UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
Class B Common Stock, par value $.10 per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes X No
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant computed by reference to the last price at
which such stock was sold, as of September 17, 1996, was $6,600,540.
As of September 17, 1996, the following number of shares of each of the issuer's
classes of common stock were outstanding:
Common Stock 1,157,226
Class B Common Stock 310,730
Total 1,467,956
Documents Incorporated by Reference: None
Total number of pages of this report: 57
Index to Exhibits located at page: 51
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1. Business....................................................4
Item 2. Properties.................................................12
Item 3. Legal Proceedings..........................................12
Item 4. Submission of Matters to a Vote of Security Holders........12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................13
Item 6. Selected Financial Data....................................14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................14
Item 8. Financial Statements and Supplementary Data................18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................18
PART III
Item 10. Directors and Executive Officers of the Registrant.........37
Item 11. Executive Compensation.....................................39
Item 12. Security Ownership of Certain Beneficial Owners
and Management...........................................48
Item 13. Certain Relationships and Related Transactions.............50
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................51
CONSOLIDATED
STATEMENTS OF EARNINGS
AND BALANCE SHEETS
Pages 20 through 22
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
CERBCO, Inc. ("CERBCO", the "Company" or "Registrant") [NASDAQ:CERB] is
a parent holding company with controlling interests in Insituform East,
Incorporated [NASDAQ:INEI] (excavationless sewer and pipeline rehabilitation),
and Capitol Copy Products, Inc. [copier and facsimile ("fax") equipment sales,
service and supplies].
CERBCO was incorporated on December 23, 1987 in the State of Delaware.
CERBCO was formed for the purpose of implementing a Plan of Reorganization and
Merger (the "Plan"), whereby its then publicly-traded predecessor, CERBERONICS,
Inc. ("CERBERONICS"), became a wholly-owned subsidiary of CERBCO. Under the
Plan, owners of shares of stock previously held in CERBERONICS, by class,
received ownership of an equivalent number of shares of stock, by class, in the
parent holding company, CERBCO. In 1988, CERBERONICS transferred a material
portion of its assets to CERBCO including all shares of stock held in Insituform
East, Incorporated and Capitol Copy Products, Inc. CERBERONICS, which had been
providing engineering, analytical and technical support services to the United
States Government, discontinued operations in 1991.
The principal office and corporate headquarters of the Company are
located in suburban Washington, D.C., collocated with the offices of the
Company's subsidiary, Insituform East, Incorporated, at 3421 Pennsy Drive,
Landover, Maryland 20785. The Company's telephone number is (301) 773-1784, its
fax number is (301) 322-3041, and its twenty-four hour public information
FaxVault number is (301) 773-4560.
(b) Financial Information About Industry Segments
Financial information about the Registrant's industry segments is set
forth below in tabular format. Information by industry segment is concomitant
with financial information separately attributable to each of the member
companies composing the Registrant's consolidated group, i.e., CERBCO, Inc. (the
parent holding company), Insituform East, Incorporated and Capitol Copy
Products, Inc. For additional information relating to industry segment
information, see Part II, Item 8, "Notes to Consolidated Financial Statements -
Note 19: Segment Data and Reconciliation"; also Part IV, Item 14, Exhibit 99,
"CERBCO, Inc. Consolidating Schedules: Statement of Earnings Information for the
Year Ended June 30, 1996; Balance Sheet Information and Consolidating
Elimination Entries as of June 30, 1996."
<TABLE>
Financial Information Relating to
Industry Segments and Classes of Products or Services
<CAPTION>
(in thousands) 1996 1995 1994
-------- -------- --------
SALES TO UNAFFILIATED CUSTOMERS:
Insituform East, Incorporated:
<S> <C> <C> <C>
Sales of products $ 30,471 $ 21,594 $ 14,804
-------- -------- --------
Capitol Copy Products, Inc.:
Sales of equipment 9,267 8,102 7,468
Sales of services and supplies 10,942 9,447 7,574
-------- -------- --------
20,209 17,549 15,042
-------- -------- --------
TOTAL SALES TO UNAFFILIATED
CUSTOMERS $ 50,680 $ 39,143 $ 29,846
======== ======== ========
OPERATING PROFIT:
CERBCO, Inc. (corporate) $ (491) $ (961) $ (566)
Insituform East, Incorporated 3,042 2,490 (204)
Capitol Copy Products, Inc. 4,462 4,054 3,004
-------- -------- --------
TOTAL OPERATING PROFIT $ 7,013 $ 5,583 $ 2,234
======== ======== ========
NET EARNINGS (LOSS) CONTRIBUTION
BY SEGMENT:
CERBCO, Inc. (corporate) $ (290) $ (880) $ (569)
Insituform East, Incorporated 537 678 47
Capitol Copy Products, Inc. 1,808 1,593 1,110
-------- -------- --------
Earnings from continuing operations 2,055 1,391 588
Discontinued operations 0 151 731
-------- -------- --------
NET EARNINGS $ 2,055 $ 1,542 $ 1,319
======== ======== ========
IDENTIFIABLE ASSETS:
CERBCO, Inc. (corporate) $ 6,141 $ 6,007 $ 6,617
Insituform East, Incorporated 23,190 19,459 16,785
Capitol Copy Products, Inc. 10,120 7,514 6,105
-------- -------- --------
TOTAL ASSETS $ 39,451 $ 32,980 $ 29,507
======== ======== ========
</TABLE>
c) Narrative Description of Business
CERBCO, Inc.
GENERAL
CERBCO, Inc. ("CERBCO" or the "Company") is a parent holding company
with controlling interests in two principal subsidiaries, each of which is in a
separate industry segment. Insituform East, Incorporated, operating pursuant to
sublicense agreements, provides a patented process called "Insituform" primarily
to municipal, Federal government and industrial customers for the repair and
reconstruction of underground sewers and other types of pipelines. The
Insituform(R) process creates a hard, jointless, impact and corrosion-resistant
Insitupipe(R) product inside deteriorating pipes, with a principal benefit that
it can usually be installed without excavation. Capitol Copy Products, Inc. is
in the business of selling, servicing and providing supply products for copier
and facsimile equipment, operating pursuant to certain dealer agreements,
primarily with Canon U.S.A., Inc.
CERBCO officers participate both directly and indirectly on the
management teams of its subsidiary corporations, in varying capacities and
officerships, with a view to overseeing, protecting and developing the long-term
values of the Company's holdings. By operating separate lines of business in the
Federal/municipal and commercial sectors, CERBCO is structured to enable
effective response to changing markets through the combination of capital
flexibility and strategic diversification.
As of June 30, 1996 the Company and its subsidiaries had a total of 288
employees (including four employees in the parent holding company).
OTHER INFORMATION
For other information regarding a collective business description of
CERBCO (e.g., material developments, operations, license agreements, backlog,
marketing, competition, etc.), see specific detailed information by individual
subsidiary company (i.e., industry segment) below.
Insituform East, Incorporated
GENERAL
Insituform East, Incorporated ("Insituform East" or the "Company") was
organized under the laws of the State of Delaware on February 26, 1970 under the
name Universal Construction and Supply Company. Its present name was adopted on
August 24, 1978. The Company was engaged in the business of underground conduit
construction from inception until 1974 and construction equipment rental from
1974 to 1978. The Company then phased out these lines of business and entered
into sublicensing agreements for the Insituform process, a patented technology
for reconstructing pipelines with little or no excavation. Since July 1978, the
Company has been primarily engaged in the business of rehabilitating underground
sewers and other pipelines, the Company's only business segment.
Between 1982 and 1986, the Company added western Pennsylvania, Ohio,
three Kentucky counties and West Virginia to its original Insituform process
licensed territory of Maryland, Virginia, the District of Columbia, Delaware and
eastern Pennsylvania.
In December 1985, MIDSOUTH Partners was organized as a Tennessee
General Partnership and became the exclusive licensee for the Insituform process
in Tennessee, the rest of Kentucky and northern Mississippi. The Company was
assigned three representatives to a seven-member Management Committee
established to manage the business activities of the Partnership and allocated a
42.5% interest in Partnership profits and losses.
In September 1987, the Company established a branch facility in
Cincinnati, Ohio, to support operating activities in the western region of its
licensed territory.
In May 1989, the Company acquired an 80% interest in TRY TEK Machine
Works, Inc. ("TRY TEK"). TRY TEK, located in Hanover, Pennsylvania, was founded
in September 1985 to custom design and build special machinery, including
machinery used in the Insituform process. The Company acquired an additional 10%
interest in TRY TEK in February 1993 and the remaining 10% interest in March
1995.
In December 1990, the Company acquired an exclusive license for the
sale and installation of preformed PVC thermoplastic pipe under the NuPipe(R)
process and trademark for a sales region identical to the territories licensed
to the Company for the Insituform process.
In September 1991, the Company added cement mortar lining of potable
water lines to its service capability. A formal plan to discontinue providing
cement mortar lining services, adopted in June 1993, was substantially completed
in June 1994.
A June 12, 1996 arbitration award granted the Company the unilateral
right to appoint a MIDSOUTH Partners Management Committee representative in
place of another partner's representative, in connection with a default of the
Partnership Agreement by that partner. As a result of this award, the Company
gained majority representation on the Management Committee effective June 12,
1996.
For financial reporting purposes for the fiscal year ended June 30,
1996, the Company has included its wholly-owned subsidiary corporations
(collectively, "East") and its majority-controlled subsidiary partnership,
MIDSOUTH Partners, in its consolidated financial statements. Prior to the fiscal
year ended June 30, 1996, the Company accounted for its minority investment in
MIDSOUTH Partners using the equity method.
The Company primarily rehabilitates and repairs underground sewers and
other pipelines -- including waste water, storm water and industrial process
pipelines -- using the Insituform process. The Insituform process utilizes a
polyester fiber-felt material, the Insitutube(R) material, coated with
polyethylene and impregnated with a liquid, thermosetting resin. The Insitutube
material is inserted in the pipe through an existing manhole or other access
point. By use of an inversion tube and cold water pressure, the Insitutube
material is forced through the pipeline, turned inside out, and pressed firmly
against the inner wall of the damaged pipeline. When the Insitutube material is
fully extended, the cold water within the tube is recirculated through a boiler
in a truck. The heated water cures the thermosetting resin to form a hard,
jointless, impact and corrosion resistant Insitupipe product within the original
pipe. Lateral or side connections are then reopened by use of the
Insitucutter(R) device, a remote-controlled cutting machine.
The principal office and corporate headquarters of the Company are
located at 3421 Pennsy Drive, Landover, Maryland 20785. The Company's telephone
number is (301) 386-4100, and its fax number is (301) 386-2444.
RELATIONSHIP WITH INSITUFORM TECHNOLOGIES, INC.
On December 9, 1992, Insituform Technologies, Inc. (formerly Insituform
of North America, Inc., or "INA") through its acquisition of Insituform Group,
Ltd., N.V., acquired the worldwide patent rights for the Insituform process. The
Company is a sublicensee of Insituform Technologies, Inc. ("ITI"). The Company
has entered into seven sublicense agreements with ITI which grant the Company
rights to perform the Insituform process in Virginia, Maryland, Delaware, Ohio,
the District of Columbia, Pennsylvania, West Virginia, Tennessee, Kentucky and
northern Mississippi. The Company can perform the Insituform process in other
locations subject to payment of additional royalties.
The sublicense agreements require the Company to pay ITI a royalty of
8% of the revenue, excluding certain deductions, from all contracts using the
Insituform process, with a minimum annual royalty requirement for each licensed
territory. In the event the Company performs the Insituform process outside its
territory, the sublicense agreements require it to pay a royalty of from 8% to
12% of the gross contract price to the independent sublicensee of such other
territory, if any, in addition to all royalties due ITI.
The sublicense agreements extend for the life of the underlying patents
or patent rights, including any improvements or modifications extending such
life. The agreements may be terminated by the Company upon two calendar quarters
written notice to ITI. The agreements may only be canceled by ITI in certain
events. In addition, ITI has the right to approve the quality and specifications
of equipment and materials not purchased directly from ITI.
On May 1, 1987, the Company entered into supply agreements with ITI
whereby the Company has committed to purchase 90% of its Insitutube material
requirements from ITI. The agreements automatically renew annually unless notice
of termination is provided by either party six months prior to the end of a
renewal period. As a result of certain terms not previously fulfilled by ITI,
the Company believes it is no longer required to purchase 90% of its Insitutube
material requirements from ITI under the otherwise continuing agreements. The
continuing agreements currently extend through April 30, 1997.
The Company has also entered into license agreements with NuPipe, Inc.,
a wholly-owned subsidiary of ITI, for the sale and installation of preformed PVC
thermoplastic pipe under the NuPipe process and trademark. The Company has
committed to pay a royalty equal to 6.75% of gross contract revenue utilizing
the process and to purchase certain installation equipment and installation
materials from ITI.
TRY TEK manufactures Insitucutter devices for sale to ITI and the
Company under an agreement with ITI, the Insitucutter device patent holder.
Unless otherwise terminated, this agreement will continue until April 6, 1998,
the date of expiration of the Insitucutter device patent.
In 1981, the Company was assigned the rights to an agreement (the "SAW
Agreement") regarding the introduction of potential Insituform process
sublicensees to ITI. In connection with the introduction of current Insituform
process sublicensees to ITI, the Company receives quarterly payments from ITI
equal to 0.5% of contract revenue from Insituform process installations in
East's licensed territory and the states of New York, New Jersey, North
Carolina, South Carolina, Georgia and Alabama.
PATENTS
The Insituform process was developed in the United Kingdom in 1971. The
Company's rights to utilize the patents, trademarks and know-how related to the
Insituform process are derived from its licensor, ITI. There are presently 56
United States patents which cover various aspects of the Insituform process and
related installation techniques. The last patent to expire will remain in effect
until 2014. Two initial method patents relating to the Insituform process (one
of which covers material aspects of the inversion process) expired in 1994, a
primary method patent relating to the Insitutube material saturation process
expires in February 2001 and a patent relating to the Insitutube material will
expire in May 2001.
Although management of the Company believes these patents are
important to the business of the Company, there can be no assurance that the
validity of the patents will not be successfully challenged or that they are
sufficient to afford protection against another company utilizing a process
similar to the Insituform process. It is possible that the Company's business
could be adversely affected upon expiration of the patents, or by increased
competition in the event that one or more of the patents were adjudicated to be
invalid or inadequate in scope to protect the Company's operations. Management
of the Company believes, however, that while the Company has relied on the
strength and validity of these patents, the Company's significant installation
experience with the Insituform process and its degree of market penetration in
its licensed territory should enable the Company to continue to compete
effectively in the pipeline rehabilitation market in the future as older patents
expire or become obsolete.
CUSTOMERS
The Company performs services under contracts with governmental
authorities, private industries and commercial entities. In each of the last
three fiscal years, more than 65% of the Company's customers have been state and
local government entities -- cities, counties, state agencies and regional
authorities. During the year ended June 30, 1996, Federal government contracts
(collectively), a county government in the Washington, D.C. metropolitan area
and a regional sanitary authority in southwest Ohio accounted for 23%, 20% and
10%, respectively, of the Company's sales. During the year ended June 30, 1995,
Federal government contracts (collectively), the same regional sanitary
authority in southwest Ohio and Washington Metropolitan Area Transit Authority
("WMATA") accounted for 21%, 15% and 10%, respectively, of the Company's sales.
During the year ended June 30, 1994, Federal government contracts (collectively)
accounted for 15% of the Company's sales.
SUPPLIERS
The Company's materials and equipment are generally available from
several suppliers. However, the Company believes that ITI is presently the sole
source of proprietary Insitutube material and, therefore, the Company is
presently dependent upon ITI for its supply of Insitutube material. During the
last three years the Company has not experienced any difficulty in obtaining
adequate supplies of Insitutube material from ITI and, subject to ITI's right to
approve the quality and specifications of material not purchased from ITI, the
Company has the right to substitute an alternate polyester fiber-felt or other
tube material available in the marketplace. The Company presently maintains an
annually renewed supply agreement with ITI for Insitutube material (see
"Relationship With Insituform Technologies, Inc." above).
REVENUE RECOGNITION AND BACKLOG
The Company recognizes revenue using the units of completion method as
pipeline sections are rehabilitated using the Insituform process. An Insituform
process installation is generally performed between manholes or similar access
points within a twenty-four hour period. A rehabilitated pipeline section is
considered completed work and is generally billable to the customer. In most
cases, contracts consisting of individual line sections have a duration of less
than one year.
The total value of all uncompleted and multi-year contract awards from
customers was approximately $5.1 million at June 30, 1996, as compared to $11.9
million at June 30, 1995. The twelve-month backlog at June 30, 1996 was
approximately $4.9 million as compared to $11.5 million at June 30, 1995. June
30, 1996 backlog figures include approximately $1.8 million from MIDSOUTH
Partners. MIDSOUTH Partners' backlog of approximately $4.1 million at June 30,
1995 is not included in consolidated backlog figures at June 30, 1995. The total
value of all uncompleted and multi-year contracts at June 30, 1996 and 1995
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 due to the
irregular timing and receipt of larger annual term contract renewals and other
large project awards.
COMPETITION
The general pipeline replacement, rehabilitation and repair business is
highly competitive. The Company faces conceptual and practical competition both
from a number of contractors employing traditional methods of pipeline
replacement and repair and from contractors offering alternative trenchless
products and technologies.
