<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-12282
CORRPRO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1422570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of August 5, 1996, 6,639,089 Common Shares, without par value, were
outstanding.
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CORRPRO COMPANIES, INC.
-----------------------
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to the Consolidated Financial Statements 7-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 14
ITEM 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -------
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,603 $ 3,256
Accounts receivable, net 35,283 30,257
Inventories 18,989 17,056
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,800 2,145
Prepaid expenses and other 4,689 7,201
--------- ---------
Total current assets 63,364 59,915
--------- ---------
Property and Equipment, net 20,549 20,615
Other Assets:
Goodwill 24,253 24,291
Patents and other intangibles 1,991 1,865
Other 1,561 1,512
--------- ---------
Total other assets 27,805 27,668
--------- ---------
$ 111,718 $ 108,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 139 $ 40
Current portion of long-term debt 1,246 1,487
Accounts payable 17,649 16,836
Accrued liabilities and other 7,607 7,762
--------- ---------
Total current liabilities 26,641 26,125
--------- ---------
Long-Term Debt, net of current portion 28,121 26,616
Deferred Income Taxes 744 674
Commitments and Contingencies -- --
Minority Interest 440 502
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,207 2,196
Additional paid-in capital 50,187 50,043
Accumulated earnings 3,183 1,963
--------- ---------
55,577 54,202
Cumulative translation adjustment 247 131
Common shares in treasury, at cost (52) (52)
--------- ---------
Total shareholders' equity 55,772 54,281
--------- ---------
$ 111,718 $ 108,198
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Engineering and construction services $ 15,663 $ 14,200
Product sales 20,805 19,277
-------- --------
36,468 33,477
Cost of sales:
Engineering and construction services 9,935 11,179
Product sales 15,510 15,003
-------- --------
25,445 26,182
-------- --------
Gross profit 11,023 7,295
Selling, general and administrative expenses 8,398 9,910
Unusual charges -- 1,500
-------- --------
Operating income (loss) 2,625 (4,115)
Interest expense (590) (565)
-------- --------
Income (loss) before income taxes 2,035 (4,680)
Provision (benefit) for income taxes 815 (1,535)
-------- --------
Net income (loss) $ 1,220 $ (3,145)
======== ========
Net income (loss) per share $ .18 $ (.53)
======== ========
Number of Common and Common Share equivalents 6,785 5,956
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,220 $(3,145)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 924 886
Deferred income taxes (110) (188)
Gain on sale of fixed assets 5 (12)
Minority interest (71) 18
Changes in assets and liabilities:
Accounts receivable (4,976) (604)
Inventories (1,947) (2,992)
Contracts in progress, net (374) 689
Prepaid expenses and other 2,820 (614)
Accounts payable and accrued expenses 1,304 3,023
Other assets (117) (118)
------- -------
Total adjustments (2,542) 88
------- -------
Net cash used for operating activities (1,322) (3,057)
------- -------
Cash flows from investing activities:
Additions to property and equipment (602) (726)
Disposal of property and equipment 52 22
Other assets (200) (600)
------- -------
Net cash used for investing activities (750) (1,304)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 1,683 9,810
Repayment of long-term debt (266) (6,614)
Proceeds from (repayment of) short-term borrowings, net (60) 322
Net proceeds from issuance of Common Shares 75 66
------- -------
Net cash provided by financing activities 1,432 3,584
------- -------
Effect of changes in foreign currency exchange rates (13) 16
Net decrease in cash (653) (761)
Cash and cash equivalents at beginning of period 3,256 1,385
------- -------
Cash and cash equivalents at end of period $ 2,603 $ 624
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 386 $ 663
Interest $ 384 $ 515
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Common Common
Serial Shares Additional Cumulative Shares
Preferred ($0.33 Paid-In- Accumulated Translation in
Shares Stated Value) Capital Earnings Adjustment Treasury* Total
------ ------------- ------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1995 $ ----- $ 1,989 $ 46,333 $ 7,175 $ 615 $ (52) $ 56,060
Net loss ----- ----- ----- (5,212) ----- ----- (5,212)
Exercise of 89
stock options ----- 30 391 ----- ----- ----- 421
Conversion of 530
CSG shares ----- 177 3,319 ----- ----- ----- 3,496
Cumulative
translation
adjustment ----- ----- ----- ----- (484) ----- (484)
--------- -------- -------- -------- -------- -------- ---------
March 31, 1996 ----- 2,196 50,043 1,963 131 (52) 54,281
Net income ----- ----- ----- 1,220 ----- ----- 1,220
Exercise of 32
stock options ----- 11 144 ----- ----- ----- 155
Cumulative
translation
adjustment ----- ----- ----- ----- 116 ----- 116
--------- -------- -------- -------- -------- -------- ---------
June 30, 1996 $ ----- $ 2,207 $ 50,187 $ 3,183 $ 247 $ (52) $ 55,772
========= ======== ======== ======== ======== ======== =========
<FN>
* Shares held in treasury totaled 25 for all periods presented.
