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, 1997
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 April 21, 1997, the following number of shares of each of the issuer's
classes of common stock were outstanding:
Common Stock 1,177,601
Class B Common Stock 296,355
Total 1,473,956
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements.................................................3
Condensed Consolidated Statements of Earnings for the
Three Months and the Nine Months Ended March 31, 1997 and
March 31, 1996 (unaudited)...........................................3
Condensed Consolidated Balance Sheets as of March 31, 1997
and June 30, 1996 (unaudited)......................................4-5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1997 and March 31, 1996 (unaudited)......6
Notes to Condensed Consolidated Financial Statements (unaudited)..7-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................11-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................14
Item 2. Changes in Securities...............................................14
Item 3. Defaults upon Senior Securities.....................................14
Item 4. Submission of Matters to a Vote of Security Holders.................14
Item 5. Other Information...................................................14
Item 6. Exhibits and Reports on Form 8-K....................................14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<CAPTION>
For the three months ended Mar. 31For the nine months ended Mar. 31
1997 1996 1997 1996
Sales
<S> <C> <C> <C> <C>
Sales of products $ 9,071,789 $ 9,020,504 $26,522,826 $30,776,917
Sales of services and supplies 3,139,653 2,700,929 9,148,356 7,942,140
----------- ----------- ----------- -----------
TOTAL SALES 12,211,442 11,721,433 35,671,182 38,719,057
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of products sold 7,780,316 6,805,988 21,650,917 21,927,323
Cost of services and supplies 1,493,149 1,405,034 4,375,682 4,013,756
Selling, general and administrative expenses 2,735,662 2,440,363 7,692,995 7,176,501
----------- ----------- ----------- -----------
Total Costs and Expenses 12,009,127 10,651,385 33,719,594 33,117,580
---------- ---------- ---------- ----------
Operating Profit 202,315 1,070,048 1,951,588 5,601,477
Investment Income 120,481 81,853 394,521 212,333
Interest Expense (10,688) (5,258) (28,315) (20,565)
Other Income (Expense) - net (13,653) 93,720 12,185 160,880
------------- ------------- ------------- ------------
Earnings Before Incomes Taxes and Non-Owned
Interests 298,455 1,240,363 2,329,979 5,954,125
Provision for Income Taxes 189,000 485,000 917,000 2,227,000
------------ ------------ ------------ -----------
Earnings Before Non-Owned Interests 109,455 755,363 1,412,979 3,727,125
Non-Owned Interests in Earnings of Consolidated
Subsidiaries 16,179 372,210 569,813 2,220,978
------------- ------------ ------------ -----------
NET EARNINGS $ 93,276 $ 383,153 $ 843,166 $ 1,506,147
=========== ========== =========== ============
Net Earnings per Share of Common Stock $ .06 $ .26 $ .57 $ 1.03
=========== ========== =========== ============
See notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
<CAPTION>
Mar. 31, 1997 June 30, 1996
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 10,322,302 $ 10,234,224
Accounts receivable 8,694,450 8,497,050
Inventories 3,692,408 3,336,052
Prepaid and refundable taxes 817,448 135,242
Deferred income taxes 133,000 133,000
Prepaid expenses and other 575,553 359,631
------------- -------------
Total Current Assets 24,235,161 22,695,199
----------- -----------
Property, Plant and Equipment - at cost
Less accumulated depreciation of $13,699,435 at
March 31, 1997 and $12,394,724 at June 30, 1996 12,136,935 11,291,818
----------- ------------
Other Assets:
Excess of acquisition cost over value of net asset
acquired - net of accumulated amortization of $1,734,707
at March 31, 1997 and $1,615,227 at June 30, 1996 4,609,182 4,728,662
Cash surrender value of life insurance 681,208 498,974
Deferred income taxes 41,000 41,000
Deposits and other 180,021 195,082
------------- --------------
Total Other Assets 5,511,411 5,463,718
------------ -------------
Total Assets $41,883,507 $39,450,735
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
<CAPTION>
Mar. 31, 1997 June 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Accounts payable and accrued liabilities $ 4,868,202 $3,629,255
Income taxes payable 134,960 623,618
Deferred revenue 526,350 500,643
Current portion of long-term debt 0 5,104
Current portion of capital lease obligations 41,045 50,176
--------------- ---------------
Total Current Liabilities 5,570,557 4,808,796
------------- -------------
Long-Term Liabilities:
Capital lease obligations (less current portion shown above) 159,783 135,844
Deferred income taxes 1,043,000 818,000
Accrued SERP liability 402,185 176,955
-------------- --------------
Total Long-term Liabilities 1,604,968 1,130,799
------------- -------------
Total Liabilities 7,175,525 5,939,595
------------- -------------
Commitments and Contingencies
Non-Owned Interests in Consolidated Subsidiaries 16,816,215 16,509,371
------------ ------------
Stockholders' Equity:
Common stock, $.10 par value
Authorized: 3,500,000 shares
Issued and outstanding: 1,177,601 shares (at Mar. 31, 1997) 117,760