Traditional Methods. The Insituform process conceptually competes with
traditional methods of pipe rehabilitation including full replacement, point
repair and sliplining. The Company believes the Insituform process usually
offers a cost advantage over full replacement as well as the practical advantage
of avoiding excavation. In addition, the Insituform process also offers
qualitatively better rehabilitation than sliplining which may significantly
reduce the diameter of the pipe. Grouting is also undertaken in the United
States. The Company considers grouting a short-term repair technique and not a
long-term pipeline rehabilitation solution competitive with the Insituform
process. As a practical matter, competition for the Company typically begins at
the point an end user has conceptually determined to employ trenchless
technology over traditional rehabilitation methods involving substantial
excavation.
Cured-in-Place Trenchless Technologies. Over the years, the Company has
witnessed a continuing introduction of alternative cured-in-place trenchless
technologies, none of which the Company believes has been able to offer the
quality or technical and other merits inherent in the Insituform process. The
Company believes it remains the dominant provider of cured-in-place trenchless
pipeline rehabilitation in its licensed territory.
Modified Sliplining Techniques. Several modified sliplining techniques
have been introduced in the trenchless marketplace to include the use of "fold
and formed" thermoplastic pipe. The NuPipe product offered by the Company is a
folded thermoplastic product installed using modified sliplining techniques. The
Company believes that the majority of customers will select the cured-in-place
Insituform process over modified sliplining techniques due to the quality and
longevity of the Insitupipe product, the proven performance record of the
Company's Insituform process installations over the past seventeen years, and
the broader range of design alternatives available with the Insituform process.
The Company does offer its NuPipe product to customers in situations where, for
budget restraints or other reasons, customers or consulting engineers consider a
modified sliplining technique to be an acceptable rehabilitation alternative.
Other Trenchless Technologies. The Company is aware of a number of
other trenchless technologies both under development and from time to time
introduced into the marketplace with mixed results. The Company believes that
the successful, in the ground, over twenty year proven performance of the
Insituform process presents a significant advantage over alternative trenchless
products.
The principal areas of competition in general pipeline replacement,
rehabilitation and repair include the quality of the work performed, the ability
to provide a long-term solution to the pipeline problems rather than a
short-term repair, the amount of disruption to traffic and commercial activity,
and the price. The Company believes that the Insituform process competes
favorably in each of these areas with traditional replacement or repair methods.
In particular, the ability to install Insitupipe products with little or no
excavation at prices typically at or below traditional open trench replacement
methods is of substantial competitive advantage. Further, and despite a small
reduction in pipe diameter resulting from the installation of the Insitupipe
product against the walls of the original pipe, the smooth finished interior
reduces friction and generally increases flow capacity.
The Company believes the trenchless pipeline reconstruction
marketplace is continuing to expand, thereby enticing, however, the entry of
ever more imitations and substitute products hoping that cheap price alone may
permit them to succeed in a market otherwise dominated by Insituform. In those
limited markets where the cheapest priced product may be deemed technically
"good enough," Insituform is at a disadvantage. Strategic participation
undertaken by the Company in this market share segment to preserve competitive
presence, usually at levels materially below normal margins, necessarily dilutes
the overall margin performance of the Company. However, a majority of the
Company's customers already use or are implementing improved procurement
specifications and contract award evaluation criteria emphasizing technical
value instead of simply low price. In a value and quality based market,
Insituform remains at a distinct advantage. As customers and consulting
engineers increasingly rely on quality based purchasing criteria to help ensure
long term solutions to their infrastructure needs, they help clearly
differentiate proven products such as Insituform from cheaply priced trenchless
substitutes with technical, performance and installation risks not equally
tested by time or independent third parties.
SALES AND MARKETING
East's sales and marketing effort is directed by its Vice President of
Sales and Marketing. East's sales and marketing team includes five sales
engineers, three primarily serving municipal customers and two primarily serving
industrial market customers. MIDSOUTH Partners' sales and marketing activities
are directed by the Partnership Management Committee through the Partnership's
General Manager. MIDSOUTH Partners' sales and marketing team includes one sales
manager and one regional sales representative. Sales and marketing personnel are
full-time employees compensated through a combination of salary and bonus. The
Company also participates in seminars and trade shows, and produces and
distributes technical video presentations, brochures and newsletters for current
and prospective users of the Insituform process.
RESEARCH AND DEVELOPMENT
The Company is confident of its present capability to provide pipeline
rehabilitation services to its customers primarily using the Insituform process
and relies on its licensor, ITI, for major research and development projects. On
a continuing basis, however, the Company expends engineering efforts to improve
installation methods and design techniques for specific customer applications.
GOVERNMENTAL REGULATIONS
The Company does not anticipate any material impediments to the use of
the Insituform process arising from existing or future regulations or
requirements, including those regulating the discharge of materials into the
environment.
EMPLOYEES
At June 30, 1996, the Company employed 189 full-time persons, including
46 employees of MIDSOUTH Partners. None of the Company's employees are
represented or covered by collective bargaining agreements.
PROPERTIES
The Company owns four buildings totaling 76,700 square feet situated on
a 15.45 acre site in the Ardwick Industrial Park, Prince George's County,
Maryland. This facility houses the maintenance, operations, marketing,
administration and executive offices of the Company.
The Company also leases a 13,000 square foot branch facility in the
Cincinnati, Ohio, metropolitan area to service operations in the western region
of its licensed territory.
TRY TEK owns 13,885 square feet of land in Hanover, Pennsylvania, with
6,139 square feet of manufacturing, administration and storage facilities housed
in three buildings.
MIDSOUTH Partners leases a 15,000 square foot facility in Knoxville,
Tennessee to serve its customers in Tennessee, Kentucky and northern
Mississippi.
LEGAL PROCEEDINGS
There is no material legal proceeding to which the Company is a party
or any such legal proceeding contemplated of which the Company is aware.
Capitol Copy Products, Inc.
GENERAL
Capitol Copy Products, Inc. ("Capitol Copy" or the "Company") is in the
business of selling, servicing and providing supply products for copier and
facsimile ("fax") equipment. Capitol Copy was originally organized under the
laws of the District of Columbia on May 4, 1976. The Company became a Delaware
corporation on January 27, 1988. The Company's principal business territory
comprises the greater metropolitan Washington, D.C. and Baltimore areas, the
latter having been authorized by Canon, U.S.A., Inc., effective July 1, 1995.
The Company's primary business products are the Canon line of copiers
and fax machines, which the Company is authorized to sell and service under
written dealer agreements with the equipment manufacturer (see "Dealer
Agreements" below). A material portion of the Company's business is involved in
servicing this equipment.
The principal office, corporate headquarters and central distribution
facility of the Company are located at 12000 Old Baltimore Pike, Beltsville,
Maryland 20705. The Company's telephone number is (301) 937-5030, and its fax
number is (301) 937-6031.
DEALER AGREEMENTS
Capitol Copy presently maintains copier and fax dealer agreements with
its principal equipment vendor, Canon U.S.A., Inc. ("Canon"). The agreements
formally permit Capitol Copy to represent the Company as an "authorized" dealer
of each of the manufacturer's copier and fax products, and allows the Company to
benefit from advertising, access to product, training, and various other support
from the equipment manufacturer.
The Canon agreements authorize a primary sales and service area
responsibility ("territory") for the Company to be comprised of the District of
Columbia; the Virginia counties of Arlington and Fairfax; the Virginia cities of
Alexandria and Fairfax; the Maryland counties of Anne Arundel, Baltimore,
Carroll, Harford, Howard, Montgomery and Prince George's; and the Maryland city
of Baltimore.
The Canon agreements remain in effect until terminated by either party
upon specified notice, or by failure to adhere to agreement provisions. The
Company believes that its requirements under the Canon agreements have been and
are being met, and that it maintains an excellent relationship with this
principal vendor. While the Company's relationship with its customers may enable
substitution of an alternate vendor line in the event of any unforeseen
termination of the Canon agreements, the Company presently believes that any
such termination could have a material adverse impact upon the Company.
CUSTOMERS
The Company provides service and supply products to approximately 8,000
customers in the Washington, D.C. and Baltimore metropolitan area. More than 95%
of its active customers are utilizing Canon products.
The majority of the Company's customers operate one to three copier or
fax units, with fewer than fifty active accounts operating ten or more machines.
No single customer accounts for more than 5% of the Company's annual sales
revenue.
PROPERTIES
At June 30, 1996, Capitol Copy occupied three commercial sites in
Maryland and Virginia. The Company leases all of its facilities which at
year-end aggregated to approximately 21,000 square feet of office, showroom and
warehouse space.
The Company believes that the space it occupies for its operations is
adequate for its current and near-term requirements. As additions or reductions
in space become required, the Company anticipates no material problems in
securing in due course appropriate adjustments in occupied space.
COMPETITION
Capitol Copy has several regional competitors in each of the Company's
product lines. However, in the Company's principal product line, copiers and fax
machines manufactured by Canon, the Company believes it presently is the largest
full line dealer in the Washington, D.C. area.
It is possible that the Company's equipment vendors may authorize
additional full line dealers in the Company's territory, or that the Company's
vendors may themselves enter or expand their product distribution directly. The
Company is not aware of any plans by Canon to market directly in the Company's
territory (to other than government customers, or major, national accounts,
which market segments they have traditionally reserved), or to authorize
additional dealers. Based upon overall performance by existing dealers, the
Company believes that the historical disinclination of Canon to authorize
additional area dealers remains unchanged at present. The Company knows of no
adverse developments regarding its dealer agreement with its principal vendor,
Canon.
The principal competitive factors affecting the Company are product
recognition, the ability to deliver an efficient service and repair capability,
and price. As the Company's line of copiers is principally manufactured by an
overseas vendor, there exists the risk of currency fluctuations or trade
embargoes affecting the pricing or delivery of the Company's products.
SALES AND MARKETING
The Company markets its products directly through its own selling
organization consisting of twenty-two sales representatives, four sales managers
and the Company President. The sales representatives are organized by geographic
area. The sales representatives are full-time employees and are compensated
through a combination of salary, commissions and bonuses for sales in excess of
quotas.
The sales organization is supported by presentation materials, customer
literature and media advertising in both radio and print. In addition, the
Company's product lines are advertised on a national basis by the equipment
manufacturers.
LEGAL PROCEEDINGS
There is no material legal proceeding to which the Company is a party
or any such legal proceeding contemplated of which the Company is aware.
EMPLOYEES
At June 30, 1996, the Company employed 99 full-time persons. None of
the Company's employees are represented or covered by collective bargaining
agreements.
Item 2. Properties
See the "Properties" sections of Part I, Item 1(c), "Narrative
Description of Business" for details concerning the properties of each
subsidiary company comprising, in the aggregate, the properties of the
Registrant.
Item 3. Legal Proceedings
See Part II, Item 8, "Notes to Consolidated Financial Statements - Note
13: Contingencies" for details concerning (a) a previously disclosed lawsuit in
the Court of Chancery of the State of Delaware currently on remand from the
Delaware Supreme Court, and (b) a previously disclosed lawsuit pending in the
Superior Court of the District of Columbia.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
(i) Common Stock
CERBCO's Common Stock is traded in the over-the-counter market and is
included in the National Association of Securities Dealers ("NASD") National
Market System ("NMS"). Quotations for such shares are reported in the National
Association of Securities Dealers Automated Quotations ("NASDAQ") System under
the trading symbol CERB. Holders of Common Stock have one vote per share on all
matters on which stockholders are entitled to vote together. The following table
shows the range of bid quotations for the period indicated as reported by
NASDAQ:
<TABLE>
Common Stock
<CAPTION>
Fiscal Year Ended June 30, 1995 High Low
- ------------------------------- ----- -----
<C> <C> <C>
1st Quarter 3 7/8 2 5/8
2nd Quarter 5 1/4 3 3/8
3rd Quarter 5 4
4th Quarter 5 1/8 4 1/4
Fiscal Year Ended June 30, 1996 High Low
- ------------------------------- ----- -----
1st Quarter 8 1/4 4 7/8
2nd Quarter 7 5/8 6
3rd Quarter 7 1/2 5 7/8
4th Quarter 8 1/8 6
</TABLE>
The quotations in the above table represent prices between dealers,
without retail mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions.
(ii) Class B Common Stock
There is no public trading market for shares of CERBCO's Class B Common
Stock. Holders of shares of Class B Common Stock have ten votes per share on all
matters with the exception of the election of directors and any other matter
requiring the vote of stockholders separately as a class. Holders of Class B
Common Stock are entitled to elect the remaining directors after election of not
less than 25% of the directors by the holders of Common Stock, voting separately
as a class. Shares of Class B Common Stock are convertible at any time to shares
of Common Stock on a share-for-share basis.
(b) Holders
As of September 17, 1996, the approximate number of holders of each
class of common equity of CERBCO was as follows:
Common Stock 331
Class B Common Stock 135
(c) Dividends
On June 18, 1996, the Company declared cash dividends of five cents per
share on its shares of Common Stock and five cents per share on its shares of
Class B Common Stock to its shareholders of record at the close of business on
June 30, 1996, payable July 15, 1996. No dividends were declared in 1995 or
1994.
Item 6. Selected Financial Data
The selected financial data set forth below should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere in this report.
<TABLE>
(in thousands, except per share information and return on equity amounts)
STATEMENT OF EARNINGS INFORMATION
<CAPTION>
Years ended June 30
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 50,680 $ 39,143 $ 29,846 $ 24,774 $ 28,984
Operating profit (loss) $ 7,013 $ 5,583 $ 2,234 $ (657) $ 2,120
Earnings (loss) before income taxes
and non-owned interests $ 7,614 $ 6,602 $ 2,526 $ (308) $ 1,962
Earnings (loss) before non-owned interests $ 4,760 $ 3,637 $ 1,246 $ (237) $ 1,220
Earnings from continuing operations $ 2,055 $ 1,391 $ 588 $ 19 $ 430
Net earnings (loss) $ 2,055 $ 1,542 $ 1,319 $ (290) $ 340
Net earnings (loss) per share:
Continuing operations $ 1.40 $ 0.96 $ 0.40 $ 0.01 $ 0.29
Net earnings (loss) $ 1.40 $ 1.06 $ 0.90 $ (0.20) $ 0.23
Weighted average number of shares 1,465 1,460 1,457 1,457 1,457
Dividends declared per share $ 0.05 $ 0 $ 0 $ 0 $ 0
BALANCE SHEET INFORMATION
June 30
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Accounts receivable $ 8,497 $ 6,386 $ 6,675 $ 3,641 $ 5,423
Working capital $ 17,886 $ 12,152 $ 9,480 $ 7,313 $ 8,044
Total assets $ 39,451 $ 32,980 $ 29,507 $ 27,559 $ 29,452
Short-term debt $ 55 $ 53 $ 611 $ 962 $ 816
Long-term debt $ 136 $ 42 $ 96 $ 458 $ 813
Non-owned interests $ 16,509 $ 12,367 $ 10,318 $ 9,809 $ 10,749
Stockholders' equity $ 17,002 $ 15,000 $ 13,445 $ 12,127 $ 12,492
Average stockholders' equity
(Weighted average equity during year
exclusive of current earnings) $ 15,010 $ 13,452 $ 12,127 $ 12,454 $ 12,152
Return on equity
(Current earnings divided by average
stockholders' equity as defined above) 13.7% 11.5% 10.9% (2.3)% 2.7%
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview and Outlook
The Company recognized consolidated earnings from continuing operations
and net earnings of $2,055,291 ($1.40 per share) on sales of $50.7 million, a
13.7% return on equity, for its fiscal year ended June 30, 1996. The Company
recognized consolidated earnings from continuing operations of $1,391,039 ($.96
per share) and consolidated net earnings, including a gain on disposal of
discontinued operations, of $1,542,388 ($1.06 per share) on sales of $39.1
million, an 11.5% return on equity, for its fiscal year ended June 30, 1995.
The Company's financial reporting for the fiscal year ended June 30,
1996 includes on a consolidated basis, for the first time, the accounts of
Insituform East's partnership interest in MIDSOUTH Partners. Insituform East's
investment in MIDSOUTH Partners, and therefore the Company's, was accounted for
using the equity method in prior years. The fiscal year 1996 change in
consolidated reporting arises from a change in control of MIDSOUTH Partners
(also trading as Insituform MIDSOUTH), whereby Insituform East obtained majority
representation on the partnership Management Committee as a result of a June 12,
1996 arbitration award. The change in control does not affect Insituform East's
unaltered 42.5% equity share in partnership earnings and, therefore, financial
consolidation of Insituform East's now majority-controlled subsidiary
partnership has no effect on the previous, current or future shares of
contribution by MIDSOUTH Partners to the overall net earnings of Insituform East
or the Company.
The Company attributed its increased results to the record results of
Capitol Copy, its copy machine products and services segment, and to a
significant decrease in unallocated net general corporate expenses. Capitol Copy
recognized sales of $20.2 million in fiscal year 1996, as compared to $17.5
million in fiscal year 1995, as it continued to sell more high volume, higher
priced units and expanded its service and supply customer base. Capitol Copy
contributed $1,808,072 (up $215,163) in net earnings to CERBCO. Insituform East,
the Company's pipeline rehabilitation segment, recognized sales of $30.5 million
in fiscal year 1996, as compared to $21.6 million in fiscal year 1995; however,
such increase is principally attributable to initiation, in fiscal year 1996, of
the inclusion of MIDSOUTH Partners sales in consolidated sales totals.
Insituform East contributed $537,138 (down $141,297) in net earnings to CERBCO,
and attributed the decrease in its fiscal year earnings to a combination of
adverse sales volume during the last six months of fiscal year 1996 resulting
from harsh winter weather conditions and lower backlog levels, reduced margins
on contracts performed by MIDSOUTH Partners and increased semi-fixed operating
costs associated with expanded production capabilities.