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements include the
accounts of Corrpro Companies, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain fiscal 1996 amounts have been reclassified
to conform with the fiscal 1997 presentation.
The information furnished in the accompanying interim consolidated
financial statements has not been audited by independent accountants; however,
in the opinion of management, the interim consolidated financial statements
include all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the three months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 1997 or any other period. The interim consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
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 revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---- ----
<S> <C> <C>
Inventories consist of:
Component parts and raw materials $ 8,485 $ 9,004
Work in process 1,542 1,492
Finished products 9,581 7,215
-------- --------
19,608 17,711
Reserve for slow moving and potentially
obsolete materials (619) (655)
-------- --------
$ 18,989 $ 17,056
======== ========
</TABLE>
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NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---- ----
<S> <C> <C>
Property, plant and equipment consists of the following:
Land $ 782 $ 782
Buildings 5,934 5,886
Equipment, furniture and fixtures 20,279 19,849
Leasehold improvements 532 529
-------- --------
27,527 27,046
Less: Accumulated depreciation (6,978) (6,431)
-------- --------
$ 20,549 $ 20,615
======== ========
</TABLE>
NOTE 4 - EARNINGS PER SHARE
Earnings per share is computed by dividing net income (loss) by the
weighted average number of Common and Common Share equivalents outstanding.
Common Share equivalents are computed using the treasury stock method. Common
Share equivalents were excluded from the net loss per share computation for the
three months ended June 30, 1995, as the effect would be antidilutive. The
weighted average number of Common and Common Share equivalents outstanding for
the three months ended June 30, 1996 and 1995 were 6,785 and 5,956,
respectively.
NOTE 5 - OTHER INFORMATION
Stock options:
The Company granted options to purchase 139 Common Shares at exercise
prices between $8.11 and $9.69 per share under the 1994 Corrpro Stock Option
Plan (the "Plan") during the three months ended June 30, 1996. During such
period, the Company terminated 0.5 previously granted options in accordance with
the provisions of the Plan. There were 32 Common Share options exercised at an
exercise price of $2.33 per share during the three month period ended June 30,
1996.
Legal matters:
In June 1995, the Company announced that earnings per share for fiscal
1995 were expected to be substantially below analysts' expectations, and in
August 1995, the Company restated its previously reported unaudited results
for the second and third quarters of fiscal 1995. Class action litigation and
shareholder derivative litigation were commenced seeking substantial damages
from the Company and/or certain of its current and former directors and
officers. During September 1995, the class action litigation was consolidated
and an amended and consolidated class action complaint was filed on behalf of a
purported class consisting of investors who purchased the Company's Common
Shares between
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June 1, 1994 and June 19, 1995. The Company and certain of its current or former
directors and/or officers remain the named defendants. The amended complaint
alleges claims under various sections of the Securities Exchange Act of 1934 and
Rule 10b-5, and common law fraud and negligent misrepresentation. It asserts,
among other things, that defendants made false and misleading statements during
the class period in the Company's quarterly and annual reports filed with the
Securities and Exchange Commission ("SEC"), press releases and periodic reports
to shareholders which are claimed to have materially overstated the Company's
assets, net income and projected net income. The amended complaint seeks, on
behalf of the purported class, compensatory damages of tens of millions of
dollars, as well as punitive damages, prejudgment interest and costs.
Motions to dismiss the consolidated class action lawsuit and the
shareholder derivative action were filed in November 1995 and October 1995,
respectively. On December 28, 1995, the motion to dismiss the shareholder
derivative action was granted without prejudice. An appeal is pending. The
motions to dismiss the consolidated class action complaint are still pending.
The Company intends to continue to defend itself vigorously in the
class action litigation; however, the ultimate outcome of the litigation cannot
be determined at present. As such, other than an accrual for the cost of
defense which was recorded during the fiscal 1996 first quarter, no provision
for liability, if any, that may result has been made in the accompanying
consolidated financial statements.
In addition, the Company is cooperating in an investigation being
conducted by the SEC. The Company's directors and officers liability insurance
("D&O") carriers have been given notice of the filing of the amended and
consolidated class action and shareholder derivative litigation and of the SEC
investigation, and have each notified the Company that they are preliminarily
reserving their rights concerning coverage with respect to the class action
litigation. The Company disputes the carriers' reservations of rights. The
Company has not been informed of any decision by the carriers as to whether the
policies provide coverage for some or all of the claims in the class action and
shareholder derivative litigation.