Issued and outstanding: 1,157,101 shares (at June 30, 1996) 115,710
Class B Common stock (convertible), $.10 par value
Authorized: 700,000 shares
Issued and outstanding: 296,355 shares (at Mar. 31, 1997) 29,635
Issued and outstanding: 310,855 shares (at June 30, 1996) 31,085
Additional paid-in capital 7,478,303 7,432,071
Retained earnings 10,266,069 9,422,903
------------ -------------
Total Stockholders' Equity 17,891,767 17,001,769
------------ ------------
Total Liabilities and Stockholders' Equity $41,883,507 $39,450,735
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
CERBCO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
For the nine months ended Mar. 31
1997 1996
Cash Flows from Operating Activities:
<S> <C> <C>
Net earnings $ 843,166 $1,506,147
Adjustments to reconcile net earnings
to net cash provided by (used in) operations:
Depreciation and amortization 1,538,220 1,440,898
Amounts provided by non-owned interests 569,813 2,220,978
Deferred income taxes 225,000 (145,000)
(Increase) decrease in other assets 61 (227,293)
Increase in SERP liability 225,230 56,735
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (197,400) (270,168)
(Increase) decrease in inventories (356,356) 230,872
(Increase) decrease in other current assets (898,128) (47,067)
Increase (decrease) in accounts payable and accrued expenses 927,933 (120,048)
Increase (decrease) in deferred revenue 25,707 31,998
--------------- -------------
Net Cash Provided by Operating Activities 2,903,246 4,678,052
------------- -----------
Cash Flows from Investing Activities:
Capital expenditures, net (2,190,313) (1,452,266)
Increase in cash surrender value of life insurance (182,234) 0
Increase in investment in subsidiary (85,938) 0
Cash distribution from MIDSOUTH Partners to non-owned interests (101,200) (368,000)
Cash balance of majority controlled partnership prior to consolidation 0 241,094
Increase in other assets 0 (13,000)
Redemption of temporary investments - net 0 776,581
------------------- ------------
Net Cash Used in Investing Activities (2,559,685) (815,591)
------------- ------------
Cash Flows from Financing Activities:
Principal payments on revolving lines of credit, capital lease
obligations and long-term borrowings (48,839) (83,615)
Proceeds from exercise of stock options 21,000 19,500
Dividends paid (227,644) (257,643)
-------------- ------------
Net Cash Used in Financing Activities (255,483) (321,758)
-------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents 88,078 3,540,703
Cash and Cash Equivalents at Beginning of Period 10,234,224 5,197,549
------------ -----------
Cash and Cash Equivalents at End of Period $10,322,302 $8,738,252
=========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 28,315 $ 20,646
Income taxes paid $ 1,956,742 $2,574,589
Supplemental schedule of non-cash investing and financing activities:
Capital equipment acquired under capital lease obligations $ 58,543 $ 133,088
See notes to condensed consolidated financial statements.
</TABLE>
6
<PAGE>
CERBCO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Financial Information
The Condensed Consolidated Balance Sheet as of March 31, 1997, the
Condensed Consolidated Statements of Earnings for the three months and nine
months ended March 31, 1997 and 1996, and the Condensed Consolidated Statements
of Cash Flows for the nine months ended March 31, 1997 and 1996 have been
prepared by the Company without audit. The Condensed Consolidated Balance Sheet
as of June 30, 1996 (unaudited) has been derived from the Company's June 30,
1996 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, 1997
and for all periods presented have been made.
The condensed consolidated financial statements include the accounts of
CERBCO, Inc. ("CERBCO"); its majority-owned subsidiary, Capitol Office
Solutions, Inc. ("Capitol Office Solutions" or "Capitol"), formerly known as
Capitol Copy Products, Inc. ("Capitol Copy"); and its majority-controlled
subsidiary, Insituform East, Incorporated ("Insituform East"). All significant
intercompany accounts and transactions have been eliminated. The Condensed
Consolidated Statements of Earnings for the three months and nine months ended
March 31, 1996 and the Condensed Consolidated Statement of Cash Flows for the
nine months ended March 31, 1996 have been restated to include consolidation of
the financial activities of MIDSOUTH Partners beginning July 1, 1995.
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, 1996. 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 during each period. The following numbers of shares have been used
in the computations:
<TABLE>
<CAPTION>
For the three months ended Mar. 31 For the nine months ended Mar. 31
---------------------------------- ---------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
1,473,956 1,467,956 1,470,255 1,464,247
========= ========= ========= =========
</TABLE>
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS No. 128") was recently issued by Financial Accounting Standards
Board. SFAS No. 128 requires the Company to compute and present a basic and
diluted earnings per share. SFAS No. 128 is effective for periods ending after
December 15, 1997 and early adoption is not permitted. Had the Company computed
earnings per share in accordance with SFAS No. 128, the earnings per share for
basic and diluted would have been the same as shown.