Subsidiary contributions were offset by unallocated net general
corporate expenses in the amount of ($289,919), (down $590,386), including
$186,955 (down $350,661), related to the demands made of, and litigation being
continued against, the Company by two associated, minority stockholders in
connection with the unconsummated private sale of a controlling interest in the
Company abandoned in September 1990. From inception in 1990 through the year
ended June 30, 1996, legal fees and expenses resulting from this litigation
totaled approximately $2.1 million. In August 1995, a Final Order and Judgment
was rendered by the Delaware Court of Chancery in favor of the defendants and
denied in toto the plaintiffs' request for legal fees and expenses totaling
$1,513,499. This opinion was appealed to the Delaware Supreme Court by the
plaintiffs. The Supreme Court issued its decision in April 1996, concluding that
the Chancery Court's opinion was "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
plaintiffs filed a motion for post-remand relief in May 1996 and, after
briefings and oral argument, the Chancery Court issued its decision on September
13, 1996. The order and judgment embodying this ruling have not yet been
entered. For additional information concerning this matter, see Part I, Item 3,
"Legal Proceedings."
For financial information relating to CERBCO's two operating segments,
see Part I, Item 1(b), "Financial Information about Industry Segments."
After experiencing two favorable quarters in fiscal year 1996,
Insituform East saw less favorable results in the second half of the year for
the reasons stated above. While there can be no assurances regarding future
operating performance, based on the volume and mix of its present and expected
backlog of customer orders, Insituform East anticipates these less favorable
results to extend or expand through the first quarter of fiscal year 1997.
However, Insituform East presently believes that anticipated increases in
immediately workable backlog should result in favorable results over the
remaining three quarters of fiscal year 1997.
The Company believes the trenchless pipeline reconstruction
marketplace is continuing to expand, thereby enticing, however, the entry of
ever more imitations and substitute products hoping that cheap price alone may
permit them to succeed in a market otherwise dominated by Insituform. In those
limited markets where the cheapest priced product may be deemed technically
"good enough," Insituform is at a disadvantage. Strategic participation
undertaken by the Company in this market share segment to preserve competitive
presence, usually at levels materially below normal margins, necessarily dilutes
the overall margin performance of the Company. However, a majority of the
Company's customers already use or are implementing improved procurement
specifications and contract award evaluation criteria emphasizing technical
value instead of simply low price. In a value and quality based market,
Insituform remains at a distinct advantage. As customers and consulting
engineers increasingly rely on quality based purchasing criteria to help ensure
long term solutions to their infrastructure needs, they help clearly
differentiate proven products such as Insituform from cheaply priced trenchless
substitutes with technical, performance and installation risks not equally
tested by time or independent third parties.
The principal factor affecting Insituform East's future performance
remains the volatility of earnings as a function of sales volume at normal
margins. Accordingly, because a substantial portion of Insituform East's costs
are semi-fixed in nature, earnings can, at times, be severely reduced or
eliminated during periods of depressed sales at normal margins or material
increases in discounted sales, even where total revenues experience an apparent
buoyancy or growth from the addition of discounted sales undertaken from time to
time for strategic reasons. Conversely, at normal margins, increases in period
sales typically leverage positive earnings significantly.
Capitol Copy has increased sales in each of the last six years, growing
from sales of $9.5 million in fiscal year 1991 to $20.2 million in fiscal year
1996, in a sales and service territory consisting of the cities and counties in
the Washington, D.C. metropolitan area, and since July 1995, the contiguous
Baltimore metropolitan area. Earnings have increased from approximately $0.3
million to $2.7 million in this same six-year period. Again, while there can be
no assurances, the Company presently expects continued favorable results from
this operating segment throughout fiscal year 1997.
Results of Operations
The following table sets forth, for the periods indicated, the relative
percentages that certain items of expense and earnings bear to the sales of
CERBCO and the percentage increases in the dollar amounts of each item from
period to period.
<TABLE>
Results of Operations
<CAPTION>
Percentage Relationship to Period to Period Changes
Revenues Years ended June 30
Years ended June 30 1996 1995
1996 1995 1994 vs 1995 vs 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 29.5% 31.2%
----- ----- -----
Costs and Expenses:
Cost of Sales 67.7 64.6 69.1 35.7 22.6
Selling, general and administrative expenses 18.5 21.1 23.4 13.0 18.3
----- ----- -----
Total Costs and Expenses 86.2 85.7 92.5 30.1 21.5
----- ----- -----
Operating Profit 13.8 14.3 7.5 25.6 149.9
Investment Income 0.8 0.5 0.4 89.6 69.9
Equity in Earnings of Unconsolidated Affiliate 0.0 1.9 0.5 (100.0) 377.3
Interest Expense (0.1) (0.1) (0.3) (0.1) (72.6)
Other Income (Expense) - net 0.5 0.3 0.4 130.8 (11.8)
----- ----- -----
Earnings Before Income Taxes
and Non-Owned Interests 15.0 16.9 8.5 15.3 161.4
Income Taxes 5.6 7.6 4.3 (3.7) 131.6
----- ----- -----
Earnings Before Non-Owned Interests 9.4 9.3 4.2 30.9 191.9
Non-Owned Interests 5.3 5.7 2.2 20.4 241.6
----- ----- -----
Earnings from Continuing Operations 4.1 3.6 2.0 47.8 136.5
Discontinued Operations 0.0 0.3 2.4 (100.0) (79.3)
----- ----- -----
Net Earnings 4.1% 3.9% 4.4% 33.3 17.0
===== ====== =====
</TABLE>
1996 vs 1995
Consolidated sales increased $11.5 million (29.5%) in 1996 as compared
to 1995, as sales increased in both of the Company's operating segments.
Insituform East's sales increased $8.9 million (41.1%), primarily due to the
inclusion of MIDSOUTH Partners' sales in its consolidated sales total.
Comparable period East sales increased 4%, primarily as a result of expanded
production capacity and high levels of workable backlog during the first six
months of fiscal year 1996. Capitol Copy's sales increased $2.7 million (15.2%)
in 1996, with its equipment sales increasing 14.3% and its copier service and
supply revenues increasing 15.8%. The increases in both areas reflect a
continuing expansion in Capitol Copy's customer base, and expansion into the
Baltimore area with sales of approximately $0.8 million for 1996.
Operating profit increased $1.4 million (25.6%) in 1996 as compared to
1995 as operating profit increased in both of the Company's operating segments,
and the parent company's operating loss decreased. Insituform East's operating
profit increased 22.2% as a result of including MIDSOUTH Partners' operating
profit in 1996. Insituform East's gross profit margin decreased from 30.5% to
26.9% primarily as a result of increased semi-fixed operating costs associated
with expanded East production capacity in 1996 and reduced margins on MIDSOUTH
Partners' Insituform contracts. Insituform East's selling, general and
administrative costs increased 25.8% primarily as a result of including MIDSOUTH
Partners' selling, general and administrative costs in 1996. Capitol Copy's
operating profit increased 10.1%, a smaller increase than sales, as overall
gross profit margin decreased from 41.4% to 40.4% and selling, general and
administrative costs increased 15.3%. Capitol Copy's selling, general and
administrative costs increased primarily due to the additional selling expenses
associated with opening its Baltimore office.
1995 vs 1994
Consolidated sales increased $9.3 million (31.2%) in 1995 as compared
to 1994 as sales increased in both of the Company's operating segments.
Insituform East's sales increased $6.8 million (45.9%), primarily due to
available work and expanded production capacity associated with the addition of
another installation crew during the second quarter of fiscal year 1995.
Insituform East achieved sales volume increases at normal margins in all three
of its market sectors -- municipal, Federal government and industrial. Sales in
these three areas were 65%, 21% and 14%, respectively, of Insituform East's
fiscal year 1995 sales. Capitol Copy's sales increased $2.5 million (16.7%) in
1995. While equipment sales increased 8.5%, reflecting some increase in the
sales of high volume machines which typically sell at higher prices, copier
service and supply revenues increased 24.7% primarily due to an increase, net of
cancellations, in service contracts resulting from an expanding customer base.
Operating profit increased $3.3 million (149.9%) in 1995 as compared to
1994 due primarily to Insituform East achieving an operating profit of $2.5
million in 1995 after an operating loss of -$0.2 million in 1994. Insituform
East's gross profit margin increased from 22.5% to 30.5% as its semi-fixed
operating costs were absorbed over increased sales in 1995. Insituform East's
selling, general and administrative costs increased 15.7%, a smaller percentage
increase than sales, primarily as a result of costs associated with increased
production activities. Capitol Copy's operating profit increased $1.1 million
(35.0%) to $4.1 million, as overall gross profit increased from 39.2% to 41.4%
and general and administrative costs increased 11.3%, a smaller percentage
increase than sales. The parent company's operating loss increased $0.4 million
primarily due to an increase in corporate legal expenses.
Insituform East's equity in the operating results of MIDSOUTH Partners
increased $0.6 million (377.3%) in 1995 as compared to 1994, primarily as a
result of a 43.5% increase in MIDSOUTH Partners' comparable period sales from
$6.2 million to $8.9 million. The increase in sales was due to consistently high
production levels throughout the year and increased sales to Federal government
customers. The Partnership's gross profit margin increased from 21.1% in 1994 to
30.7% in 1995 due in part to improved production efficiency, the mix of
contracts performed and the absorption of semi- fixed operating costs over
increased sales.
The gain on disposal of discontinued operations decreased from $0.7
million in 1994 to $0.1 million in 1995, primarily due to the receipt of a
substantial one-time payment in 1994 in connection with the discontinued
operations of CERBERONICS resulting from the settlement of a lawsuit with the
U.S. Navy (see Part II, Item 8, "Notes to Consolidated Financial Statements --
Note 7: Discontinued Operations").
Liquidity and Capital Resources
Liquidity may be defined as the Company's ability to mobilize cash.
Cash and cash equivalents increased $5.0 million in fiscal year 1996. Insituform
East's cash and cash equivalents increased $1.4 million, including the $0.7
million provided by consolidating MIDSOUTH Partners. Capitol Copy's cash and
cash equivalents increased $2.0 million. At the holding company level, CERBCO's
cash and cash equivalents increased $1.6 million, as $1.8 million was provided
by the sale of temporary investments. Consolidated cash and cash equivalents
increased $3.0 million in fiscal year 1995.
The Company's operating activities provided approximately $5.9 and $4.7
million in cash during fiscal years 1996 and 1995, respectively, primarily due
to the earnings of the Company's two operating subsidiaries and non-cash
expenses by it and its subsidiaries for depreciation and amortization.
Net cash used in investing activities was approximately $0.4 million
and $1.0 million in fiscal years 1996 and 1995, respectively. The primary use of
such funds was for capital expenditures by Insituform East in each of the fiscal
years to upgrade, expand and improve production capabilities.
Net cash used in financing activities was $0.4 million and $0.7 million
in fiscal years 1996 and 1995, respectively. During fiscal year 1996, Capitol
Copy paid cash dividends declared at mid-year. During fiscal years 1996 and
1995, Insituform East paid cash dividends declared for fiscal years 1995 and
1994, respectively. During fiscal year 1995, Capitol Copy paid down its line of
credit.
CERBCO believes that its two principal operating subsidiaries,
Insituform East and Capitol Copy, have cash reserves, existing open bank lines
of credit or borrowing potential against unencumbered assets sufficient to meet
the respective cash flow requirements for operating funds and capital
expenditures of each operating company. Insituform East has available as undrawn
the amount of $3.0 million on its individual line of credit. Capitol Copy did
not deem it necessary to renew its line of credit which expired January 31,
1995. Its cash reserves were approximately $3.2 million at June 30, 1996 and are
expected to grow further in fiscal year 1997. The parent holding company,
CERBCO, also does not have a separate bank line of credit, but has cash reserves
in excess of $2.8 million which are believed to be adequate to meet its own cash
flow requirements, or the temporary requirements of its subsidiaries, in the
foreseeable future, including continuing legal fees and expenses of the parent
in connection with the stockholder litigation now on remand to the Delaware
Chancery Court. The Company cannot, of course, predict the outcome of pending
litigation, including further 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.
Item 8. Financial Statements and Supplementary Data
See financial statements and supplementary financial information
provided following Item 9 below.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of CERBCO, Inc.
We have audited the accompanying consolidated balance sheets of CERBCO, Inc. and
subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CERBCO, Inc. and subsidiaries as of
June 30, 1996 and 1995, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 1996, in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Washington, D.C.
September 20, 1996
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
1996 1995 1994
---- ---- ----
Sales
<S> <C> <C> <C>
Sales of products $ 39,737,895 $ 29,696,264 $ 22,271,971
Sales of services and supplies 10,942,168 9,446,520 7,573,766
------------ ------------ ------------
TOTAL SALES 50,680,063 39,142,784 29,845,737
------------ ------------ ------------
Costs and Expenses
Cost of products sold 28,721,645 20,602,316 16,733,878
Cost of services and supplies 5,603,351 4,692,154 3,891,171
Selling, general and administrative expenses 9,341,947 8,265,371 6,986,818
------------ ------------ ------------
Total Costs and Expenses 43,666,943 33,559,841 27,611,867
------------ ------------ ------------
Operating Profit 7,013,120 5,582,943 2,233,870
Investment Income 379,916 200,421 117,986
Equity in Earnings of Unconsolidated Affiliate 0 738,798 154,786
Interest Expense (28,129) (28,290) (103,110)
Other Income - net 248,661 107,753 122,130
------------ ------------ ------------
Earnings Before Non-Owned Interests 7,613,568 6,601,625 2,525,662
Provision for Income Taxes 2,854,000 2,965,000 1,280,000
------------ ------------ ------------
Earnings Before Non-Owned Interests 4,759,568 3,636,625 1,245,662
Non-Owned Interests in Earnings of
Consolidated Subsidiaries 2,704,277 2,245,586 657,368
------------ ------------ ------------
Earnings from Continuing Operations 2,055,291 1,391,039 588,294
Discontinued Operations:
Gain on disposal of discontinued operations 0 151,349 730,337
------------ ------------ ------------
NET EARNINGS $ 2,055,291 $ 1,542,388 $ 1,318,631
============ ============ ============
Net Earnings per Share of Common Stock:
Earnings from continuing operations $ 1.40 $ 0.96 $ 0.40
Gain on disposal 0.00 0.10 0.50
----------- ----------- ------------
Net Earnings per Share $ 1.40 $ 1.06 $ 0.90
=========== =========== ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30
1996 1995
------------ -----------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 10,234,224 $ 5,197,549
Temporary investments 0 1,760,950
Accounts receivable 8,497,050 6,386,343
Inventories 3,336,052 2,832,003
Prepaid and refundable taxes 135,242 53,568
Deferred income taxes 133,000 82,000
Prepaid expenses and other 359,631 325,013
------------ ------------
Total Current Assets 22,695,199 16,637,426
------------ ------------
Property, Plant and Equipment:
Land and improvements 2,018,587 2,018,587
Buildings and improvements 6,127,007 5,872,053
Vehicles and production equipment 9,867,451 6,381,331
Vehicles under capital leases 136,178 136,178
Small tools, radios and machine shop equipment 4,119,870 2,993,920
Office furniture and equipment 1,417,449 1,248,632
------------ ------------
23,686,542 18,650,701
Less accumulated depreciation and amortization (12,394,724) (9,094,562)
------------ ------------
Total Property, Plant and Equipment 11,291,818 9,556,139
------------ ------------
Other Assets:
Excess of acquisition cost over value of net assets
acquired - net of accumulated amortization of
$1,615,227 in 1996 and $1,455,921 in 1995 4,728,662 4,887,968
Investment in unconsolidated affiliate 0 1,481,726
Cash surrender value of life insurance 498,974 254,060
Deferred income taxes 41,000 27,000
Deposits and other 195,082 135,761
----------- -----------
Total Other Assets 5,463,718 6,786,515
----------- -----------
Total Assets $39,450,735 $32,980,080
=========== ===========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30
1996 1995
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Accounts payable and accrued liabilities $ 3,629,255 $ 3,429,577
Income taxes payable 623,618 522,966
Deferred revenue 500,643 479,858
Current portion of long-term debt 5,104 19,015
Current portion of capital lease obligations 50,176 34,156
----------- -----------
Total Current Liabilities 4,808,796 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) 135,844 37,129
Deferred income taxes 818,000 985,000
Accrued SERP liability 176,955 99,672
Total Long-term Liabilities 1,130,799 1,126,905
Total Liabilities 5,939,595 5,612,477
----------- -----------
Commitments and Contingencies
Non-Owned Interests in Consolidated Subsidiaries 16,509,371 12,367,344
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value
Authorized: 3,500,000 shares
Issued and outstanding: 1,157,101 shares (at June 30, 1996) 115,710
Issued and outstanding: 1,150,989 shares (at June 30, 1995) 115,099
Class B Common stock (convertible), $.10 par value
Authorized: 700,000 shares
Issued and outstanding: 310,855 shares (at June 30, 1996) 31,085
Issued and outstanding: 310,967 shares (at June 30, 1995) 31,096
Additional paid-in capital 7,432,071 7,413,054
Retained earnings 9,422,903 7,441,010
----------- -----------
Total Stockholders' Equity 17,001,769 15,000,259
----------- -----------
Total Liabilities and Stockholders' Equity $39,450,735 $32,980,080
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 and 1994
<CAPTION>
Total
Additional Stock-
Common Stock Class B Common Stock paid-in Retained holders'
Shares Amounts Shares Amounts capital earnings equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JULY 1, 1993 1,146,433 $114,643 311,023 $31,102 $7,400,915 $ 4,579,991 $ 12,126,651
Net earnings 0 0 0 0 0 1,318,631 1,318,631
Conversion of Class B stock
into Common stock 56 6 (56) (6) 0 0 0
Change in ownership interest
in subsidiary 0 0 0 0 97 0 97
--------- ------- ------- ------ ---------- ----------- ------------
BALANCE - JUNE 30, 1994 1,146,489 114,649 310,967 31,096 7,401,012 5,898,622 13,445,379
Net earnings 0 0 0 0 0 1,542,388 1,542,388
Issuance of stock pursuant to
exercise of stock options 4,500 450 0 0 11,925 0 12,375
Change in ownership interest
in subsidiary 0 0 0 0 117 0 117
--------- ------- ------- ------ ---------- ----------- ------------
BALANCE - JUNE 30, 1995 1,150,989 115,099 310,967 31,096 7,413,054 7,441,010 15,000,259
Net earnings 0 0 0 0 0 2,055,291 2,055,291
Issuance of stock pursuant to
exercise of stock options 6,000 600 0 0 18,900 0 19,500
Conversion of Class B stock
into Common stock 112 11 (112) (11) 0 0 0
Dividends declared 0 0 0 0 0 (73,398) (73,398)
Change in ownership interest
in subsidiary 0 0 0 0 117 0 117
--------- ------- ------- ------ ---------- ----------- ------------
BALANCE - JUNE 30, 1996 1,157,101 $115,710 310,855 $31,085 $7,432,071 $ 9,422,903 $ 17,001,769
========= ======== ======== ======= ========== ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended June 30
1996 1995 1994
------------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Earnings from continuing operations $ 2,055,291 $ 1,391,039 $ 588,294
Gain on discontinued operations 0 151,349 730,337
------------ ----------- -----------
Net earnings 2,055,291 1,542,388 1,318,631
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 1,949,292 1,364,171 1,309,219
Equity in earnings of unconsolidated affiliate 0 (738,798) (154,786)
Amounts attributable to non-owned interests 2,704,277 2,245,586 657,368
Change in net assets of discontinued operations 0 0 261,183
Deferred income taxes (102,000) 50,000 309,000
Increase in other assets (269,235) (124,416) (81,316)
Increase in long-term liabilities 77,283 67,932 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 165,729 289,043 (3,034,298)
(Increase) decrease in inventories (42,324) (762,694) 30,323
(Increase) decrease in other current assets 59 430,273 333,032
Increase (decrease) in accounts payable and accrued expenses (861,126) (78,792) 756,422
Increase (decrease) in income taxes payble 221,140 411,322 3,396
Increase (decrease) in deferred revenue 20,785 (15,747) 141,876
----------- ----------- ----------
Net Cash Provided by Operating Activities 5,919,171 4,680,268 1,850,050
----------- ----------- ----------
Cash Flows from Investing Activities:
Capital expenditures (2,111,648) (1,627,540) (802,218)
Disposal of equipment - net 28,387 40,133 121,975
Disposal of net assets of discontinued operations 0 0 124,082
Redemption (purchase) of temporary investments - net 1,760,950 531,086 (2,292,036)
Cash distribution from MIDSOUTH Partners 0 123,250 0
Cash distribution from MIDSOUTH Partners to non-owned
interests (368,000) 0 0
Cash balance of majority-controlled Partnership prior to
consolidation 241,094 0 0
Increase in other assets (13,000) 0 0
Acquisition of non-owned interest 0 (18,816) 0
----------- ----------- ----------
Net Cash Used in Investing Activities (462,217) (951,887) (2,848,197)
----------- ----------- ----------
Cash Flows from Financing Activities:
Proceeds from revolving lines of credit and long-term borrowings 0 2,150,000 7,012,582
Principal payments on revolving lines of credit, capital lease
obligations and long-term borrowings (108,738) (2,760,795) (7,767,399)
Dividends paid (331,041) (148,036) (148,036)
Proceeds from exercise of stock options 19,500 12,375 0
----------- ---------- ----------
Net Cash Used in Financing Activities (420,279) (746,456) (902,853)
----------- ----------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 5,036,675 2,981,925 (1,901,000)
Cash and Cash Equivalents at Beginning of Year 5,197,549 2,215,624 4,116,624
------------ ----------- -----------
Cash and Cash Equivalents at End of Year $ 10,234,224 $ 5,197,549 $ 2,215,624
============ =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 27,529 $ 28,290 $ 97,775
============ =========== ===========
Income taxes paid $ 3,076,269 $ 2,173,715 $ 428,239
============ =========== ===========
Supplemental disclosure of non-cash investing and financing activities:
Additions to capital leases $ 133,088 $ 0 $ 40,362
============ ============ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CERBCO, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the
parent holding company, CERBCO, Inc. ("CERBCO"); its majority-owned subsidiary,
Capitol Copy Products, Inc. ("Capitol Copy"); and its majority-controlled
subsidiary, Insituform East, Incorporated ("Insituform East"). All significant
intercompany balances and transactions have been eliminated in consolidation.