Management is unable to assess at this time whether the ultimate
outcome of the amended and consolidated class action or shareholder derivative
litigation or the SEC investigation will have a material adverse effect on the
Company's financial condition, results of operations and cash flows; however,
it is possible that events could occur during fiscal 1997 that could affect the
Company's ability to estimate the impact of the above matters.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 COMPARED
TO THREE MONTHS ENDED JUNE 30, 1995
Revenues
- --------
Revenues for the fiscal 1997 first quarter totaled $36.5 million, an
increase of $3.0 million or 8.9% over the fiscal 1996 first quarter. The revenue
growth was all internally generated as there were no acquisitions in either the
current or prior year.
During the fiscal 1997 first quarter, approximately 43% of the
Company's revenues related to services and 57% related to products, compared to
42% and 58%, respectively during the fiscal 1996 first quarter.
Revenues from services increased $1.5 million or 10.3%. The increase is
primarily attributable to growth in the Company's domestic market (historical
core businesses) as well as at its RCS and Wilson Walton operations.
Product revenues increased $1.5 million or 7.9%. This growth also
relates to the Company's domestic market as well as its Wilson Walton operation.
Partially offsetting the growth in product revenues was a $1.2 million decline
relating to the Company's Corrtherm foundry operation. Although the majority of
Corrtherm's operating difficulties have been resolved, its results continue to
be negatively impacted by lower revenue levels.
Excluding the impact of the decline at Corrtherm, revenues were up
approximately 14% between years. The Company believes that a portion of this
increase represents a carryover of business from the fourth quarter of fiscal
1996. Severe winter weather during the prior year fourth quarter delayed certain
engineering and construction projects to future periods.
Gross Profit
- ------------
The Company's gross profit for the fiscal 1997 first quarter totaled
$11.0 million (or 30.2% of revenues) compared to $7.3 million (or 21.8% of
revenues) for the fiscal 1996 first quarter. This represents an increase in
gross profit dollars of 51.1%. During fiscal 1996, the Company effected pricing
disciplines and implemented cost reductions. These actions have resulted in
improved gross profit margins.
Gross profit related to services totaled $5.7 million (or 36.6% of
revenues) for the fiscal 1997 first quarter compared to $3.0 million (or 21.3%
of revenues) for the fiscal 1996 first quarter, an increase in gross profit
dollars of 89.6%. Fiscal 1996 first quarter margins were negatively impacted as
the Company completed a number of lower margin jobs and orders which were in the
backlog at the beginning of such fiscal year.
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Gross profit related to product sales totaled $5.3 million (or 25.5% of
revenues) for the fiscal 1997 first quarter compared to $4.3 million (or 22.2%
of revenues) for the fiscal 1996 first quarter, an increase in gross profit
dollars of 23.9%. Product margins, however, continue to be negatively impacted
by low margins at Corrtherm. Although Corrtherm's gross margins have improved
between years, they continue to be below those of the Company's other
operations.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative ("S,G&A") expense for the fiscal
1997 first quarter totaled $8.4 million (or 23.0% of revenues) compared to $9.9
million (or 29.6% of revenues) for the fiscal 1996 first quarter, a decrease of
15.3%. The Company continues to realize the benefits of the cost reduction
measures implemented during fiscal 1996.
Operating Income (Loss)
- -----------------------
The Company had operating income of $2.6 million during the fiscal 1997
first quarter compared with an operating loss of $4.1 million for the fiscal
1996 first quarter. The fiscal 1996 first quarter loss included a $1.5 million
charge for litigation and certain other unusual expenses. The increase in
operating income relates to the improved gross profit margins as well as reduced
S,G&A expense.
Interest Expense
- ----------------
Interest expense for both the fiscal 1997 and 1996 first quarters
totaled $0.6 million.
Income Tax Provision
- --------------------
The Company recorded a provision for income taxes of $0.8 million for
the fiscal 1997 first quarter compared to a benefit of $1.5 million for the
fiscal 1996 first quarter. The effective tax rate for the fiscal 1997 first
quarter was 40.0% compared to 32.8% for the fiscal 1996 first quarter.
Net Income
- ----------
The Company generated net income of $1.2 million for the fiscal 1997
first quarter compared to a net loss of $3.1 million for the fiscal 1996 first
quarter.
B. LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $36.7 million
compared to working capital of $33.8 million at March 31, 1996, an increase of
$2.9 million or 8.7%. The increase is primarily the result of seasonally higher
levels of business activity during the first quarter as compared to the prior
fiscal year fourth quarter. Based on its historical seasonality trends, the
Company expects working capital levels to continue to increase during the second
quarter of fiscal 1997.
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During the three months ended June 30, 1996, cash used for operating
activities totaled $1.3 million. This is primarily the result of the $2.9
million increase in working capital discussed above.
Cash used for investing activities during the three months ended June
30, 1996 totaled $0.8 million and included $0.6 million of net capital
expenditures and the disbursement of $0.2 million relating to the purchase of
technology rights. Cash provided by financing activities during the three months
ended June 30, 1996 totaled $1.4 million which primarily represents additional
credit line borrowings necessary to meet working capital requirements.
On March 31, 1996, the Company entered into a new $37.5 million
domestic bank credit facility which consists of a three-year $32.5 million
revolver which expires on March 31, 1999 and a four-year $5 million term loan
which matures on March 31, 2000. Borrowings under the credit facility are
initially limited to borrowing base amounts as defined in the credit agreement.
The credit agreement, however, provides for the elimination of borrowing base
limitations upon the Company's achievement of certain financial ratios.
In addition to the domestic bank credit facility, the Company has
various smaller lines of credit with foreign banks which totaled approximately
$3 million. Total availability under the domestic and foreign credit facilities
at June 30, 1996 was approximately $10 million. The Company was in compliance
with all of its debt covenants at June 30, 1996.
The Company believes that cash generated by operations and amounts
available under its domestic bank credit facility and foreign lines of credit
will be sufficient to satisfy the Company's liquidity requirements through at
least fiscal 1997.
As previously reported, in June 1995 the Company announced that
earnings per share for fiscal 1995 were expected to be substantially below
analysts' expectations, and in August the Company restated its previously
reported results for the second and third quarters of fiscal 1995. Class action
litigation and shareholder derivative litigation were commenced seeking
substantial damages from the Company and/or certain of its current and former
directors and officers. Motions to dismiss the consolidated class action lawsuit
and the shareholder derivative action were filed in November 1995 and October
1995, respectively. On December 28, 1995, the motion to dismiss the shareholder
derivative action was granted without prejudice. An appeal is pending. The
Company intends to continue to defend itself vigorously in the class action
litigation. In addition, the Company is cooperating in an investigation being
conducted by the Securities and Exchange Commission. See Part II, Item 1, Legal
Proceedings. Management is unable to assess at this time the ultimate outcome of
the amended and consolidated class action or shareholder derivative litigation
or the SEC investigation. Other than an accrual for the cost of defense which
was recorded during the fiscal 1996 first quarter, no provision for liability,
if any, that may result
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has been made in the accompanying consolidated financial statements. The Company
is a party to indemnification agreements with the individual defendants in the
class action and shareholder derivative litigation, and the Company is paying
the reasonable expenses (including attorneys' fee) of the individual defendants
in defending such lawsuits in advance of the final disposition of such lawsuits.
The individual defendants have each furnished to the Company a written
undertaking to repay the amounts so paid if it shall ultimately be determined
that such individual defendant is not entitled to indemnification. The Company's
D&O carriers have been given notice of the filing of the amended and
consolidated class action and shareholder derivative litigation and of the SEC
investigation, and have each notified the Company that they are preliminarily
reserving their rights concerning coverage with respect to the class action
litigation. The Company disputes the D&O carriers' reservations of rights. The
Company has not been informed of any decision by the D&O carriers as to whether
the D&O policies provide coverage for some or all of the claims in the class
action and shareholder derivative litigation. If resolved unfavorably, the
litigation and investigation could have a material adverse effect on the
Company's financial condition, results of operations and liquidity. In addition,
the Company has expensed approximately $3.5 million in legal fees through June
30, 1996. The Company expects to continue to incur significant legal fees in
connection with these matters; however, the ultimate amount of such legal fees
cannot be determined at the present time.
C. EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSLATION
The Company does not believe that inflation has had a significant
effect on the Company's results of operations for the periods presented.
The Company has not been significantly affected by currency
fluctuations or foreign exchange restrictions. Management believes that these
risks resulting from the Company's foreign sales are manageable.
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PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------
As previously reported, in June 1995 the Company announced that its
earnings per share for fiscal 1995 were expected to be substantially below
analysts' expectations, and in August 1995 the Company restated its previously
reported results for the second and third quarters of fiscal 1995. Commencing in
June 1995, six class action lawsuits were filed against the Company and certain
of its current and former directors and officers, and a shareholder derivative
action was commenced naming the Company, its current and former directors and
certain of its current and former officers as defendants.