7
<PAGE>
3. Accounts Receivable
<TABLE>
Accounts receivable consist of:
<CAPTION>
Mar. 31, 1997 June 30, 1996
<S> <C> <C>
Due from municipal and commercial customers $8,436,771 $8,113,075
Miscellaneous 287,679 426,831
------------ ------------
8,724,450 8,539,906
Less: Allowance for doubtful accounts (30,000) (42,856)
----------- -----------
$8,694,450 $8,497,050
========== ==========
</TABLE>
4. Inventories
<TABLE>
Inventories consist of:
<CAPTION>
Mar. 31, 1997 June 30, 1996
<S> <C> <C>
Pipeline rehabilitation materials $1,839,988 $1,159,532
Copier and facsimile equipment 1,230,832 1,662,375
Copier and facsimile supplies 220,366 182,475
Copier and facsimile parts 401,222 331,670
------------ ------------
$3,692,408 $3,336,052
========== ==========
</TABLE>
5. Equity in Insituform East
At March 31, 1997, CERBCO beneficially held 1,127,500 shares of
Insituform East Common Stock and 296,141 shares of convertible Insituform East
Class B Common Stock representing approximately 27.8% of the Common Stock, 99.5%
of the Class B Common Stock, 32.7% of the total equity and 58.1% 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 nine months ended March
31, 1997. If all the options outstanding at March 31, 1997 were exercised, the
resulting percentages of CERBCO's equity ownership and total voting power would
be 29.7% and 54.7%, respectively.
From time to time, Insituform East purchases shares of its common stock
for treasury. Changes in capital structure resulting from such stock purchases
increase CERBCO's equity ownership. Insituform East did not purchase any shares
during the nine months ended March 31, 1997.
6. Equity in Capitol Office Solutions
At March 31, 1997, CERBCO beneficially held 800 shares, and Capitol's
president held 400 shares, of Capitol Office Solutions Class B Stock,
representing 66 2/3% and 33 1/3%, respectively, of the one outstanding class of
Capitol Office Solutions stock.
On March 7, 1997, the Company entered into a definitive Investment,
Redemption and Stock Purchase Agreement (the "Agreement") pursuant to which
Capitol Office Solutions will redeem the Company's entire two-thirds equity
ownership for a redemption price of approximately $19 million. Under the
Agreement, CERBCO will also receive a two-thirds share of an approximate $5
million pre-redemption dividend of excess cash from Capitol. The total of
approximately $22 million in cash to be received by the Company will be subject
to formula adjustment based upon audited financial statements of Capitol at the
time of closing, which is expected to be on or before June 30, 1997. The
transaction is conditioned upon the favorable vote of the Company's
stockholders, and must receive separate approval by a majority of the votes cast
by the Company's controlling stockholders, Robert W. Erikson and George Wm.
Erikson (the "Eriksons"),
8
<PAGE>
and a majority of the votes cast by stockholders other than the Eriksons, at a
Special Meeting of Stockholders to be held June 20, 1997.
7. Accounts Payable and Accrued Liabilities
<TABLE>
Accounts payable and accrued liabilities consist of:
<CAPTION>
Mar. 31, 1997 June 30, 1996
<S> <C> <C>
Accounts payable $2,509,174 $1,075,893
Accrued compensation and related expenses 2,359,028 2,302,320
Dividends payable 0 251,042
---------- ----------
$4,868,202 $3,629,255
========== ==========
</TABLE>
8. Contingencies
As previously reported by the Company, in March 1990, the controlling
stockholders of the Company, Messrs. George Wm. Erikson and Robert W. Erikson
(together, the "Eriksons"), executed a letter of intent and subsequently
executed four amendments thereto (collectively referred to herein as the "Letter
of Intent") with Insituform Technologies, Inc. ("ITI") to effect a sale of their
controlling interest in the Company to ITI for $6,000,000 (the "Proposed
Transaction"). The Proposed Transaction, if consummated, would have had the
effect of making ITI the controlling stockholder of the Company, and,
indirectly, of each of the Company's three direct subsidiaries at the time,
Insituform East, Capitol, 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 (the "Delaware Complaint") 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 a trial, 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."
The Court 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.