Business Operations
CERBCO is a parent holding company with controlling interests in two
principal subsidiaries, each of which is in a separate industry segment.
Insituform East, operating pursuant to sublicense agreements with Insituform
Technologies, Inc. ("ITI"), provides a patented process called "Insituform"
primarily to municipalities and state agencies for the repair and reconstruction
of sewers and other types of pipelines. The Insituform(R) process creates a
hard, jointless, impact and corrosion resistant Insitupipe(R) product inside
deteriorating pipes, with a principal benefit that it can usually be installed
without excavation. Capitol Copy is in the business of selling, servicing and
providing supply products for copier and facsimile equipment, operating pursuant
to certain dealer agreements, primarily with Canon, U.S.A., Inc.
Revenue Recognition
The Company recognizes revenue under contracts to rehabilitate pipeline
sections using the units of completion method. A rehabilitated pipeline section
is considered completed work and is generally billable to the customer.
Sales of copier and facsimile equipment are recorded as revenue on the
date the equipment is shipped. Revenue from maintenance contracts is recognized
ratably over the terms of the agreements.
Cash and Cash Equivalents
Cash and cash equivalents are composed of unrestricted checking
accounts and short-term investments in repurchase agreements, money market
funds, certificates of deposit and U.S. Treasury instruments. For purposes of
the consolidated statements of cash flows, the Company considers only highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Temporary Investments
Temporary investments are composed of U.S. Treasury instruments with
maturities of greater than three months. Temporary investments are stated at
cost plus accrued interest which approximates market.
Inventories
Inventories are stated at the lower of cost or market. Cost for
pipeline rehabilitation materials is determined by the first-in, first-out
method. Cost for copier and facsimile equipment, supplies and parts is
determined by the average cost method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation has
been provided in the financial statements using the straight-line or declining
balance methods at rates which are based upon reasonable estimates of the
properties' useful lives. These lives range from three to ten years for
vehicles, equipment and furniture, and twenty to forty years for buildings.
Leasehold improvements are amortized using the straight-line method over the
life of the lease.
Betterments or improvements which increase the estimated useful life of
an asset are capitalized. Repairs and maintenance are charged directly to
expense as incurred. The Company incurred repair and maintenance costs of
approximately $1,055,000, $824,000 and $567,000 in fiscal years 1996, 1995 and
1994, respectively.
Goodwill
The excess of cost over the fair values of the Insituform East and
Capitol Copy net tangible assets ("goodwill") acquired in 1985 and 1987,
respectively, is amortized using the straight-line method over forty years. The
Company annually reviews its goodwill recoverability by assessing the historical
profitability of its segments and expectations as to future nondiscounted cash
flows and operating income for each segment, as well as: the continued use of
the segments' names; the continued use of Insituform East's license agreements
and the status of various patents which govern the Insituform process; and the
success of Capitol Copy in meeting its commitments under its dealer agreements.
Based upon its most recent analysis, the Company believes that no impairment of
goodwill exists at June 30, 1996.
Income Taxes
The Company provides for federal and state income taxes at the
statutory rates in effect on taxable income. Deferred income taxes result from
recognizing certain items of income and expense in consolidated financial
statements in different years from those in income tax returns. These temporary
differences relate principally to use of accelerated depreciation methods for
tax purposes; timing of the payment of compensated absences; timing of the
recognition of income from the Company's investment in MIDSOUTH Partners (see
Note 6: Investment in MIDSOUTH Partners); and timing of the recognition of
income from certain lease transactions and maintenance contracts.
Through September 30, 1992, CERBCO filed consolidated federal and state
tax returns, which included the results of Capitol Copy. Beginning October 1,
1992, Capitol Copy filed separate federal and state tax returns. Taxes are
reported in the financial statements for this subsidiary as if it filed separate
returns for all periods through September 30, 1992. The difference between the
total taxes so reported for the subsidiary and the consolidated expense was
reported as part of the parent company's tax expense. The parent therefore
received the benefit of, or charge for, any difference between the consolidated
tax provision and separate return provisions.
Insituform East and Capitol Copy file separate federal and state tax
returns, and their provisions are combined with CERBCO's consolidated provision.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
New Accounting Standards
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), issued by the Financial Accounting
Standards Board is effective for transactions entered into in fiscal years that
begin after December 15, 1995. The disclosure requirements of SFAS No. 123 are
also effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard encourages entities to adopt a fair value
method of accounting for employee stock-based compensation plans. As allowed
under the provisions of SFAS No. 123, the Company intends to continue to measure
compensation cost for employee stock-based compensation plans using the
intrinsic value based method of accounting prescribed by the Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. As
such, the Company would be required to provide pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied. Thus, adoption during the fiscal year ending June 30, 1997,
should have no effect on the Company's financial position or results of
operations.
2. Accounts Receivable
<TABLE>
Accounts receivable consist of:
<CAPTION>
1996 1995
----------- -----------
Due from municipal and commercial
<S> <C> <C>
customers $ 8,113,075 $ 6,195,486
Miscellaneous 426,831 245,857
----------- -----------
8,539,906 6,441,343
Less: Allowance for doubtful
accounts (42,856) (55,000)
----------- -----------
$ 8,497,050 $ 6,386,343
=========== ===========
</TABLE>
3. Inventories
<TABLE>
Inventories consist of:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pipeline rehabilitation materials $1,159,532 $1,111,202
Copier and facsimile equipment 1,662,375 1,274,977
Copier and facsimile supplies 182,475 172,908
Copier and facsimile parts 331,670 272,916
---------- ----------
$3,336,052 $2,832,003
========== ==========
</TABLE>
4. Equity in Insituform East
At June 30, 1996 and 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 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 the directors 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 in 1996, 1995 or 1994. If all the
options and warrants outstanding at June 30, 1996 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 stock for
treasury. Changes in capital structure resulting from such stock purchases
increase CERBCO's equity ownership. No shares were purchased in 1996, 1995 or
1994.
5. Equity in Capitol Copy
At June 30, 1996 and 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.
6. Investment in MIDSOUTH Partners
CERBCO's consolidated financial statements as of June 30, 1996 and for
the year then ended include the accounts of MIDSOUTH Partners, Insituform East's
majority controlled subsidiary partnership since June 12, 1996. MIDSOUTH
Partners was organized as Insituform MIDSOUTH, a Tennessee general partnership,
in December 1985 with Insituform East as a general partner. MIDSOUTH Partners is
the exclusive licensee for the Insituform process and NuPipe process in
Tennessee, Kentucky (excluding Boone, Kenton and Campbell counties) and northern
Mississippi. The Partnership's general partners at June 30, 1996 are Insitu,
Inc., a wholly-owned subsidiary of Insituform East; E-Midsouth, Inc., an
affiliate of Insituform Technologies, Inc. ("ITI"); and Insituform California,
Inc., also an affiliate of ITI.
Management and conduct of the business of MIDSOUTH Partners is vested
in a Management Committee. The seven-member Partnership Management Committee
consisted of four Insitu, Inc. representatives, two E-Midsouth, Inc.
representatives and one Insituform California, Inc. representative at June 30,
1996. Insituform East did not have majority representation on the Partnership
Management Committee prior to a June 12, 1996 arbitration award, which, in
connection with a default of the Partnership Agreement by E-Midsouth, Inc.,
granted Insitu, Inc. the unilateral right to appoint an additional Management
Committee member in place of an E-Midsouth, Inc. representative.
Partnership profits and losses are allocated to the partners as follows:
Insitu, Inc. 42.5%
E-Midsouth, Inc. 42.5%
Insituform California, Inc. 15.0%
The following is condensed financial information of MIDSOUTH Partners
at June 30, 1996, 1995 and 1994, and for each of the three years in the period
ended June 30, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash $ 678,176 $ 241,094 $ 210,487
Accounts receivable 2,193,636 2,249,690 1,162,273
Inventories 445,210 431,738 252,262
Property, plant and equipment, Net 1,298,593 1,319,303 937,901
Other assets 129,359 185,097 138,807
---------- ---------- ----------
Total Assets $4,744,974 $4,426,922 $2,701,730
========== ========== ==========
Current liabilities$ 581,228 $ 859,489 $ 533,470
Long-term obligations under capital lease 112,732 22,196 71,370
---------- ---------- ----------
Total Liabilities $ 693,960 $ 881,685 $ 604,840
========== ========== ==========
Revenues $8,395,698 $8,894,746 $6,185,972
========== ========== ==========
Gross Profit $2,074,144 $2,739,390 $1,303,112
========== ========== ==========
Partnership Earnings $1,145,777 $1,738,347 $ 364,204
========== ========== ==========
</TABLE>
7. Discontinued Operations
On June 11, 1993, the Company adopted a formal plan to discontinue
providing cement mortar lining services conducted through its pipeline
rehabilitation segment, Insituform East. This plan included declining to bid on
future cement mortar lining contracts, fulfilling existing commitments and
selling remaining equipment and materials associated with this service
capability. The Company substantially completed two existing contracts in
progress and sold substantially all remaining equipment and materials during the
year ended June 30, 1994. Sales revenues from cement mortar lining activities
for the year ended June 30, 1994 was $1,080,773. This amount is not included in
sales in the accompanying Consolidated Statements of Earnings.
On March 31, 1991, the Company adopted a formal plan to discontinue the
operations of its defense contract services segment conducted through its
wholly-owned subsidiary, CERBERONICS, Inc. ("CERBERONICS"). The segment did not
operate subsequent to June 30, 1991.
On December 14, 1993, the Company obtained payment of $991,520,
consisting of a judgment for $871,649 plus interest of $119,871, resulting from
settlement of a lawsuit against the U.S. Navy in connection with open proposals
under CERBERONICS's former C-9 contract. The payment resulted in a gain from
discontinued operations of $730,337 for the fiscal year ended June 30, 1994.
During fiscal year 1995, the Company obtained final payment from the Federal
government on five contracts completed by CERBERONICS on or before June 30,
1991. These payments resulted in a gain from discontinued operations of $151,349
for the fiscal year ended June 30, 1995. There are no material open items
remaining that pertain to other former contracts of CERBERONICS.
8. Supplemental Executive Retirement Plan
The Company has an unfunded supplemental pension plan for its three
executive officers, effected January 1, 1994. The expense for this plan was
$77,784, $67,932 and $31,740 for the fiscal years ended June 30, 1996, 1995 and
1994, respectively.
To facilitate the payment of benefits, the Company has established a
trust. Funds in the trust are invested in variable life insurance policies and
are included in the Company's balance sheet as cash surrender value of life
insurance in the amounts of $498,974 and $254,060 at June 30, 1996 and 1995,
respectively. This trust is subject to the claims of the Company's creditors in
the event of bankruptcy or insolvency.
9. Loans Payable
Insituform East maintains a $3,000,000 bank line of credit which is
currently available to it through December 31, 1997. Interest on borrowings
against this line of credit is payable monthly at the bank's prime rate. The
line is unsecured; however, Insituform East must comply quarterly with financial
liquidity, net worth, tangible net worth and debt to equity leverage covenants.
At June 30, 1996, the amount available as undrawn on this line was $3,000,000.
Capitol Copy had a $1,500,000 bank line of credit which expired January 31,
1995. Capitol Copy did not deem it necessary to renew such line, as both it and
Insituform East have agreements in place with the parent company, CERBCO,
whereby each may borrow up to $1,000,000 for operating purposes from CERBCO at
interest rates not less than the subsidiary would pay to its respective bank. At
June 30, 1996, neither subsidiary had amounts outstanding under these
agreements.
10. Accounts Payable and Accrued Liabilities
<TABLE>
Accounts payable and accrued liabilities consist of:
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accounts payable $1,075,893 $1,366,338
Accrued compensation and related expenses 2,302,320 1,885,596
Dividends payable 251,042 177,643
---------- ----------
$3,629,255 $3,429,577
========== ==========
</TABLE>
11. Long-Term Debt
<TABLE>
Long-term debt consists of:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Installment note payable due in full in
September 1996, with equal monthly
payments of $1,734 including
interest at 11.5% $ 5,104 $ 24,119
Less: Current portion (5,104) (19,015)
------- --------
$ 0 $ 5,104
======= ========
</TABLE>
12. Commitments
The Company utilizes certain equipment and facilities under operating
leases providing for payment of fixed rents and the pass-through of certain
landlord expenses. Rental expense was approximately $500,000, $480,000 and
$328,000 for the years ended June 30, 1996, 1995 and 1994, respectively. In
addition, the Company obtains vehicles and computer and other office equipment
under long-term capital leases. The net book value of equipment under capital
leases was $166,912 and $61,396 as of June 30, 1996 and 1995, respectively.
