituform
CERBCO, Inc. CERBCO, Inc. East, Capitol Copy
Consolidated Eliminations Unconsolidated Incorporated Products, Inc.
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $4,763,354 $0 $2,058,644 $1,107,453 $1,597,257
Temporary investments 981,917 0 981,917 0 0
Accounts receivable 8,473,655 0 1,584 6,550,488 1,921,583
Inventories 3,021,714 0 0 1,075,039 1,946,675
Prepaid and refundable
taxes 63,782 0 48,292 15,490 0
Deferred income taxes 82,000 0 0 0 82,000
Prepaid expenses and other 526,875 0 0 387,372 139,503
----------- ---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 17,913,297 0 3,090,437 9,135,842 5,687,018
Investment in and Advances
to Subsidiaries:
Investment in subsidiaries 0 (B) (11,570,377) 11,570,377 0 0
Intercompany receivables
and payables 0 0 11,827 9,345 (21,172)
Property, Plant and Equipment
- net of accumulated
depreciation 9,498,844 0 100,040 9,112,122 286,682
Other Assets:
Excess of acquisition
cost over value of net
assets acquired - net 4,848,142 (B) 2,562,277 0 0 2,285,865
Investment in
unconsolidated
affiliate 1,667,677 0 0 1,667,677 0
Deferred income taxes 27,000 0 0 0 27,000
Deposits and other 400,522 0 314,365 67,000 19,157
----------- ----------- ----------- ----------- ----------
TOTAL ASSETS $34,355,482 $(9,008,100) $15,087,046 $19,991,986 $8,284,550
=========== =========== =========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
SEPTEMBER 30, 1995
(unaudited)
<CAPTION> Insituform
CERBCO, Inc. CERBCO, Inc. East, Capitol Copy
Consolidated Eliminations Unconsolidated Incorporated Products, Inc.
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities $4,160,665 $0 $36,403 $3,297,977 $826,285
Deferred revenue 451,840 0 0 0 451,840
Current portion of
long-term debt 19,879 0 0 0 19,879
Current portion of
capital lease
obligations 29,454 0 0 0 29,454
----------- ---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 4,661,838 0 36,403 3,297,977 1,327,458
Long-Term Liabilities:
Long-term debt 0 0 0 0 0
Capital lease obligations 33,483 0 0 0 33,483
Deferred income taxes 911,000 0 0 911,000 0
Other long-term
liabilities 117,765 0 117,765 0 0
----------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES 5,724,086 0 154,168 4,208,977 1,360,941
----------- ---------- ---------- ---------- ----------
(A)(B)
Non-Owned Interests: 13,040,320 13,040,320 0 0 0
----------- ---------- ---------- ---------- ----------
Stockholders' Equity:
Common stock 115,099 (B) (175,486) 115,099 175,486 0
Class B stock 31,096 (B) (12,024) 31,096 11,904 120
Additional paid-in
capital 7,413,054 (B) (4,750,304) 7,413,054 4,000,424 749,880
(B)(C)
Retained earnings 8,031,827 (18,300,219) 7,373,629 12,784,808 6,173,609
Treasury stock 0 (B) 1,189,613 0 (1,189,613) 0
----------- ---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS'
EQUITY 15,591,076 (22,048,420) 14,932,878 15,783,009 6,923,609
----------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $34,355,482 $(9,008,100) $15,087,046 $19,991,986 $8,284,550
=========== =========== =========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING ELIMINATION ENTRIES
SEPTEMBER 30, 1995
(unaudited)
<CAPTION>
(A)
<S> <C> <C>
Non-owned interests in earnings of subsidiaries $672,976
Non-owned interests $672,976
To record non-owned interests in earnings
of subsidiaries for the three months ended
September 30, 1995.
(B)
Common stock $175,486
Class B stock 12,024
Additional paid-in capital 4,750,304
Retained earnings 17,627,243
Excess of acquisition cost over value of
net assets acquired 2,562,277
Treasury stock $1,189,613
Non-owned interests 12,367,344
Investment in subsidiaries 11,570,377
To eliminate investments in consolidated
subsidiaries.
(C)
Retained earnings $672,976
Current year earnings adjustments $672,976
To close out impact of current quarter's
statement of earnings.
</TABLE>