The plaintiffs appealed to the Delaware Supreme Court. On April 10,
1996, the Supreme Court ruled that "[t]he Eriksons were entitled to profit from
their control premium and to that end compete with CERBCO but only after
informing CERBCO of the opportunity" for a transaction with ITI. Although the
Eriksons were deemed to have breached their duty of loyalty, the Supreme Court
affirmed the finding of the Court of Chancery that there was no viable
transaction that could
9
<PAGE>
take place between CERBCO and ITI, given the Eriksons' ability to veto such a
transaction as controlling shareholders of CERBCO. Therefore, no damages could
be awarded for the loss of a transaction that had a "zero probability of
occurring due to the lawful exercise of statutory rights." The Supreme Court did
rule, however, that the Eriksons were liable to CERBCO for $75,000 they received
from ITI for extending the Letter of Intent (the "Extension Fee"), and had to
reimburse the expenses, if any, that CERBCO "incurred to accommodate the
Eriksons' pursuit of their own interests" prior to the abandonment of the
proposed transaction with ITI. The Supreme Court concluded that the Chancery
Court's opinion was therefore "affirmed in part and reversed in part, and this
matter is remanded to the Court of Chancery for further determination of
damages. Once those damages are fixed, the [Chancery] court should proceed to
examine anew any petition for counsel fees on behalf of the plaintiffs." The
Eriksons filed motions for reargument and for rehearing en banc, which the
Supreme Court denied.
The plaintiffs filed a motion for post-remand relief in the Court of
Chancery, seeking (i) a "disgorgement of benefits" allegedly received by the
Eriksons in the aggregate amount of $451,000; (ii) "damages attributable to the
Eriksons' breach of fiduciary duty" in an aggregate amount of almost $1.4
million; and (iii) certain injunctive relief against the Eriksons with respect
to "any further negotiations with ITI respecting ITI's interest in obtaining
control of [Insituform East]."
On September 13, 1996, the Court of Chancery issued its decision on
remand. The Court ruled that the Eriksons were obligated to pay CERBCO the
principal amount of $188,200, plus interest, representing legal fees paid to the
law firm of Morgan, Lewis & Bockius as counsel for the special committee of the
CERBCO Board of Directors that was appointed in 1990 in connection with the
Proposed Transaction. The Court of Chancery also ruled that the Eriksons were
obligated to pay CERBCO interest on the $75,000 Extension Fee the Supreme Court
had ordered the Eriksons to pay to CERBCO. All of the plaintiffs' other claims
were rejected, except that the Court ruled it was premature to determine
plaintiffs' claim that the Eriksons were obligated to reimburse CERBCO for
advances to them of the defense costs of the litigation. On October 2, 1996, the
plaintiffs filed a petition seeking attorneys' fees and expenses totaling
$1,663,266. On February 6, 1997, the Court of Chancery entered a final order and
judgment (revised on February 14, 1997) encompassing the above rulings and
awarding the plaintiffs attorneys' fees of $143,364.23 to be paid by CERBCO and
court costs of $9,359.20 to be paid by the Eriksons. The plaintiffs, the
Eriksons, and CERBCO have each appealed to the Delaware Supreme Court where the
appeals are presently being briefed. An argument date has not yet been
scheduled.
As previously reported by the Company, 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
Superior Court of the District of Columbia (the "D.C. Complaint"). 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 D.C.
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.
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. Plaintiffs agreed to a stay in the Superior Court action pending the
outcome of the appeal to the Delaware Supreme Court and, subsequently, the stay
was continued at least until such time as the Delaware Court of Chancery ruled
upon the plaintiffs' pending motion for post-remand relief. As of this date, the
District of Columbia action remains stayed.
As previously reported by the Company, on October 23, 1996, Inliner
U.S.A. and CAT Contracting, Inc. (collectively, "plaintiffs") filed an antitrust
suit against Insituform Technologies, Inc. ("ITI") and Insituform East
(collectively, "defendants") in United States District Court for the Southern
District of Texas, Houston Division, alleging violations by ITI (including all
of its subsidiary licensees) and Insituform East of Sections 1 and 2 of the
Sherman Act, Section 43(a) of the Lanham Act, Section 15.05 of the Texas
Business and Commerce Code, tortious interference with contracts and business
disparagement. Plaintiffs are seeking from the defendants an unspecified amount
of compensatory damages, treble damages and attorneys' fees, as well as punitive
damages of at least $50 million. Insituform East believes
10
<PAGE>
it has strong defenses to, and is vigorously contesting, the suit. Insituform
East has filed two motions to dismiss the action which are currently pending.
Although the ultimate outcome and consequences of the suit cannot be ascertained
at this time and the results of legal proceedings cannot be predicted with
certainty, the management of Insituform East has indicated that it believes the
suit is meritless and will not have a material adverse effect on its financial
condition or the results of operations.
Management believes ultimate resolution of these matters will not have
a material effect on the consolidated financial statements of CERBCO.
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.