Minimum future rental commitments under long-term capital and operating leases
in effect at June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1997 $ 78,936 $ 298,358
1998 59,964 138,591
1999 49,900 101,775
2000 41,580 52,154
2001 19,500 52,154
2002 and thereafter 14,625 26,077
--------- ---------
Total Minimum Payments $ 264,505 $ 669,109
=========
Less: Interest (78,485)
---------
Present Value of Minimum Payments $ 186,020
=========
</TABLE>
The Company's pipeline rehabilitation using the Insituform process is
performed under seven sublicense agreements with ITI. These sublicenses grant
the Company exclusive rights to perform the Insituform process in the states of
Maryland, Virginia, Delaware, the District of Columbia, Pennsylvania, Ohio, West
Virginia, Kentucky, Tennessee and northern Mississippi. The agreements are for
the life of the patents or the patent rights unless sooner terminated by a
specified action of either party. The agreements obligate the Company to pay ITI
a royalty equal to 8% of the gross contract price of all contracts performed
utilizing the process, less certain fees. The total royalty expense was
approximately $1,847,000, $1,354,000 and $920,000 for the years ended June 30,
1996, 1995 and 1994, respectively.
The Company has also entered into license agreements for identical
territories with NuPipe, Inc., a wholly-owned subsidiary of ITI, for the sale
and installation of pre-formed PVC thermoplastic pipe under the NuPipe(R)
process and trademark. The Company has committed to pay royalty equal to 6.75%
of gross contract revenues utilizing the NuPipe process and to purchase certain
installation equipment and installation materials from NuPipe, Inc.
The Company has supply agreements with ITI committing the Company to
purchase 90% of its Insitutube(R) material requirements from ITI. As a result of
certain terms not previously fulfilled by ITI, the Company believes it is no
longer required to purchase 90% of its Insitutube material requirements from ITI
under the otherwise continuing agreements. These agreements, which presently
extend through April 30, 1997, are renewable annually unless notice of
termination is provided by either party six months prior to the end of the
current renewal period. During the three years ended June 30, 1995, the Company
purchased substantially all of its Insitutube from ITI.
13. 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 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 (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 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.
The plaintiffs filed a Notice of Appeal with the Delaware Supreme
Court on August 30, 1995. Briefing was completed on December 6, 1995. Oral
argument was held on January 18, 1996. On April 10, 1996, the Delaware Supreme
Court issued its decision. The 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 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 motions the Supreme Court denied, and on May 15, 1996, the case was
remanded to the Court of Chancery.
On May 20, 1996, the plaintiffs filed a motion for post-remand relief
in the Court of Chancery, seeking (a) a "disgorgement of benefits" allegedly
received by the Eriksons in the aggregate amount of $451,000; (b) "damages
attributable to the Eriksons' breach of fiduciary duty" in an aggregate amount
of almost $1.4 million; and (c) certain injunctive relief against the Eriksons
with respect to "any further negotiations with ITI respecting ITI's interest in
obtaining control of [Insituform East]." The Eriksons and the plaintiffs filed
briefs in connection with the plaintiffs' motion. Oral argument on the motion
was presented to the Court of Chancery on July 15, 1996.
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. The order and judgment
embodying the Court's rulings have not yet been entered and, accordingly, the
time for filing any appeals from the Court of Chancery's decision on remand has
not yet commenced. The Eriksons have advised the Company they are likely to
appeal the judgment. The plaintiffs have not yet submitted a petition in the
Court of Chancery for counsel fees as contemplated by the April 10, 1996
Delaware Supreme Court decision.
As previously reported by the Copmpany, 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. 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. In accordance with a status report
filed by the parties with the Superior Court on or about June 28, 1996, the stay
of the District of Columbia action was continued at least until such time as the
Delaware Court of Chancery ruled upon the plaintiffs' pending motion for
post-remand relief.
Management believes ultimate resolution of these matters will not have
a material effect on the financial statements. Accordingly, no provision for
these contingencies has been reflected therein.
CERBCO is involved in other contingencies, none of which could, in the
opinion of management, materially affect the Company's financial position or
results of operations.
14. Common Stock
The Company has two classes of Common Stock, which are designated as
Common Stock and Class B Common Stock. Each share of Class B Common Stock can be
converted into one share of Common Stock at any time. In 1996, 112 shares of
Class B Common Stock were converted to Common Stock. In 1995, no shares of Class
B Common Stock were converted to Common Stock. In 1994, 56 shares of Class B
Common Stock were converted to Common Stock.
Each share of Common Stock is entitled to one vote and each share of
Class B Common Stock is entitled to ten votes, except with respect to the
election of directors and any other matter requiring the vote of shareholders
separately as a class. The holders of Common Stock, voting as a separate class,
are entitled to elect that number of directors which constitutes twenty-five
percent (25%) of the authorized number of members of the Board of Directors and,
if such 25% is not a whole number, then the holders of Common Stock are entitled
to elect the nearest higher whole number of directors that is at least 25% of
such membership. The holders of Class B Common Stock, also voting as a separate
class, are entitled to elect the remaining directors. In addition, the holders
of Common Stock have certain dividend preferences.
15. Income Taxes
<TABLE>
The provision for taxes is composed of the following (in thousands):
<CAPTION>
1996 1995 1994
------- ------ ------
Current:
<S> <C> <C> <C>
Federal $ 2,662 $2,418 $ 981
State 424 497 240
------- ------ ------
Total current 3,086 2,915 1,221
------- ------ ------
Deferred:
Federal (201) 46 53
State (31) 4 6
------- ------ ------
Total deferred (232) 50 59
------- ------ ------
Total provision for taxes $ 2,854 $2,965 $1,280
======= ====== ======
</TABLE>
<TABLE>
The provision for income taxes is different from that computed using
the statutory Federal income tax rate of 34% for the following reasons (in
thousands, except percentages):
<CAPTION>
1996 1995 1994
----------------- ----------------- ------------------
Amounts % Amounts % Amounts %
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at statutory rate $ 2,588 34.0 $ 2,245 34.0 $ 859 34.0
Increase (decrease) in taxes resulting from:
State and local income taxes, net of Federal
income tax benefit 279 3.6 325 4.9 140 5.5
Non-taxable income 0 0.0 (1) 0.0 (4) (0.2)
Nondeductible items 99 1.3 76 1.2 74 2.9
Effect of NOL 112 1.5 299 4.5 185 7.3
Federal taxes on partnership income
attributable to non-owned interests (224) (2.9) 0 0.0 0 0.0
Other 0 0.0 21 0.3 26 1.1
------- ---- ------- ---- ------- ----
Total provision for taxes $ 2,854 37.5 $ 2,965 44.9 $ 1,280 50.6
======= ==== ======= ==== ======= ====
</TABLE>
<TABLE>
The components of the deferred tax provisions are as follows (in
thousands):
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
MIDSOUTH Partners operations $ (76) $ 126 $ 101
Depreciation 38 0 (38)
Deferred compensation 4 28 11
Deferred revenue (155) (107) 21
Other (43) 3 (36)
----- ----- -----
Total deferred taxes $(232) $ 50 $ 59
===== ===== =====
</TABLE>
The Company has tax basis net operating losses of approximately
$900,000 that may be carried forward to offset future income tax liabilities.
These carryforwards will expire in fiscal years 2005 through 2011.
<TABLE>
Deferred Income Taxes, provided for the tax effect of cumulative
temporary differences between income tax and financial reporting purposes,
consists of the following (in thousands):
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Depreciation $(980) $(942)
NOL carryforwards 352 340
MIDSOUTH Partners operations (85) (161)
Deferred compensation 34 38
Deferred revenue 262 107
Valuation allowance (352) (340)
Other 125 82
----- -----
$(644) $(876)
===== =====
</TABLE>
16. Earnings Per Share
Earnings per share data have been computed based upon the weighted
average number of common shares outstanding and common share equivalents during
each period. The following numbers of shares have been used in the computations:
1996 1995 1994
---- ---- ----
1,465,169 1,459,848 1,457,456
========= ========= =========
17. Retirement Benefit Plans
Employees of Insituform East and MIDSOUTH Partners who meet certain
minimum eligibility requirements and who are not covered by a collective
bargaining agreement participate in separate profit-sharing plans. No employees
were covered by collective bargaining agreements as of June 30, 1996.
Contributions to the plan are determined annually by the respective companies.
Contributions to Insituform East's plan were $198,844, $183,489 and $84,775 in
fiscal years 1996, 1995 and 1994, respectively. The contribution to MIDSOUTH
Partners' plan was $64,878 in fiscal year 1996.
Employees of Capitol Copy who meet certain minimum eligibility
requirements also participate in a profit-sharing plan. Contributions are
determined annually by Capitol Copy's Board of Directors. No contributions were
made in fiscal year 1996. Contributions to the plan were $55,052 and $48,864 in
fiscal years 1995 and 1994, respectively.
18. Stock Option Plans
CERBCO granted options under the Directors' Stock Option Plan on 3,000
shares of CERBCO's Common Stock on December 15, 1995 and 6,000 shares of
CERBCO's Common Stock on December 16, 1994 and December 17, 1993, at the option
prices of $6.375, $5.125 and $3.50, respectively, per share, exercisable within
three years of the date of the grant. The following is a summary of
transactions:
<TABLE>
<CAPTION>
Shares under Option
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year 18,000 18,000 12,000
Granted during the year 3,000 6,000 6,000
Exercised during the year (6,000) (4,500) 0
Expired/canceled during the year 0 (1,500) 0
------- ------- ------
Outstanding, end of year 15,000 18,000 18,000
======= ======= ======
</TABLE>
At June 30, 1996, there were no remaining shares reserved for future
grants under the Directors' Stock Option Plan.
On June 6, 1987, CERBCO granted under the 1986 Employee Stock Option
Plan options on 51,483 shares of Common Stock to its officers, and the officers
and managers of CERBERONICS, at an option price of $7.00 per share exercisable
within ten years of the date of the grant. There were no additional grants or
exercise of options available under this plan in fiscal year 1996. This plan
automatically terminated on June 28, 1996.
<TABLE>
<CAPTION>
Shares under Option
1995 1994
---- ----
<S> <C> <C>
Outstanding, beginning and end of year 10,336 10,336
====== ======
</TABLE>
19. 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 assets are principally intercompany receivables and investments that
are owned by the holding company. General corporate expenses include items which
are of an overall holding company nature and are not allocated to the segments.
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ------------- -------- -------- --------
Sales to Unaffiliated Customers:
<S> <C> <C> <C>
Pipeline rehabilitation $ 30,471 $ 21,594 $ 14,804
Copier equipment products and services 20,209 17,549 15,042
-------- -------- --------
Total sales $ 50,680 $ 39,143 $ 29,846
======== ======== ========
Earnings (Loss) before Income Taxes and Non-Owned Interests:
Pipeline rehabilitation $ 3,042 $ 2,490 $ (204)
Copier equipment products and services 4,462 4,054 3,004
General corporate expenses (491) (961) (566)
-------- -------- --------
Operating profit 7,013 5,583 2,234
Equity in earnings of unconsolidated affiliate 0 739 155
Other income 788 467 409
Other expenses (187) (187) (272)
-------- -------- --------
Earnings before income taxes and non-owned interests $ 7,614 $ 6,602 $ 2,526
======== ======== ========
Net Earnings (Loss) Contribution by Segment:
Pipeline rehabilitation $ 537 $ 678 $ 47
Copier equipment products and services 1,808 1,593 1,110
Corporate (290) (880) (569)
-------- -------- --------
Earnings from continuing operations 2,055 1,391 588
Discontinued operations 0 151 731
-------- -------- --------
Net earnings $ 2,055 $ 1,542 $ 1,319
======== ======== ========
Assets:
Pipeline rehabilitation $ 23,190 $ 19,459 $ 16,785
Copier equipment products and services 10,120 7,514 6,105
Corporate 6,141 6,007 6,617
-------- -------- --------
Total assets $ 39,451 $ 32,980 $ 29,507
======== ======== ========
Capital Expenditures:
Pipeline rehabilitation $ 2,057 $ 1,499 $ 631
Copier equipment products and services 55 129 171
Corporate 0 0 0
-------- -------- --------
Total capital expenditures $ 2,112 $ 1,628 $ 802
======== ======== ========
Depreciation and Amortization:
Pipeline rehabilitation $ 1,633 $ 1,044 $ 1,004
Copier equipment products and services 222 225 209
Corporate 94 95 96
-------- -------- --------
Total depreciation and amortization $ 1,949 $ 1,364 $ 1,309
======== ======== ========
</TABLE>
During the year ended June 30, 1996, the Federal government
(collectively), a county government in the Washington, D.C. metropolitan area
and a regional sanitary authority in southwest Ohio accounted for 23%, 20% and
10%, respectively, of the Company's pipeline rehabilitation sales. During the
year ended June 30, 1995, the Federal government (collectively), the same
regional sanitary authority in southwest Ohio and Washington Metropolitan Area
Transit Authority ("WMATA") accounted for 21%, 15% and 10%, respectively, of
these sales. During the year ended June 30, 1994, the Federal government
(collectively) accounted for 15% of these sales. No single customer accounted
for 10% or more of the Company's copier machine products and service sales
during the last three fiscal years.
20. Unaudited Quarterly Financial Data
The following table provides summarized quarterly results of
operations for fiscal years 1996 and 1995 (in thousands, except per share
information):
<TABLE>
<CAPTION>
Three Months Ended
1996 September 30 December 31 March 31 June 30
- ---- ------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Sales $13,280 $13,718 $11,721 $11,961
Gross profit 4,581 4,687 3,510 3,577
Net earnings 591 532 383 549
Net earnings per share 0.40 0.37 0.26 0.37
Three Months Ended
1995 September 30 December 31 March 31 June 30
- ---- ------------ ----------- -------- -------
Sales $8,859 $10,425 $9,615 $10,244
Gross profit 3,029 3,505 3,661 3,653
Earnings from continuing operations 341 330 201 519
Net earnings 341 478 204 519
Net earnings per share:
Continuing operations 0.23 0.23 0.14 0.36
Net earnings 0.23 0.33 0.14 0.36
</TABLE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of CERBCO Directors
<TABLE>
<CAPTION>
Name Age Director Since Other Positions with Registrant
<S> <C> <C> <C>
Robert W. Erikson 51 December 1974(1) President & Treasurer
George Wm. Erikson 54 November 1975(1) Chairman & General Counsel
Webb C. Hayes, IV 48 April 1991 None
Paul C. Kincheloe, Jr. 55 April 1991 None
(1) Date of initial election as a director of the Company's then publicly-traded
predecessor company, CERBERONICS. Elected as a CERBCO director in February 1988,
under a Plan of Reorganization and Merger whereby CERBERONICS became a
wholly-owned subsidiary of CERBCO.
</TABLE>
Directors of CERBCO are elected at the Annual Meeting of Stockholders
except that vacancies and newly created directorships may be filled by the
directors then in office. Each director holds office until his successor is
elected and qualified or until his earlier resignation or removal.
(b) Identification of CERBCO Executive Officers and (Principal Officer of
Each Subsidiary)
<TABLE>
<CAPTION>
Name Age Position(s) Held Since
<S> <C> <C> <C>
Robert W. Erikson 51 President & Treasurer February 1988
George Wm. Erikson 54 Chairman & General Counsel February 1988
Robert F. Hartman 49 Vice President, Secretary &
Controller February 1988 (1)
(Robert W. Erikson) 51 President (Insituform East) September 1991
(Armen A. Manoogian) 53 President (Capitol Copy) October 1987
(1) Elected as Secretary in June 1991.
</TABLE>
Each officer holds office until his successor is elected and qualified
or until his earlier resignation or removal.
(c) Identification of Certain Significant Employees
Not applicable.
(d) Family Relationships
Mr. Robert Erikson, Director, President and Treasurer, and Mr. George
Erikson, Director, Chairman and General Counsel are brothers.
(e) Business Experience
(1) Mr. Robert Erikson was a Supply Corps officer in the Navy from
1968 through 1972. Mr. Erikson joined CERBERONICS in December 1972. In May 1974,
he was elected Vice President of Finance and Administration and, in December
1974, he became Executive Vice President, Treasurer and a Director. In October
1977, he was elected President. In February 1988, he was elected President and
Treasurer of CERBCO. Mr. Erikson currently is a Director and Vice Chairman of
Capitol Copy, a Director, Vice Chairman and President of Insituform East and
serves as a member of the Chief Executive Officer Committee of Capitol Copy and
Insituform East. He was a Director of Palmer National Bancorp, Inc. and The
Palmer National Bank from 1983 to 1996, and is a Director of The Palmer National
Bank's successor, The George Mason Bank, N.A., since May 1996. Mr. Erikson holds
a B.A. degree in Engineering and Economics from Brown University and an M.B.A.
degree from The George Washington University.
Mr. George Erikson joined CERBERONICS in July 1976 as Vice
President and General Counsel, and in August 1976, he was elected Secretary. He
served as Executive Vice President until July 1987, at which time he was elected
to the position of Chairman. He became a Director of CERBERONICS in November
1975 and served as Chairman of the Board of Directors from February 1979 to
February 1988. In February 1988, he was elected Chairman and General Counsel of
CERBCO. Mr. Erikson currently is a Director and Chairman of Capitol Copy and a
Director and Chairman of Insituform East and serves as a member of the Chief
Executive Officer Committee of Capitol Copy and Insituform East. From December
1972 to July 1976, he was employed as Vice President - Legal by National
Securities & Research Corporation and, prior thereto, he was employed as an
attorney to the Dreyfus Corporation. He is a member of the Bar of the State of
New York, District of Columbia and Commonwealth of Virginia. Mr. Erikson holds a
B.S. degree in Business Administration from Pennsylvania State University, an
LL.B. degree from Fordham University Law School, and an LL.M. degree from New
York University Law School.