On September 7, 1995, five of the class actions were consolidated in the
U.S. District Court for the Northern District of Ohio and styled IN RE CORRPRO
COMPANIES, INC. SECURITIES LITIGATION. On September 14, 1995, the other class
action was voluntarily dismissed. On or about September 29, 1995, an amended and
consolidated class action complaint was filed in this consolidated proceeding on
behalf of a purported class consisting of investors who purchased the Company's
common shares between June 1, 1994 and June 19, 1995. The Company and Joseph W.
Rog, Robert M. Gossett and Ronald S. Langos, current or former directors and/or
officers of the Company, remain the named defendants. The amended complaint
alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5, and common law fraud and negligent misrepresentation. It
asserts, among other things, that defendants made false and misleading
statements during the class period in the Company's quarterly and annual reports
filed with the Securities and Exchange Commission ("SEC"), press releases and
periodic reports to shareholders which are claimed to have materially overstated
the Company's assets, net income and projected net income. The amended complaint
seeks, on behalf of the purported class, compensatory damages of tens of
millions of dollars based on the number of shares claimed to have been traded
during the class period and the decline in the price of the shares following the
Company's June 1995 announcement, as well as punitive damages, prejudgment
interest and costs.
On November 1, 1995, the Company and all other defendants filed motions
to dismiss the amended and consolidated class action complaint in its entirety,
and these motions are still pending.
In August 1995, the Company was served with a lawsuit captioned LANI
ROTHSTEIN, TRUSTEE VS. ROBERT M. GOSSETT, BARRY W. SCHADECK, JOSEPH C. OVERBECK,
JOSEPH W. ROG, DAVID H. KROON, C. RICHARD LYNHAM, ROBERT E. HODGE, ROBERT (SIC)
S. LANGOS, RICHARD HARR, DOES 1-100, AND CORRPRO COMPANIES, INC., Medina County
Common Pleas Court, Case No. 95 CIV 0522. This shareholder derivative action was
filed August 2, 1995 and served on or about August 4, 1995. On behalf of the
shareholders of Corrpro Companies, Inc., Plaintiff alleges derivative claims for
intentional breaches of fiduciary duties and aiding and
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abetting, abuse of control and aiding and abetting, waste of corporate assets
and aiding and abetting, constructive fraud, and accounting, and disgorgement of
insider trading profits. The plaintiff requests a declaratory judgment, an
accounting, compensatory damages, a court order to implement certain policies,
return of remuneration, exemplary and punitive damages, attorneys' fees,
prejudgment and postjudgment interest, and litigation costs and expenses in
unspecified amounts.
On or about October 16, 1995, the defendants filed a motion to dismiss
the shareholder derivative action referred to above in its entirety. On December
28, 1995, the motion to dismiss the shareholder derivative action was granted
without prejudice. An appeal is pending.
In addition, the Company is cooperating in an investigation being
conducted by the SEC concerning certain matters, including those described
above. Copies of documents requested by the SEC have been provided, and the
testimony of certain individuals has been taken. To the Company's knowledge,
this investigation has not yet been completed. In addition, the Company is
unable to assess the impact of the ultimate resolution of this matter.
The Company's D&O carriers have been given notice of the filing of the
amended and consolidated class action and shareholder derivative litigation and
of the SEC investigation, and have each notified the Company that they are
preliminarily reserving their rights concerning coverage with respect to the
class action litigation. The D&O primary carrier has stated that it is reserving
its rights to take such action as may be warranted should it be determined that
any misrepresentations were made in connection with the application for the
policy, and that it is reserving all rights and defenses which it may have under
the policy's exclusions, endorsements and other terms and conditions. The D&O
excess carrier has stated that its obligations will attach only after the
underlying primary policy has been exhausted by payment of claims, and that it
is reserving all rights to deny coverage and/or rescind the policy on all bases
applicable to the facts of the claim and/or at law. The Company disputes the D&O
carriers' reservations of rights. The Company has not been informed of any
decision by the D&O carriers as to whether the D&O policies provide coverage for
some or all of the claims in the class action and shareholder derivative
litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
(A) Financial Data Schedule - Exhibit 27
(B) There were no reports on Form 8-K filed during the quarter.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRPRO COMPANIES, INC.
(Registrant)
Date: August 9, 1996 /s/ Joseph W. Rog
---------------------- --------------------------------
Joseph W. Rog
Chairman of the Board, President
and Chief Executive Officer
/s/ Neal R. Restivo
--------------------------------
Neal R. Restivo
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
16
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<NAME> CORRPRO COMPANIES, INC.
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