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. Net
corporate holding company 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 Mar. 31For the nine months ended Mar. 31
-------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
Sales to Unaffiliated Customers:
<S> <C> <C> <C> <C>
Pipeline rehabilitation $ 6,271 $ 6,898 $18,230 $23,739
Copier equipment products and services 5,940 4,823 17,441 14,980
--------- --------- -------- --------
Total Sales $12,211 $11,721 $35,671 $38,719
======= ======= ======= =======
Earnings Before Income Taxes:
Pipeline rehabilitation $ (835) $ 177 $ (1,049) $ 2,703
Copier equipment products and services 1,409 1,001 3,821 3,276
Corporate holding company expenses - net (372) (108) (820) (378)
---------- ---------- ---------- ----------
Operating Profit 202 1,070 1,952 5,601
Other income 147 252 526 493
Other expenses (51) (82) (148) (140)
----------- ----------- ---------- ----------
Earnings Before Income Taxes $ 298 $ 1,240 $ 2,330 $ 5,954
========= ======== ======== ========
Net Earnings (Loss) Contribution by Segment:
Pipeline rehabilitation $ (164) $ 40 $ (192) $ 465
Copier equipment products and services 633 401 1,704 1,326
Corporate holding company (376) (58) (669) (285)
---------- ----------- ---------- ----------
Net Earnings $ 93 $ 383 $ 843 $ 1,506
========== ========= ========= ========
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview and Outlook
The Company recognized consolidated net earnings of $93,276 ($.06 per
share) for the third quarter of fiscal year 1997, as compared to consolidated
net earnings of $383,153 ($.26 per share) for the third quarter of fiscal year
1996. The Company recognized consolidated net earnings of $843,166 ($.57 per
share) for the first nine months of fiscal year 1997, as compared to
consolidated net earnings of $1,506,147 ($1.03 per share) for the first nine
months of fiscal year 1996. The decrease in comparable period results is
attributable to continued reduced results from Insituform East, the Company's
pipeline rehabilitation segment, which reported consolidated net losses of
- -$500,181 and -$586,805 for the three months and nine months ended March 31,
1997, respectively, and an increase in the parent company's operating expenses.
The Condensed Consolidated Statements of Earnings for the three months and nine
months ended March 31, 1996 have been restated to reflect comparable
consolidation of Insituform East's now majority-controlled subsidiary, MIDSOUTH
Partners.
11
<PAGE>
Insituform East attributed its negative nine month operating results to
a significant decrease in comparable period sales,which were further aggravated
by delays in the start-up and execution of several significant projects in the
third quarter and reduced margins on competitively bid projects performed during
the third quarter. Insituform East's total backlog value of all uncompleted and
multi-year contract awards was approximately $19.3 million at March 31, 1997, as
compared to $6.6 million at March 31, 1996. The twelve-month backlog at March
31, 1997 was approximately $17.9 million as compared to $6.4 million at March
31, 1996. Consolidated backlog figures include MIDSOUTH Partners' backlog of
approximately $2.5 million and $1.5 million at March 31, 1997 and 1996,
respectively. The total backlog values of all uncompleted and multi-year
contracts includes work not estimated to be released and installed within twelve
months, as well as potential work included in term contract awards which may or
may not be fully ordered by contract expiration. Backlog figures at specific
dates are not necessarily indicative of sales and earnings for future periods.
While there can be no assurances regarding future operating performance, the
Company believes that anticipated increases in released work over the balance of
the fiscal year should produce positive fourth quarter results, although such
results are not expected to fully offset the cumulative loss at nine months.
Accordingly, negative operating results are presently anticipated for the twelve
months ending June 30, 1997.
Capitol Office Solutions, the Company's copier and facsimile equipment
products and services segment, continued to experience increased sales and
earnings for both the third quarter and first nine months of fiscal year 1997,
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, but it is
presently anticipated that the proposed sale of the Company's interest in this
subsidiary would convert accounting for Capitol Office Solutions to treatment as
discontinued operations by fiscal year end at June 30, 1997.
The parent company's operating expenses increased in the three months
and nine months ended March 31, 1997, primarily due to legal and consulting fees
resulting from the negotiations in connection with the proposed sale of the
Company's interest in Capitol Office Solutions, and an increase in certain
Company benefit plan liabilities. CERBCO's current earnings also remain impacted
somewhat 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 the third
quarter and first nine months of fiscal year 1997, CERBCO experienced
unallocated general corporate expenses in the amounts of $372,049 and $820,069,
respectively, of which $8,619 and $78,405, respectively, were legal fees and
expenses in connection with the derivative litigation. From inception in 1990
through March 31, 1997, such legal fees and expenses totaled approximately $2.2
million. For additional information on the status of this litigation, see Part
I, Item 1, "Notes to Condensed Consolidated Financial Statements (unaudited) -
Note 8. Contingencies."
Results of Operations
Third Quarter ended 3/31/97 Compared with Third Quarter ended 3/31/96
Consolidated sales increased $0.5 million (4.2%) in the third quarter
of fiscal year 1997 as compared to the third quarter of fiscal year 1996.
Insituform East's pipeline rehabilitation sales decreased $0.6 million (-9.1%),
due primarily to delays in the start-up and execution of several significant
East projects during the quarter. East's sales decreased $0.5 million (-11.2%);
MIDSOUTH Partners' sales decreased $0.1 million (-3.1%). Both East and MIDSOUTH
Partners' sales for the third quarter of fiscal year 1996 were significantly
impeded by unusually severe winter weather conditions. Sales of copier equipment
products and services by Capitol Office Solutions increased $1.1 million
(23.2%), as equipment sales and service and supply revenues increased 31.9% and
16.2%, respectively. The increases in both areas reflect a continuing expansion
in Capitol's customer base.