Mr. Hartman joined CERBERONICS in August 1979 as Controller
and Manager of the Accounting Department. In November 1981, he was elected
Assistant Vice President and in April 1984, he was elected Vice President &
Treasurer, in which positions he served until his departure from CERBERONICS in
September 1985. From October 1985 to February 1988, Mr. Hartman was Controller
of Dynamac International, Inc. He returned to CERBERONICS and his former
positions in February 1988 and, in addition, was elected Vice President and
Controller of CERBCO. In June 1991, he joined Insituform East as Vice President
of Administration and was elected Secretary of CERBCO, Insituform East and
Capitol Copy. From 1976 to 1977, Mr. Hartman was an accountant for Coopers &
Lybrand, and from 1977 to 1979, he was a partner in the accounting firm of
Hartman and Hartman. Mr. Hartman is a Certified Public Accountant and holds a
B.S. degree from the United States Naval Academy, a B.A. degree from the
University of South Florida and an M.B.A.
degree from The George Washington University.
Mr. Manoogian holds a B.S. degree in Business Administration
from Pennsylvania State University and an M.B.A. from Pace University. In
October 1987, he was elected a Director and President of Capitol Copy and serves
as a member of the Chief Executive Officer Committee. Immediately prior to
joining Capitol Copy, Mr. Manoogian served as President and Chief Operating
Officer of a publicly-traded East Coast computer retailing organization. His
previous business experience includes 17 years with the Xerox Corporation,
starting as a sales representative in 1966, progressing through numerous field
and headquarters marketing assignments, and culminating in his final position as
Region General Manager for the Mid-Atlantic Operations Group based in
Washington, D.C.
Mr. Hayes is a Director and Executive Vice President of George
Mason Bankshares, Inc. and Chairman, President and CEO of The George Mason Bank,
N.A., since May 1996. Previously, he was Chairman of the Board of Palmer
National Bancorp, Inc. and The Palmer National Bank from March 1985 to May 1996,
and President and Chief Executive Officer from March 1983 to May 1996. Mr. Hayes
serves as a Director of Insituform East and Capitol Copy. He is also a Director
of Citizens Corporation in Eastman, Georgia, and is a member of the Board of
Visitors of the University of North Carolina. In January 1995, he completed a
three year term as a Director of the Federal Reserve Bank of Richmond. He holds
a B.A. degree from the University of North Carolina and an executive management
degree from Columbia University School of Business.
Mr. Kincheloe holds a B.A. degree from Randolph-Macon College and
a J.D. degree from T.C. Williams School of Law, University of Richmond. He has
been a practicing attorney and businessman in Fairfax County, Virginia, since
1967. He previously served on the Board of Herndon Federal Savings & Loan and
then First Federal Savings & Loan of Alexandria. He currently serves on the
Board, as Finance Chairman, of Flint Hill School in Oakton, Virginia, and on the
Board of Trustees for Randolph-Macon College. Mr. Kincheloe serves as a Director
of Insituform East and Capitol Copy.
(2) Directorships. See Part III, Item 10 (e)(1), paragraphs 1, 2, 5
and 6, as to Messrs. Robert Erikson and George Erikson, Hayes and Kincheloe,
respectively.
(f) Involvement in Certain Legal Proceedings
Not applicable.
Item 11.Executive Compensation
CERBCO is a parent holding company with controlling interests in two
principal subsidiaries, Insituform East ("IEI") and Capitol Copy Products
("CCP"). CERBCO officers participate also in the management of these
subsidiaries. The following table sets forth information concerning the
compensation paid to each of the named executive officers of the Company and/or
its subsidiaries for the fiscal years ended June 30, 1996, 1995 and 1994:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
---------------------------
Annual Compensation Awards Payouts
-------------------------------------- ----------------- -------
Name Other Total Restricted
and Annual Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compensation Compensation Awards SARs Payouts Compensation
Position Year ($) ($) ($) (2) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Erikson 1996 CERBCO $10,677 $0 $0 $10,677 $0 $0 $0 $0
Director, President IEI 201,555 22,393 0 223,948 0 15,000 0 9,014 (3)
& Treasurer (1) CCP 62,784 22,812 0 85,596 0 0 0 0
-------- ------- -- -------- --- ------- --- -------
$275,016 $45,205 $0 $320,221 $0 $15,000 $0 $9,014
======== ======= == ======== === ======= === =======
1995 CERBCO $10,412 $0 $0 $10,412 $0 $1,500 $0 $0
IEI 196,555 31,457 0 228,012 0 15,000 0 10,118
CCP 61,063 28,267 0 89,330 0 0 0 1,549
-------- ------- -- -------- --- ------- --- -------
$268,030 $59,724 $0 $327,754 $0 $16,500 $0 $11,667
======== ======= == ======== === ======= === =======
1994 CERBCO $10,000 $0 $0 $10,000 $0 $1,500 $0 $0
IEI 188,559 2,086 0 190,645 0 15,000 0 18,322
CCP 57,432 17,262 0 74,694 0 0 0 1,501
-------- ------- -- -------- --- ------- --- -------
$255,991 $19,348 $0 $275,339 $0 $16,500 $0 $19,823
======== ======= == ======== === ======= === =======
George Wm. Erikson 1996 CERBCO $10,677 $0 $0 $10,677 $0 $0 $0 $0
Director, Chairman IEI 201,555 22,393 0 223,948 0 15,000 0 11,264 (3)
& General Counsel (1) CCP 62,784 22,812 0 85,596 0 0 0
-------- ------- -- -------- --- ------- --- -------
$275,016 $45,205 $0 $320,221 $0 $15,000 $0 $11,264
======== ======= == ======== === ======= === =======
1995 CERBCO $10,412 $0 $0 $10,412 $0 $1,500 $0 $0
IEI 196,555 31,457 0 228,012 0 15,000 0 12,033
CCP 61,063 28,267 0 89,330 0 0 0 1,549
-------- ------- -- -------- --- ------- --- -------
$268,030 $59,724 $0 $327,754 $0 16,500 $0 $13,582
======== ======= == ======== === ======= === =======
1994 CERBCO $10,000 $0 $0 $10,000 $0 $1,500 $0 $0
IEI 188,559 2,086 0 190,645 0 15,000 0 19,683
CCP 57,432 17,262 0 74,694 0 0 0 1,501
-------- ------- -- -------- --- ------- --- -------
$255,991 $19,348 $0 $275,339 $0 $16,500 $0 $21,184
======== ======= == ======== === ======= === =======
Robert F. Hartman 1996 CERBCO $10,677 $0 $0 $10,677 $0 $0 $0 $0
Vice President, IEI 85,891 9,542 0 95,433 0 0 0 6,666 (3)
Secretary & -------- ------ -- -------- --- ------- --- ------
Controller $96,568 $9,542 $0 $106,110 $0 $0 $0 $6,666
======== ======= == ======== === ======= === =======
1995 CERBCO $10,412 $0 $0 $10,412 $0 $0 $0 $0
IEI 83,664 13,390 0 97,054 0 0 0 5,754
-------- ------- -- -------- --- ------- --- -------
$94,076 $13,390 $0 $107,466 $0 $0 $0 $5,754
======== ======= == ======== === ======= === =======
1994 CERBCO $10,000 $0 $0 $10,000 $0 $0 $0 $0
IEI 80,254 888 0 81,142 0 0 0 6,632
-------- ------- -- -------- --- ------- --- -------
$90,254 $888 $0 $91,142 $0 $0 $0 $6,632
======== ======= == ======== === ======= === =======
Armen A. Manoogian 1996 CCP $235,660 $85,545 $8,736 $329,941 $0 $0 $0 $7,500 (4)
[Subsidiary ======== ======= ====== ======== === ======= === =======
President, CCP] (3)
1995 CCP $224,955 $105,962 $8,400 $339,317 $0 $0 $0 $6,129
======== ======= ====== ======== === ======= === =======
1994 CCP $215,775 $69,283 $7,996 $293,054 $0 $0 $0 $5,898
======== ======= ====== ======== === ======= === =======
(1) The Company's Corporate Executive Committee, consisting of the Chairman and
the President, exercises the duties and responsibilities of the Chief Executive
Officer of the Company. Information concerning Messrs. George Erikson and Robert
Erikson is provided under the section entitled, "Proposal No. 1 - Election of
Directors."
(2) None of the named executive officers received perquisites or other personal
benefits in excess of the lesser of $50,000 or 10% of his total salary and
bonus. The amounts reported represent payment for hours of leave in lieu of time
off.
(3) Insituform East contributions to the IEI Advantage Plan, as described on
pages 43 and 44.
(4) Capitol Copy contributions to the CCP Profit Sharing Plan, as described on
page 45.
</TABLE>
COMPENSATION PURSUANT TO PLANS
CERBCO, Inc. Plans
CERBCO Supplemental Executive Retirement Plan
During fiscal year 1994, CERBCO entered into Supplemental Executive
Retirement Agreements with Messrs. Robert Erikson, George Erikson and Robert
Hartman pursuant to a Supplemental Executive Retirement Plan (the "CERBCO
Supplemental Retirement Plan"). The agreements provide for monthly retirement
benefits of 50% of the executive's final aggregate monthly salary from CERBCO
and its subsidiaries as defined in and limited by the executives' agreement, for
Messrs. Robert Erikson and George Erikson. In the case of Mr. Robert Hartman,
the agreement provides for 25% of the executive's final aggregate monthly salary
from CERBCO and its subsidiaries as defined in and limited by the executive's
agreement. Each covered executive's benefit under the Plan is payable in equal
monthly amounts for the remainder of the covered executive's life beginning as
of any date on or after his 62nd birthday (at the covered executive's election)
but not before his termination of service. Payments under the CERBCO
Supplemental Retirement Plan are not subject to any reduction for Social
Security or any other offset amounts but are subject to Social Security and
other applicable tax withholding.
To compute the monthly retirement benefits, the percentage of final
monthly salary is multiplied by a ratio (not to exceed 1) of:
the completed years of employment by CERBCO after 1992
to
the total number of years of employment after 1992 that the executive
would have completed if he had continued in employment to age 65.
If the executive dies prior to retirement, the executive's beneficiary
will receive a pre-retirement death benefit of a percentage (50% in the case of
Messrs. Robert Erikson and George Erikson; 25% in the case of Mr. Robert
Hartman) of the executive's final monthly salary for 180 months. If the
executive dies after commencement of the payment of benefits, but before
receiving 180 monthly payments, the executive's beneficiary will receive
payments until the total payments received by the executive and/or his
beneficiary equal 180.
The CERBCO Supplemental Retirement Plan is technically unfunded, except
as described below. CERBCO will pay all benefits from its general revenues and
assets. To facilitate the payment of benefits and provide the executives with a
measure of benefit security without subjecting the CERBCO Supplemental
Retirement Plan to various rules under the Employee Retirement Income Security
Act of 1974, CERBCO has established an irrevocable trust (the "CERBCO, Inc.
Supplemental Executive Retirement Trust Agreement"). This trust is subject to
the claims of CERBCO's creditors in the event of bankruptcy or insolvency. The
trust has purchased life insurance on the lives of the executive officers
covered by the Supplemental Executive Retirement Agreements to provide for
CERBCO's financial obligations under the Plan. Assets in the trust consist of
the cash surrender values of the executive life insurance policies and are
carried on CERBCO's balance sheet as assets. The trust will not terminate until
participants and beneficiaries are no longer entitled to benefits under the
plan. Upon termination, all assets remaining in the trust will be returned to
CERBCO. For additional information on the CERBCO Supplemental Retirement Plan,
see "Defined Benefit or Actuarial Plans."
The following tables set forth the annual retirement benefits that would be
received under the CERBCO Supplemental Retirement Plan at various compensation
levels after the specified years of service:
<TABLE>
Pension Plan Table Where Formula Provides 50% of Compensation (1)
<CAPTION>
(Final) Years of Service (Under Plan)
-----------------------------
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<C> <C> <C> <C> <C> <C>
$125,000 $ 58,594 $ 62,500 $ 62,500 $ 62,500 $ 62,500
$150,000 $ 70,313 $ 75,000 $ 75,000 $ 75,000 $ 75,000
$175,000 $ 82,031 $ 87,500 $ 87,500 $ 87,500 $ 87,500
$200,000 $ 93,750 $100,000 $100,000 $100,000 $100,000
$225,000 $105,469 $112,500 $112,500 $112,500 $112,500
$250,000 $117,188 $125,000 $125,000 $125,000 $125,000
$300,000 $140,625 $150,000 $150,000 $150,000 $150,000
$350,000 $154,627 $175,000 $175,000 $175,000 $175,000
$400,000 $154,627 $182,101 $200,000 $200,000 $200,000
$450,000 $154,627 $182,101 $201,055 $221,961 $225,000
$500,000 $154,627 $182,101 $201,055 $221,961 $245,085
(1) Assumes at the time the Plan was established (i) the individual is age 50,
(ii) maximum covered compensation is $250,000 and is increased 2% (compounded
annually) each year of service after 1992, and (iii) retirement is effective at
the beginning of the year.
</TABLE>
<TABLE>
Pension Plan Table Where Formula Provides 25% of Compensation (2)
<CAPTION>
(Final) Years of Service (Under Plan)
-----------------------------
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
<C> <C> <C> <C> <C> <C>
$ 50,000 $ 8,929 $11,905 $12,500 $12,500 $12,500
$ 75,000 $13,393 $17,858 $18,750 $18,750 $18,750
$100,000 $17,858 $23,810 $25,000 $25,000 $25,000
$200,000 $21,206 $31,218 $36,190 $39,957 $44,115
$300,000 $21,206 $31,218 $36,190 $39,957 $44,115
$400,000 $21,206 $31,218 $36,190 $39,957 $44,115
$500,000 $21,206 $31,218 $36,190 $39,957 $44,115
(2) Assumes at the time the Plan was established (i) the individual is age 45,
(ii) maximum covered compensation is $90,000 and is increased 2% (compounded
annually) each year of service after 1992, and (iii) retirement is effective at
the beginning of the year.
</TABLE>
Each executive's covered compensation under the CERBCO Supplemental
Retirement Plan is equal to his final base salary. The maximum covered
compensation for Messrs. Robert Erikson and George Erikson is limited to
$250,000 annually ($20,834 per month), increased 2% annually beginning in 1993.
The maximum covered compensation for Mr. Robert Hartman is limited to $90,000
annually ($7,500 per month), increased 2% annually beginning in 1993.
The following table sets forth information concerning vested annual
benefits as of June 30, 1996 for the executives listed in the Summary
Compensation Table covered by the CERBCO Supplemental Retirement Plan:
<TABLE>
<CAPTION>
Years of Credited Current Annual Vested Vested
Name Years of Service Service Under Plan Covered Compensation Percentage Annual Benefit
- ---- ---------------- ------------------ -------------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Robert W. Erikson 23 4 $265,302 22.22% $29,478
George Wm. Erikson 20 4 $265,302 26.67% $35,374
Robert F. Hartman 15 4 $ 95,509 20.00% $ 4,775
</TABLE>
CERBCO 1988 Plan of Reorganization and Merger
Pursuant to the Plan of Reorganization and Merger, approved by CERBERONICS
stockholder vote on February 26, 1988, CERBCO became a successor to the
CERBERONICS, Inc. 1986 Employee Stock Option Plan and the 1986 Board of
Directors' Stock Option Plan (now collectively the "CERBCO Plans") described
below. The CERBCO Plans are now deemed to relate to stock options to purchase
shares of CERBCO Common Stock. Each CERBERONICS stock option previously
outstanding was converted into an option to purchase, upon the same terms,
shares of CERBCO Common Stock in the same numbers as were provided by the option
with respect to Class A Common Stock of CERBERONICS. The CERBCO Plans do not
relate to shares of CERBCO Class B Common Stock. In all other respects, the
terms of the CERBCO Plans and the options outstanding, or which may become
outstanding, remain unchanged.
CERBCO 1986 Employee Stock Option Plan
CERBERONICS adopted, with stockholder approval at the 1986 Annual Meeting
of Stockholders, the CERBERONICS, Inc. 1986 Employee Stock Option Plan (now
called the "CERBCO Employee Plan"). The purpose of the CERBCO Employee Plan is
to promote the growth and general prosperity of the Company by permitting key
management employees to purchase shares, through the grant and exercise of
options, of CERBCO's Common Stock. Under the terms of the CERBCO Employee Plan,
which is administered by the Stock Option Committee appointed by and comprised
of members of the Board of Directors, both incentive and nonstatutory stock
options may be granted to eligible employees. Under the CERBCO Employee Plan,
75,000 shares of Common Stock were reserved for issuance upon the exercise of
stock options granted.
The Stock Option Committee, in its sole discretion, has full power and
authority to designate eligible employees to whom an incentive stock option or a
nonstatutory stock option shall be granted, determine the number of shares to be
made available under any option granted, determine the periods in which a
participant may exercise his option (provided, however, no incentive stock
option may be exercised more than ten years after the date of its grant),
determine the option price and determine the date on which the option shall
expire. The grant of a stock option under the CERBCO Employee Plan is contingent
on the participant's continued services on behalf of CERBCO for a period of not
less than 24 months from the date of grant of the option.
During fiscal year 1995, no options were granted to executive officers of
CERBCO. This plan automatically terminated on June 28, 1996. All options granted
under this plan in past years have expired.
CERBCO 1986 Directors' Stock Option Plan
CERBERONICS adopted, with stockholder approval at the 1986 Annual Meeting
of Stockholders, the CERBERONICS, Inc. 1986 Board of Directors' Stock Option
Plan (now called the "CERBCO Directors' Plan"). The purpose of the CERBCO
Directors' Plan is to promote the growth and general prosperity of CERBCO by
permitting the Company, through the granting of options to purchase shares of
CERBCO's Common Stock, to attract and retain the best available persons as
members of CERBCO's Board of Directors with an additional incentive for such
persons to contribute to the success of the Company. A maximum of 75,000 shares
of Common Stock may be made subject to options under the CERBCO Directors' Plan.