Consolidated operating profit decreased $0.9 million (-81.1%) in the
third quarter of fiscal year 1997 as compared to the third quarter of fiscal
year 1996, primarily as a result of an operating loss by Insituform East.
Insituform East's cost of sales increased 8.8% while its sales decreased and as
a result, gross profit as a percentage of sales decreased from 22.5% to 7.3%.
This decrease is due primarily to increased low margin subcontracted services
and reduced margins on installation services performed by East on competitively
bid projects. Insituform East's selling, general and administrative expenses
decreased $0.1 million (-6.1%) primarily as a result of lower costs to support
reduced production activities. Capitol's cost of sales increased 19.7%, a
smaller percentage increase than the increase in its sales, and as a result,
gross profit as a percentage of sales increased from 40.5% to 42.2%. The gross
profit margin on equipment sales decreased from 31.1% to 30.7%, while
12
<PAGE>
the gross profit margin on service and supplies increased from 48.0% to 52.4%.
Capitol's selling, general and administrative expenses increased $0.1 million
(15.3%), and its operating profit increased $0.4 million (40.4%). The parent
company's operating loss increased $0.3 million (244.4%), primarily due to legal
and consulting fees resulting from the negotiations in connection with the
Capitol Office Solutions transaction.
Nine Months ended 3/31/97 Compared with Nine Months ended 3/31/96
Consolidated sales decreased $3.0 million (-7.9%) in the first nine
months of fiscal year 1997 as compared to the first nine months of fiscal year
1996. Insituform East's sales decreased $5.5 million (-23.2%), due primarily to
lower workable backlog levels experienced throughout the period and third
quarter delays in the start-up and execution of several significant East
projects. East's sales decreased $4.0 million (-23.5%); MIDSOUTH Partners' sales
decreased $1.5 million (-22.4%). Capitol's sales increased $2.5 million (16.4%),
as equipment sales and service and supply revenues increased 17.8% and 15.2%,
respectively. The increases in both areas reflect a continuing expansion in
Capitol's customer base.
Consolidated operating profit decreased $3.6 million (-65.1%) in the
first nine months of fiscal year 1997 as compared to the first nine months of
fiscal year 1996, primarily as a result of the nine month operating loss of
Insituform East. Insituform East's cost of sales decreased 9.2%, a smaller
decrease than the decrease in its sales, and as a result, gross profit as a
percentage of sales decreased from 28.4% to 15.3%. This decrease is due
primarily to absorption of semi-fixed costs over lower sales volume, reduced
margins on third quarter East production and reduced comparable period margins
on installation contracts performed by MIDSOUTH Partners. Insituform East's
selling, general and administrative expenses decreased $0.2 million (-5.0%),
primarily as a result of lower costs to support reduced production activities.
Capitol's cost of sales increased 18.4%, a larger percentage increase than its
increase in sales, and as a result, gross profit as a percentage of sales
decreased from 40.3% to 39.3%. The gross profit margin on equipment sales
decreased from 30.0% to 25.2%, while the gross profit margin on service and
supplies increased from 49.5% to 52.2%. Capitol's selling, general and
administrative expenses increased $0.3 million (10.1%), and its operating profit
increased $0.5 million (16.5%). The parent company's operating loss increased
$0.4 million (116.9%), primarily as a result of a one-time increase in the
accrued supplemental executive retirement plan liability and legal and
consulting fees resulting from the negotiations in connection with the Capitol
Office Solutions transaction.
Liquidity and Capital Resources
The Company's operating activities provided $2.9 million in cash during
the first nine months of fiscal year 1997. The increase in cash is primarily due
to an increase in Insituform East's accounts payable and accrued expenses during
the first nine months of fiscal year 1997, nine months' net earnings, and
depreciation and amortization expenses that do not require the outlay of cash.
Net cash in the amount of $2.6 million was used in investing activities
in the first nine months of fiscal year 1997, primarily due to capital
expenditures by Insituform East. The parent holding company, CERBCO, expended
$85,938 to purchase 27,500 shares of Insituform East's common stock in a private
transaction.
Net cash used in financing activities was approximately $0.3 million in
the first nine months of fiscal year 1997. The primary use of such funds was the
payment of dividends by Insituform East and Capitol Office Solutions.
CERBCO believes that its two principal operating subsidiaries,
Insituform East and Capitol Office Solutions, 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 Office Solutions and the parent holding company, CERBCO, do not
have separate bank lines of credit, but have cash reserves in excess of $5.6
million and $2.5 million, respectively, which are believed to be adequate to
meet their respective cash flow requirements in the foreseeable future.
13
<PAGE>
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"), (b) a previously disclosed lawsuit
pending in the Superior Court of the District of Columbia (the "D.C.
Complaint"), and (c) a previously disclosed lawsuit filed in the U.S. District
Court for the Southern District of Texas, Houston Division [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 for the nine months ended March 31, 1997
99 - CERBCO, Inc. Consolidating Schedules: Statement of Earnings
Information for the three months ended March 31, 1997; Statement
of Earnings Information for the nine months ended March 31,
1997; Balance Sheet Information and Consolidating Elimination
Entries as of March 31, 1997.
(b) Reports on Form 8-K:
CERBCO filed two reports on Form 8-K during the quarter ended March 31,
1997. The first report, filed on March 12, 1997, did not include any financial
statements and reported on the following item:
Item 5. Other Events
Press release dated March 7, 1997 announcing that the Company had
entered into a definitive Investment, Redemption and Stock Purchase Agreement to
dispose of its interest in Capitol Office Solutions.
The second report, filed on March 21, 1997, provided unaudited pro
forma financial information in connection with the transaction reported in the
first report.
14
<PAGE>
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 14, 1997
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)
15
<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
March 31, 1997; Statement of Earnings Information for
the Nine Months Ended March 31, 1997; Balance Sheet
Information; and Consolidating Elimination Entries as
of March 31, 1997.
<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> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,322
<SECURITIES> 0
<RECEIVABLES> 8,724
<ALLOWANCES> 30
<INVENTORY> 3,692
<CURRENT-ASSETS> 24,235
<PP&E> 25,836
<DEPRECIATION> 13,699
<TOTAL-ASSETS> 41,884
<CURRENT-LIABILITIES> 5,571
<BONDS> 0
<COMMON> 147
0
0
<OTHER-SE> 17,744
<TOTAL-LIABILITY-AND-EQUITY> 41,884
<SALES> 35,671
<TOTAL-REVENUES> 35,671
<CGS> 26,027
<TOTAL-COSTS> 26,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 2,330
<INCOME-TAX> 917
<INCOME-CONTINUING> 843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 843
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENT OF EARNINGS INFORMATION
THREE MONTHS ENDED MARCH 31, 1997
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East, Capitol Office
Consolidated Eliminations Unconsolidated Incorporated Solutions, Inc.
<S> <C> <C> <C> <C> <C> <C>
Sales $12,211,442 $0 $0 $6,271,529 $5,939,913
----------- ------- --------- ---------- ----------
Costs and Expenses:
Cost of sales 9,273,465 0 0 5,813,443 3,433,313
Selling, general and administrative expenses 2,735,662 0 372,049 1,293,307 1,097,015
----------- ------- --------- ---------- ----------
Total Costs and Expenses 12,009,127 0 372,049 7,106,750 4,530,328
----------- ------- --------- ---------- ----------
Operating Profit (Loss) 202,315 0 (372,049) (835,221) 1,409,585
Investment Income 120,481 0 17,845 33,734 68,902
Interest Expense (10,688) 0 0 (9,389) (1,299)
Other Income (Expense) - net (13,653) 0 (21,967) 26,174 (17,860)
Earnings (Loss) Before Income Taxes and ----------- ------- --------- ---------- ----------
Non-Owned Interests 298,455 0 (376,171) (784,702) 1,459,328
Provision (Credit) for Income Taxes 189,000 0 0 (321,000) 510,000
----------- ------- --------- ---------- ----------
Earnings (Loss) Before Non-Owned Interests 109,455 0 (376,171) (463,702) 949,328
Non-Owned Interests in Earnings of
Consolidated Subsidiaries 16,179 (A) (20,300) 0 36,479 0
----------- ------- --------- ---------- ----------
NET EARNINGS (LOSS) $93,276 (B) $20,300 $(376,171) $(500,181) $949,328
=========== ======= ========= ========== ==========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENT OF EARNINGS INFORMATION
NINE MONTHS ENDED MARCH 31, 1997
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East, Capitol Office
Consolidated Eliminations Unconsolidated Incorporated Solutions, Inc.
<S> <C> <C> <C> <C> <C> <C>
Sales $35,671,182 $0 $0 $18,229,917 $17,441,265
----------- --------- --------- ----------- -----------
Costs and Expenses:
Cost of sales 26,026,599 0 0 15,447,279 10,579,320
Selling, general and administrative expenses 7,692,995 0 820,069 3,832,281 3,040,645
----------- --------- --------- ---------- ----------
Total Costs and Expenses 33,719,594 0 820,069 19,279,560 13,619,965
----------- --------- --------- ---------- ----------
Operating Profit (Loss) 1,951,588 0 (820,069) (1,049,643) 3,821,300
Investment Income 394,521 0 99,881 117,444 177,196
Interest Expense (28,315) 0 0 (23,800) (4,515)
Other Income (Expense) - net 12,185 0 (38,504) 104,269 (53,580)
Earnings (Loss) Before Income Taxes and ----------- --------- --------- --------- ----------
Non-Owned Interests 2,329,979 0 (758,692) (851,730) 3,940,401
Provision (Credit) for Income Taxes 917,000 0 (90,000) (378,000) 1,385,000
----------- --------- --------- --------- ----------
Earnings (Loss) Before Non-Owned Interests 1,412,979 0 (668,692) (473,730) 2,555,401
Non-Owned Interests in Earnings of
Consolidated Subsidiaries 569,813 (C) 456,738 0 113,075 0
----------- --------- --------- --------- ----------
NET EARNINGS (LOSS) $843,166 (D) $(456,738) $(668,692) $(586,805) $2,555,401
=========== ========= ========= ========= ==========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
MARCH 31, 1997
(unaudited)
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East, Capitol Office
Consolidated Eliminations Unconsolidated ncorporated Solutions, Inc.