Options may be granted to directors of CERBCO or any of its subsidiaries. Each
option granted under the CERBCO Directors' Plan entitles each director to whom
such option is granted the right to purchase shares of CERBCO's Common Stock at
a designated option price, any time and from time to time, within three years
from the date of grant.
The CERBCO Board of Directors administers the CERBCO Directors' Plan and
has exclusive authority to interpret, construe and implement the provisions of
the CERBCO Directors' Plan, except as may be delegated in whole or in part by
the Board to a committee of the Board which may consist of three or more members
of the Board. No such delegation of authority has been made. Each determination,
interpretation or other action that may be taken pursuant to the CERBCO
Directors' Plan by the Board is final and binding and conclusive for all
purposes and upon all persons. The Board from time to time may amend the CERBCO
Directors' Plan as it deems necessary to carry out the purposes thereof.
The terms of the CERBCO Directors' Plan contemplated that each director of
the Company be granted an option to purchase 1,500 shares of the Company's
Common Stock each year for five years, for a total of 7,500 shares of Common
Stock per director, beginning in fiscal year 1986. On June 28, 1986, options on
1,500 shares of Common Stock were granted to each of the six CERBERONICS
directors then in office. No additional options were granted until December 19,
1991. On December 19, 1991, the CERBCO Directors' Plan was amended by the CERBCO
Board of Directors to ensure its original purpose by granting options to
purchase 1,500 shares of Common Stock to CERBCO directors in fiscal 1992 and
subsequent years, so that each director serving on the date of grant will
receive options for a total amount of 7,500 shares over a five year period.
Messrs. Robert Erikson and George Erikson, being the only current directors
having received options in 1986, each received options for a total amount of
6,000 shares over a four year period, from 1992 through 1995.
On December 15, 1995, options on a total of 1,500 shares of Common Stock
each were granted to Messrs. Kincheloe and Hayes at a per share option price of
$6.375. With this grant, each current director has received options for a total
of 7,500 shares. No further grants are anticipated under this plan. Options on a
total of 6,000 shares available under this plan were exercised by directors of
the Company during fiscal year 1996.
Insituform East, Incorporated Plans
Insituform East Employee Advantage Plan
As executive officers of Insituform East, Messrs. Robert Erikson, George
Erikson and Robert Hartman participate in the Insituform East, Incorporated
Employee Advantage Plan (the "IEI Advantage Plan"). The IEI Advantage Plan is a
noncontributory profit sharing (retirement) plan in which all employees not
covered by a collective bargaining agreement and employed with Insituform East
for at least one year are eligible to participate. No employee is covered by a
collective bargaining agreement. The IEI Advantage Plan is administered by the
Insituform East Board of Directors which determines, at its discretion, the
amount of Insituform East's annual contribution. The Insituform East Board of
Directors can authorize a contribution, on behalf of Insituform East, of up to
15% of the compensation paid to participating employees during the year. The
plan is integrated with Social Security. Each participating employee is
allocated a portion of Insituform East's contribution based on the amount of
that employee's compensation plus compensation above FICA limits relative to the
total compensation paid to all participating employees plus total compensation
above FICA limits. Amounts allocated under the IEI Advantage Plan begin to vest
after three years of service (at which time 20% of the contribution paid vests)
and are fully vested after seven years of service.
During fiscal year 1996, Insituform East contributed an amount equal to
4.0% of the total compensation paid to all participating employees.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1996 (1) as of 6/30/96
- ---------------------------- -------------------- -------------
<S> <C> <C>
George Wm. Erikson, Chairman $ 9,014 100%
Robert W. Erikson, President $ 9,014 100%
Robert F. Hartman, Vice
President - Administration & Secretary $ 5,177 60%
Executive Officers of Insituform East as a Group,
(6 persons, including those named above) $45,714 N/A
(1) Total contributions to employees of $211,541 include Insituform East's
contribution of $198,844 and reallocated amounts totaling $12,697 forfeited by
former participants who terminated employment with Insituform East during fiscal
year 1996.
</TABLE>
The IEI Advantage Plan also includes a salary reduction profit sharing
feature under Section 401(k) of the Internal Revenue Code. Each participant may
elect to defer a portion of his compensation by any whole percentage from 2% to
16% subject to certain limitations. During fiscal year 1996, as mandated by the
plan, Insituform East contributed an employer matching contribution equal to 25%
of the participant's deferred compensation up to a maximum of 1.5% of the
participant's total paid compensation for the fiscal year. Participants are 100%
vested at all times in their deferral and employer matching accounts.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1996 as of 6/30/96
- ----------------------------- ----------------- -------------
<S> <C> <C>
George Wm. Erikson, Chairman $2,250 100%
Robert W. Erikson, President $ 0 100%
Robert F. Hartman, Vice
President - Administration & Secretary $1,488 100%
Executive Officers of Insituform East as a Group,
(6 persons, including those named above) $7,963 N/A
</TABLE>
Insituform East 1985 Employee Stock Option Plan
Insituform East adopted, with stockholder approval at the 1985 Annual
Meeting of Stockholders, the Insituform East, Incorporated 1985 Employee Stock
Option Plan (the "IEI Employee Plan"). The purpose of the plan was to advance
the growth and development of Insituform East by affording an opportunity to
employees of Insituform East to purchase shares of Insituform East's Common
Stock and to provide incentives for them to put forth maximum efforts for the
success of Insituform East's business. Any employee of Insituform East who was
employed on a full-time basis was eligible for participation. The IEI Employee
Plan was administered by Insituform East's Stock Option Committee.
During fiscal year 1996, no options were granted to executive officers
of Insituform East. All options granted under this plan in past years expired
prior to fiscal year 1996. This plan automatically terminated on February 17,
1996.
Insituform East 1994 Board of Directors' Stock Option Plan
Insituform East adopted, with stockholder approval at the 1994 Annual
Meeting of Stockholders, the Insituform East, Incorporated 1994 Board of
Directors' Stock Option Plan (the "IEI 1994 Directors' Plan"). The purpose of
this plan is to promote the growth and general prosperity of Insituform East by
permitting Insituform East, through the granting of options to purchase shares
of its Common Stock, to attract and retain the best available persons as members
of Insituform East's Board of Directors with an additional incentive for such
persons to contribute to the success of Insituform East. The IEI 1994 Directors'
Plan is administered and options are granted by the Insituform East Board of
Directors. As directors of Insituform East, Messrs. Robert Erikson and George
Erikson participate in this plan.
Each grant of options under the IEI 1994 Directors' Plan will entitle
each Insituform East director to whom such options are granted the right to
purchase 15,000 shares of Insituform East's Common Stock at a designated option
price, any time and from time to time, within five years from the date of grant.
Options are granted under the IEI Directors' Plan each year for five years to
each member of the Board of Directors of Insituform East serving as such on the
date of grant, i.e., for each director serving for five years, a total of five
options covering in the aggregate 75,000 shares of Common Stock (subject to
adjustments upon changes in the capital structure of Insituform East) over a
five year period. Under the terms of this plan, up to 525,000 shares of
Insituform East's Common Stock have been reserved for directors of Insituform
East.
On December 8, 1995, options on a total of 105,000 shares of Insituform
East's Common Stock were granted to directors of Insituform East (options on
15,000 shares to each of seven directors, including Messrs. Robert Erikson and
George Erikson) at a per share option price of $4.2188. No options available
under this plan were exercised by directors of Insituform East during fiscal
year 1996.
Insituform East 1989 Board of Directors' Stock Option Plan
Insituform East adopted, with stockholder approval at the 1989 Annual
Meeting of Stockholders, the Insituform East, Incorporated 1989 Board of
Directors Stock Option Plan (the "IEI 1989 Directors' Plan"). The purpose of
this plan was the same as the IEI 1994 Directors' Plan. The plan is administered
by the Insituform East Board of Directors. Options were first granted to
directors on December 1, 1989 and each of the four succeeding Board of Directors
meetings following the Annual Meetings of Stockholders in 1990, 1991, 1992 and
1993. Each grant of options under the plan entitles each director to whom such
options were granted the right to purchase 15,000 shares of Insituform East's
Common Stock at a designated option price, any time and from time to time,
within five years from the date of grant. Although no further optionsare
anticipated to be granted under this plan, options previously granted, and which
have not already been exercised or expired, will remain in effect until exercise
or expiration, whichever comes first. The plan will automatically terminate in
1999, unless terminated sooner by the Board of Directors. No options available
under the plan were exercised by directors of Insituform East during fiscal year
1996. Under the terms of this plan, up to 180,000 shares of Insituform East
Common Stock remain reserved for the directors of Insituform East.
Capitol Copy Products, Inc. Plans
Capitol Copy 401(k) Profit Sharing Plan
As executive officers of Capitol Copy, Messrs. Robert Erikson, George
Erikson and Armen Manoogian participate in the Capitol Copy Products, Inc.
401(k) Profit Sharing Plan (the "CCP Profit Sharing Plan"). All employees not
covered by a collective bargaining agreement and employed with Capitol Copy for
at least one year are eligible to participate in this salary reduction profit
sharing plan. No employee is covered by a collective bargaining agreement. Each
participant may elect to defer a portion of his compensation and receive an
employer matching contribution as determined by the Board of Directors, at its
discretion. In addition to, or in place of, the matching contribution, employees
may receive a non-elective contribution at the discretion of the Board of
Directors. Each participating employee is allocated a portion of the
contribution based on the amount of that employee's compensation relative to the
total compensation paid to all participating employees. The combined
contribution by the participant and Capitol Copy may not exceed the lesser of
$30,000 or 25% of the participant's compensation paid during the year. All
amounts allocated under the CCP Profit Sharing Plan begin to vest after two
years of service (at which time 20% of the contribution paid vests) and are
fully vested after six years of service.
During fiscal year 1996, Capitol Copy contributed an employer matching
contribution equal to 100% of the participant's deferred compensation up to a
maximum of 5% of the participant's total paid compensation for the year. The
Company made no additional non-elective contributions.
<TABLE>
<CAPTION>
Names and Capacities in Which Contributions for Vested Percent
Cash Contributions Were Made Fiscal Year 1996 as of 6/30/96
- ----------------------------- ----------------- --------------
<S> <C> <C>
George Wm. Erikson, Chairman $ 0 100%
Robert W. Erikson, Vice Chairman $ 0 100%
Armen A. Manoogian, President $ 7,500 100%
Executive Officers of Capitol Copy as a Group,
(6 persons, including those named above) $ 19,770 N/A
</TABLE>
Capitol Copy 1987 Incentive Stock Option Plan
Capitol Copy adopted, with stockholder approval on October 1, 1987, the
Capitol Copy Products, Inc. 1987 Incentive Stock Option Plan (the "CCP Incentive
Plan"). The purpose of this plan is to advance the interests of Capitol Copy by
providing key employees with additional incentive for them to promote the
success of Capitol Copy, to increase their proprietary interest in Capitol Copy
and to remain in its employ. The term "key employee" means those employees
(including officers and directors who are also employees, but not including
Messrs. George Erikson and Robert Erikson) who, in the judgment of the Capitol
Copy Board of Directors, are important to the future of Capitol Copy. The CCP
Incentive Plan is administered and options are granted by the Capitol Copy Board
of Directors.
Each grant of options under the CCP Incentive Plan will entitle the
Capitol Copy key employee to whom such options are granted the right to purchase
a designated number of shares of Class B Stock at a designated price for a
designated option period. No part of any grant of options may be exercised until
the optionee has remained in the employ of Capitol Copy for a period of time as
specified by the Board of Directors in the option agreement.
No options were granted under this plan to executive officers of
Capitol Copy during fiscal year 1996. All options granted under this plan in
past years were exercised prior to fiscal year 1996.
OPTION/SAR GRANTS
No option or Stock Appreciation Right grants were made to any of the
named executive officers during fiscal year 1996 under the CERBCO Employee Plan,
the CERBCO Directors' Plan, the IEI Employee Plan, the IEI 1989 Directors' Plan
or the CCP Incentive Plan. The following table sets forth information concerning
options granted to each of the named executive officers during fiscal year 1996,
under the IEI 1994 Directors' Plan:
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realized Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
% of Total
Options/
Option/ SARs Granted Exercise
SARs to Employees or Base Expiration
Name Granted(#) in Fiscal Year ($/Share) Date 5% ($) 10%($)
- ---- ---------- -------------- --------- ---- ------ ------
Robert W. Erikson
<S> <C> <C> <C> <C> <C> <C> <C>
IEI 1994 Directors' Plan 15,000 14% $4.2188 12/8/00 $17,484 $38,634
George Wm. Erikson
IEI 1994 Directors' Plan 15,000 14% $4.2188 12/8/00 $17,484 $38,634
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
No option or Stock Appreciation Right grants made under the CERBCO
Employee Plan, or the IEI 1989 or 1994 Directors' Plans to any of the named
executive officers were exercised during fiscal year 1996. During fiscal year
1996, Messrs. Robert Erikson and George Erikson each exercised options to
purchase 1,500 shares of CERBCO Common Stock granted under the CERBCO Directors'
Plan. The following table sets forth information concerning option or Stock
Appreciation Right grants held by each of the named executive officers under all
plans as of June 30, 1996:
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<CAPTION>
Value of
Number of Unexercised Unexercised in the Money
Shares Options/SARs at FY-End(#) Options/SARs at FY-End($)
Acquired on Value
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
Robert W. Erikson
<S> <C> <C> <C> <C> <C> <C>
CERBCO Directors' Plan 1,500 $ 4,688 3,000 0 $ 8,063 $0
IEI 1994 Directors' Plan 0 $ 0 30,000 0 $ 7,500 $0
IEI 1989 Directors' Plan 0 $ 0 45,000 0 $ 10,313 $0
George Wm. Erikson
CERBCO Directors' Plan 1,500 $ 4,688 3,000 0 $ 8,063 $0
IEI 1994 Directors' Plan 0 $ 0 30,000 0 $ 7,500 $0
IEI 1989 Directors' Plan 0 $ 0 45,000 0 $ 10,313 $0
</TABLE>
REPRICING OF OPTIONS/SARs
Neither the Company nor its subsidiaries have adjusted or amended the
exercise price of stock options or SARs previously awarded to any of the named
executive officers during fiscal year 1996.
LONG-TERM INCENTIVE PLAN AWARDS
Neither the Company nor its subsidiaries have a long-term incentive
plan.
DEFINED BENEFIT OR ACTUARIAL PLANS
The Company maintains a defined benefit plan called the CERBCO
Supplemental Executive Retirement Plan to provide annual retirement benefits to
covered executives. See "Compensation Pursuant to Plans - CERBCO, Inc. Plans,
Supplemental Executive Retirement Plan" as to the basis upon which benefits
under the Plan are computed.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment contracts between the Company or its
subsidiaries and any named executive officer. There are no arrangements between
the Company or its subsidiaries and any named executive officer, or payments
made to an executive officer, that resulted, or will result, from the
resignation, retirement or other termination of employment with the Company or
its subsidiaries, in an amount that exceeds $100,000.
COMPENSATION OF DIRECTORS
Each non-officer director of the Company is paid an annual fee of
$3,000 and an attendance fee of $500 for Board of Directors meetings where he
attends in person. The attendance fee is $100 if he participates by telephone.
Directors who are also officers of the Company do not receive separate fees for
service as directors, but are eligible with all other directors to participate
in the CERBCO Directors' Stock Option Plan, as described under the section
entitled, "Compensation Pursuant to Plans." All directors of the Company are
reimbursed for Company travel-related expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not have a compensation
committee; the Board of Directors as a whole serves in that equivalent capacity.
Messrs. George Erikson and Robert Erikson, both members of the Board of
Directors and executive officers of the Company, holding the offices of Chairman
& General Counsel and President & Treasurer, respectively, participate in, and
during fiscal 1996 participated in, deliberations of the Board of Directors
concerning executive officer compensation.
Messrs. George Erikson and Robert Erikson are both members of the Board
of Directors and executive officers of Insituform East and Capitol Copy. In
their capacities as directors of these subsidiary companies, they participate
in, and during fiscal 1996 participated in, deliberations of the respective
subsidiaries' Boards of Directors concerning executive officer compensation.
Mr. Robert Erikson served during fiscal 1996 as a member of the
Compensation Committee of the Board of Directors of Palmer National Bancorp,
Inc. and The Palmer National Bank. Mr. Webb C. Hayes, IV, a director of the
Company and a director of Insituform East and Capitol Copy who participates in,
and during fiscal 1996 participated in, deliberations of the CERBCO Board of
Directors and the Boards of Directors of its subsidiaries concerning executive
officer compensation for CERBCO and its subsidiaries, respectively, was Chairman
of the Board and an executive officer of Palmer National Bancorp, Inc. and The
Palmer National Bank. Palmer National Bancorp, Inc., parent of The Palmer
National Bank, was acquired by George Mason Bankshares, Inc., in May 1996. The
Palmer National Bank was subsequently renamed The George Mason Bank, N.A. Since
May 1996, Mr. Erikson no longer participates in compensation matters affecting
Mr. Hayes.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table reflects, as of September 17, 1996, the only
persons known to the Company to be the beneficial owners of more than five
percent of any class of CERBCO's voting securities:
<TABLE>
<CAPTION>
Name & Address of Amount and Nature of
Beneficial Owner Title of Class Beneficial Ownership Percent of Class
- ----------------- -------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Robert W. Erikson Common Stock 57,700 (1) 5.0%
3421 Pennsy Drive Class B Common Stock 131,750 (2)(4) 42.4%
Landover, MD
George Wm. Erikson Common Stock 56,602 (3) 4.9%
3421 Pennsy Drive Class B Common Stock 115,814 (3)(4) 37.3%
Landover, MD
Koonce Securities, Inc. Common Stock 229,930 (5) 19.9%
6550 Rock Spring Dr
Bethesda, MD
Kennedy Capital Common Stock 97,175 (6) 9.4%
Management, Inc.