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $10,322,302 $0 $2,453,664 $2,318,248 $5,550,390
Accounts receivable 8,694,450 0 198 6,458,524 2,235,728
Inventories 3,692,408 0 0 1,839,988 1,852,420
Prepaid and refundable taxes 817,448 0 48,292 769,156 0
Deferred income taxes 133,000 0 0 0 133,000
Prepaid expenses and other 575,553 0 0 383,891 191,662
----------- ------------ ----------- ----------- -----------
TOTAL CURRENT ASSETS 24,235,161 0 2,502,154 11,769,807 9,963,200
Investment in and Advances to Subsidiaries:
Investment in subsidiaries 0 (E) (13,551,903) 13,551,903 0 0
Intercompany receivables and payables 0 0 22,586 (3,084) (19,502)
Property, Plant and Equipment - net of
accumulated depreciation 12,136,935 0 90,158 11,850,316 196,461
Other Assets:
Excess of acquisition cost over value of net
assets acquired - net 4,609,182 (E) 2,430,475 0 0 2,178,707
Cash surrender value of life insurance 681,208 0 681,208 0 0
Deferred income taxes 41,000 0 0 0 41,000
Deposits and other 180,021 0 62,837 91,000 26,184
----------- ------------ ----------- ----------- -----------
TOTAL ASSETS $41,883,507 $(11,121,428) $16,910,846 $23,708,039 $12,386,050
=========== ============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $5,003,162 $0 $128,752 $4,172,494 $701,916
Deferred revenue 526,350 0 0 0 526,350
Current portion of capital lease obligations 41,045 0 0 27,155 13,890
----------- ----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 5,570,557 0 128,752 4,199,649 1,242,156
Long-Term Liabilities:
Capital lease obligations 159,783 0 0 147,135 12,648
Deferred income taxes 1,043,000 0 0 1,043,000 0
Accrued SERP liability 402,185 0 402,185 0 0
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 7,175,525 0 530,937 5,389,784 1,254,804
----------- ----------- ----------- ----------- -----------
Non-Owned Interests: 16,816,215 (C)(E) 14,450,007 0 2,366,208 0
----------- ----------- ----------- ----------- -----------
Stockholders' Equity:
Common stock 117,760 (E) (175,486) 117,760 175,486 0
Class B stock 29,635 (E) (12,024) 29,635 11,904 120
Additional paid-in capital 7,478,303 (E) (4,750,304) 7,478,303 4,000,424 749,880
Retained earnings 10,266,069 (D)(E)(21,823,234) 8,754,211 12,953,846 10,381,246
Treasury stock 0 (E) 1,189,613 0 (1,189,613) 0
----------- ------------ ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 17,891,767 (25,571,435) 16,379,909 15,952,047 11,131,246
----------- ------------ ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $41,883,507 $(11,121,428) $16,910,846 $23,708,039 $12,386,050
=========== ============ =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING ELIMINATION ENTRIES
MARCH 31, 1997
(unaudited)
<CAPTION>
(A)
<S> <C>
Non-owned interests $20,300
Non-owned interests in earnings of subsidiaries $20,300
To record non-owned interests in earnings or loss of
subsidiaries for the three months ended March 31, 1997.
(B)
Current quarter earnings adjustments $20,300
Retained earnings $20,300
To close out impact of eliminating entries on current
quarter's statement of earnings.
(C)
Non-owned interests in earnings of subsidiaries $456,738
Non-owned interests $456,738
To record non-owned interests in earnings of subsidiaries
for the nine months ended March 31, 1997.
(D)
Retained earnings $456,738
Current quarter earnings adjustments $456,738
To close out impact of eliminating entries on six month's
statement of earnings.
(E)
Common stock $175,486
Class B stock 12,024
Additional paid-in capital 4,750,304
Retained earnings 21,366,496
Excess of acquisition cost over value of net assets acquired 2,430,475
Treasury stock $1,189,613
Non-owned interests 13,993,269
Investment in subsidiaries 13,551,903
To eliminate investments in consolidated subsidiaries.
</TABLE>