425 N. New Ballas Rd
St. Louis, MO
(1) Record and beneficial ownership, sole voting and sole investment power.
(2) Record and beneficial ownership, sole voting and sole investment power
(3) Record and beneficial ownership. Includes 2,246 shares of each class of
stock owned jointly with Mr. Erikson's spouse, as to which there is shared
voting and investment power.
(4) See Part I, Item 3, "Legal Proceedings." (5) Beneficial ownership, sole
voting and sole investment power. (6) Beneficial ownership, shared voting and
shared investment power.
</TABLE>
(b) Security Ownership of Management
The following information is furnished with respect to all directors of
CERBCO who were the beneficial owners of any shares of CERBCO's Common Stock and
Class B Common Stock as of September 17, 1996, and with respect to all directors
and officers of CERBCO as a group:
<TABLE>
<CAPTION>
Amount & Nature of Beneficial Ownership
Name of Beneficial Owner Title of Class Owned Outright Exercisable Options Percent of Class
- ------------------------ -------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert W. Erikson Common Stock 57,700 (1) 3,000 5.2%
Class B Common Stock 131,750 (2)(4) 0 42.4%
George Wm. Erikson Common Stock 56,602 (3) 3,000 5.1%
Class B Common Stock 115,814 (3)(4) 0 37.3%
Webb C. Hayes, IV Common Stock 3,000 4,500 0.6%
Paul C. Kincheloe, Jr. Common Stock 3,000 4,500 0.6%
All Directors and Officers as a
Group (6 persons including Common Stock 120,302 15,000 11.5%
those named above) Class B Common Stock 247,564 0 79.7%
(1) Record and beneficial ownership, sole voting and sole investment power.
(2) Record and beneficial ownership, sole voting and sole investment power.
(3) Record and beneficial ownership. Includes 2,246 shares of each class of
stock owned jointly with Mr. Erikson's spouse, as to which there is shared
voting and investment power.
(4) See Part I, Item 3, "Legal Proceedings."
</TABLE>
The following information is furnished with respect to all directors of
Insituform East who were the beneficial owners of any shares of Insituform
East's Common Stock and Class B Common Stock as of September 3, 1996, and with
respect to all directors and officers of Insituform East as a group:
<TABLE>
<CAPTION>
Amount & Nature of Beneficial Ownership
Name of Beneficial Owner Title of Class Owned Outright Exercisable Options Percent of Class
- ------------------------ -------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Thomas J. Schaefer Common Stock 27,500 75,000 2.5%
George Wm. Erikson Common Stock 16,500 75,000 2.2%
Robert W. Erikson Common Stock 0 75,000 1.8%
Jack Massar Common Stock 0 75,000 1.8%
Webb C. Hayes, IV Common Stock 0 30,000 0.7%
Paul C. Kincheloe, Jr. Common Stock 0 30,000 0.7%
Calvin G. Franklin Common Stock 0 30,000 0.7%
All Directors and
Officers as a Group Common Stock 44,500 390,000 9.8%
(11 persons including Class B Common Stock 0 0 0
those named above)
</TABLE>
The following information is furnished with respect to all directors of
Capitol Copy who were the beneficial owners of any shares of Capitol Copy's
Class B Stock as of September 17, 1996, and with respect to all directors and
officers of Capitol Copy as a group:
<TABLE>
<CAPTION>
Amount & Nature of Beneficial Ownership
Name of Beneficial Owner Title of Class Owned Outright Exercisable Options Percent of Class
- ------------------------ -------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Armen A. Manoogian Class B Stock 400 0 33 1/3%
George Wm. Erikson Class B Stock 0 0 0
Robert W. Erikson Class B Stock 0 0 0
Webb C. Hayes, IV Class B Stock 0 0 0
Paul C. Kincheloe, Jr. Class B Stock 0 0 0
All Directors and Officers as a Group Class B Stock 400 0 33 1/3%
(8 persons including those named above)
</TABLE>
(c) Changes in Control
There were no changes in control of the Company during the year ended
June 30, 1996. However, in March 1990 George Wm. Erikson and Robert W. Erikson,
the controlling stockholders of the Company, 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") (formerly
Insituform of North American, Inc. or "INA") to effect a sale of their
controlling interest in the Company to ITI for $6,000,000 (the "Proposed
Transaction"). The Proposed Transaction, had it been 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. On September 19, 1990, however,
the Company issued a press release announcing that the Eriksons had 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.
A lawsuit challenging the proposed, but unconsummated transaction
brought by two of the Company's stockholders is described in Part I, Item 3,
"Legal Proceedings."
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
See Item 13.(c) below.
(b) Certain Business Relationships
Not applicable.
(c) Indebtedness of Management
Pursuant to authorizations by the Board of Directors on the dates
indicated below, the Company has made certain advancements to Mr. George
Erikson, Director, Chairman & General Counsel, and certain advancements to Mr.
Robert Erikson, Director, President & Treasurer (together the "Eriksons") for
their respective legal fees and expenses which each has incurred, and may incur
in the future, for personal legal representation in connection with the
stockholder lawsuit filed in August 1990 challenging a proposed but
unconsummated transaction between each of the Eriksons and Insituform
Technologies, Inc. (see Part I, Item 3, "Legal Proceedings").
<TABLE>
Board Authorizations for Advancements Board Authorizations for Advancements
to Mr. George Wm. Erikson to Mr. Robert W. Erikson
<CAPTION>
Date Amount Authorized Date Amount Authorized
<S> <C> <C> <C> <C> <C> <C>
April 12, 1991 $ 12,500 April 12, 1991 $ 12,500
December 19, 1991 12,500 December 19, 1991 12,500
March 17, 1992 12,500 March 17, 1992 12,500
September 15, 1992 25,000 September 15, 1992 25,000
December 18, 1992 50,000 December 18, 1992 50,000
March 16, 1993 50,000 March 16, 1993 50,000
December 17, 1993 12,500 December 17, 1993 12,500
June 7, 1994 50,000 June 7, 1994 50,000
September 13, 1994 75,000 September 13, 1994 75,000
December 16, 1994 100,000 December 16, 1994 100,000
March 7, 1995 75,000 March 7, 1995 75,000
September 12, 1995 25,000 September 12, 1995 25,000
December 15, 1995 25,000 December 15, 1995 25,000
-------- --------
$525,000 $525,000
======== ========
</TABLE>
As of September 27, 1996, pursuant to such Board authorizations, the
Company has advanced and expensed in total $515,213 to Mr. George Erikson and
has advanced and expensed in total $515,213 to Mr. Robert Erikson.
While a decision has been rendered in favor of the Eriksons in the
above-referenced lawsuit, that decision was appealed to the Delaware Supreme
Court and subsequently remanded to the Chancery Court for ultimate disposition.
Pending a final outcome thereof, the Board of Directors has deferred
consideration or ultimate determination of entitlement of Mr. George Erikson
and/or Mr. Robert Erikson to indemnification by the Company for such legal fees
and expenses. If it is ultimately determined by the Board of Directors or
otherwise in accordance with Section 145 of Delaware Corporation Law that Mr.
George Erikson and/or Mr. Robert Erikson are not entitled to indemnification for
any such legal fees and expenses under Section 145 of Delaware Corporation Law,
such advances shall be reimbursed by Mr. George Erikson and/or Mr. Robert
Erikson to the Company pursuant to an agreement with the Company executed by
each of the Eriksons and delivered to the Board of Directors.
(d) Transactions with Promoters
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
<TABLE>
The following consolidated financial statements of CERBCO, Inc. and subsidiaries
are included in PART II, Item 8:
<CAPTION>
Pages
<S> <C>
Independent Auditors' Report 19
Consolidated Statements of Earnings for the Years Ended
June 30, 1996, 1995 and 1994 20
Consolidated Balance Sheets as of June 30, 1996 and 1995 21-22
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994 24
Notes to Consolidated Financial Statements 25-36
(2) Financial Statement Schedules
Schedules have been omitted for the reason that they are not required,
or are not applicable, or that the required information is given in the
financial statements and notes thereto.
(3) Exhibits
27. Financial Data Schedule
Pages
99. CERBCO, Inc. Consolidating Schedules: Statement of
Earnings Information for the Year Ended June 30, 1996;
Balance Sheet Information and Consolidating Elimination
Entries as of June 30, 1996, and Related Independent
Auditors' Report 54-57
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Landover, Maryland, on
September 27, 1996.
/s/ ROBERT W. ERIKSON
Robert W. Erikson
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature & Title Capacity Date
/s/ ROBERT W. ERIKSON
Robert W. Erikson Director, Sept. 27, 1996
President Principal Executive Officer,
Principal Financial Officer
/s/ GEORGE Wm. ERIKSON
George Wm. Erikson Director, Sept. 27, 1996
Chairman & General Counsel Principal Executive Officer
/s/ ROBERT F. HARTMAN
Robert F. Hartman Principal Accounting Officer Sept. 27, 1996
Vice President, Secretary
& Controller
/s/ WEBB C. HAYES, IV
Webb C. Hayes, IV Director Sept. 27, 1996
/s/ PAUL C. KINCHELOE, JR.
Paul C. Kincheloe, Jr. Director Sept. 27, 1996
<PAGE>
Exhibits to CERBCO, Inc. Form 10-K
Exhibit 27. CERBCO, Inc. Financial Data Schedule
Exhibit 99. CERBCO, Inc. Consolidating Schedules: Statement of Earnings
Information for the Year Ended June 30, 1996; Balance Sheet Information and
Consolidating Elimination Entries as of June 30, 1996, and Related Independent
Auditors' Report.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-K
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> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,234
<SECURITIES> 0
<RECEIVABLES> 8,540
<ALLOWANCES> 43
<INVENTORY> 3,336
<CURRENT-ASSETS> 22,695
<PP&E> 23,687
<DEPRECIATION> 12,395
<TOTAL-ASSETS> 39,451
<CURRENT-LIABILITIES> 4,809
<BONDS> 0
<COMMON> 147
0
0
<OTHER-SE> 16,855
<TOTAL-LIABILITY-AND-EQUITY> 39,451
<SALES> 50,680
<TOTAL-REVENUES> 50,680
<CGS> 34,325
<TOTAL-COSTS> 34,325
<OTHER-EXPENSES> 9,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 7,614
<INCOME-TAX> 2,854
<INCOME-CONTINUING> 2,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,055
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of CERBCO, Inc.
We have audited the consolidated financial statements of CERBCO, Inc. and
subsidiaries as of June 30, 1996 and 1995, and for each of the three years in
the period ended June 30, 1996, and have issued our report thereon dated
September 20, 1996; such financial statements and report are included in this
Annual Report on Form 10-K. Our audits were conducted for the purpose of forming
an opinion on the basic consolidated financial statements taken as a whole. The
consolidating schedules as of, and for the year ended June 30,1996 are presented
for the purpose of additional analysis of the basic consolidated financial
statements rather than to present the financial position and results of
operations of the individual companies, and are not a required part of the basic
consolidated financial statements. These schedules are the responsibility of the
Company's management. Such schedules have been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Washington, D.C.
September 20, 1996
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - STATEMENT OF EARNINGS INFORMATION
YEAR ENDED JUNE 30, 1996
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East, Capitol Copy
Consolidated Eliminations Unconsolidated Incorporated Products, Inc.
<S> <C> <C> <C> <C> <C>
Sales $50,680,063 $ 0 $ 0 $ 30,470,867 $ 20,209,196
----------- ----------- ----------- ------------ ------------
Costs and Expenses:
Cost of sales 34,324,996 0 0 22,288,437 12,036,559
Selling, general and administrative
expenses 9,341,947 0 491,410 5,140,417 3,710,120
----------- ----------- ----------- ------------ ------------
Total Costs and Expenses 43,666,943 0 491,410 27,428,854 15,746,679
----------- ----------- ----------- ------------ ------------
Operating Profit (Loss) 7,013,120 0 (491,410) 3,042,013 4,462,517
Investment Income 379,916 0 155,744 135,429 88,743
Interest Expense (28,129) 0 (80) (16,719) (11,330)
Other Income (Expense) - net 248,661 0 45,827 250,656 (47,822)
Earnings (Loss) Before Income Taxes ----------- ----------- ----------- ------------ ------------
and Non-Owned Interests 7,613,568 0 (289,919) 3,411,379 4,492,108
Provision for Income Taxes 2,854,000 0 0 1,074,000 1,780,000
----------- ----------- ----------- ------------ ------------
Earnings (Loss) Before Non-Owned
Interests 4,759,568 0 (289,919) 2,337,379 2,712,108
Non-Owned Interests in Earnings of
Consolidated Subsidiaries 2,704,277 (B) 2,045,455 0 658,822 0
----------- ----------- ----------- ------------ ------------
NET EARNINGS $ 2,055,291 ($2,045,455) ($ 289,919) $ 1,678,557 $ 2,712,108
=========== =========== =========== ============ ============
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
JUNE 30, 1996
<CAPTION>
CERBCO, Inc. CERBCO, Inc. Insituform East, Capitol Copy
Consolidated Eliminations Unconsolidated Incorporated Products, Inc.
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $10,234,224 $0 $2,867,446 $4,183,084 $3,183,694
Accounts receivable 8,497,050 (A) (83,768) 159,513 6,370,063 2,051,242
Inventories 3,336,052 0 0 1,159,532 2,176,520
Prepaid and refundable taxes 135,242 0 48,292 86,950 0
Deferred income taxes 133,000 0 0 0 133,000
Prepaid expenses and other 359,631 0 0 258,387 101,244
----------- ----------- ----------- ------------ ------------
TOTAL CURRENT ASSETS 22,695,199 (83,768) 3,075,251 12,058,016 7,645,700
Investment in and Advances to
Subsidiaries:
Investment in subsidiaries 0 (C) (11,260,825) 11,260,825 0 0
Intercompany receivables and
payables 0 0 (3,567) 15,975 (12,408)
Property, Plant and Equipment - net
of accummulated depreciation 11,291,818 0 95,099 11,009,316 187,403
Other Assets:
Excess of acquisition cost over
value of net assets acquired
- net 4,728,662 (D) 2,496,376 0 0 2,232,286
Cash surrender value of life
insurance 498,974 0 498,974 0 0
Deferred income taxes 41,000 0 0 0 41,000
Deposits and other 195,082 0 62,837 106,000 26,245
----------- ----------- ----------- ----------- ------------
TOTAL ASSETS $39,450,735 ($8,848,217) $14,989,419 $23,189,307 $10,120,226
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities $4,252,873 (A) ($83,768) $155,905 $3,329,231 $851,505
Deferred revenue 500,643 0 0 0 500,643
Current portion of long-term debt 5,104 0 0 0 5,104
Current portion of capital lease
obligations 50,176 0 0 36,159 14,017
----------- ----------- ----------- ----------- ------------
TOTAL CURRENT LIABILITIES 4,808,796 (83,768) 155,905 3,365,390 1,371,269
Long-Term Liabilities:
Long-term debt 0 0 0 0 0
Capital lease obligations 135,844 0 0 112,732 23,112
Deferred income taxes 818,000 0 0 818,000 0
Accrued SERP liability 176,955 0 176,955 0 0
----------- ----------- ----------- ----------- ------------
TOTAL LIABILITIES 5,939,595 (83,768) 332,860 4,296,122 1,394,381
----------- ----------- ----------- ----------- ------------
Non-Owned Interests: 16,509,371 (B)(C) 14,155,038 0 2,354,333 0
----------- ----------- ----------- ----------- ------------
Stockholders' Equity:
Common stock 115,710 (C) (175,486) 115,710 175,486 0
Class B stock 31,085 (C) (12,024) 31,085 11,904 120
Additional paid-in capital 7,432,071 (C) (4,750,304) 7,432,071 4,000,424 749,880
Retained earnings 9,422,903 (C)(D)(19,171,286) 7,077,693 13,540,651 7,975,845
Treasury stock 0 (C) 1,189,613 0 (1,189,613) 0
----------- ----------- ----------- ----------- ------------
TOTAL STOCKHOLDERS' EQUITY 17,001,769 (22,919,487) 14,656,559 16,538,852 8,725,845
----------- ----------- ----------- ----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $39,450,735 ($8,848,217) $14,989,419 $23,189,307 $10,120,226
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
CERBCO, Inc.
CONSOLIDATING ELIMINATION ENTRIES
JUNE 30, 1996
<CAPTION>
(A)
<S> <C>
Accounts payable and accrued liabilities $83,768
<S> <C>
Accounts receivable $83,768
To eliminate dividend receivable from Insituform East to
CERBCO at June 30, 1996.
(B)
Non-owned interests in earnings $2,045,455
Non-owned interests $2,045,455
To record non-owned interests in earnings of subsidiaries in 1996.
(C)
Common stock $175,486
Class B stock 12,024
Additional paid-in capital 4,750,304
Retained earnings 17,125,831
Excess of acquisition cost over value of net assets acquired 2,496,376
Treasury stock $1,189,613
Non-owned interests 12,109,583
Investment in subsidiaries 11,260,825
To eliminate investments in consolidated subsidiaries at
June 30, 1996.
(D)
Retained earnings $2,045,455
Current year earnings adjustments $2,045,455
To close out impact of eliminating entries on statement of
earnings for 1996.
</TABLE>
