<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 DECEMBER 31, 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 February 7, 1997, 6,602,056 Common Shares, without par value, were
outstanding.
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CORRPRO COMPANIES, INC.
-----------------------
INDEX
-----
Page
----
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 10-14
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 15-16
ITEM 6. Exhibits and Reports on Form 8-K 16
2
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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>
December 31, March 31,
1996 1996
----------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,683 $ 3,256
Accounts receivable, net 34,521 30,257
Inventories 19,471 17,056
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,431 2,145
Prepaid expenses and other 4,689 7,201
--------- ---------
Total current assets 65,795 59,915
--------- ---------
Property and Equipment, net 20,429 20,615
Other Assets:
Goodwill 24,905 24,291
Patents and other intangibles 2,144 1,865
Other 1,788 1,512
--------- ---------
Total other assets 28,837 27,668
--------- ---------
$ 115,061 $ 108,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 361 $ 40
Current portion of long-term debt 1,278 1,487
Accounts payable 15,285 16,836
Accrued liabilities and other 11,462 7,762
--------- ---------
Total current liabilities 28,386 26,125
--------- ---------
Long-Term Debt, net of current portion 26,445 26,616
Deferred Income Taxes 615 674
Commitments and Contingencies -- --
Minority Interest 496 502
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,238 2,196
Additional paid-in capital 50,588 50,043
Accumulated earnings 5,146 1,963
--------- ---------
57,972 54,202
Cumulative translation adjustment 1,830 131
Common shares in treasury, at cost (683) (52)
--------- ---------
Total shareholders' equity 59,119 54,281
--------- ---------
$ 115,061 $ 108,198
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
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<TABLE>
<CAPTION>
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Three Months Ended For the Nine Months Ended
December 31 December 31
--------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Engineering & construction services $ 17,697 $ 18,602 $ 51,906 $ 51,441
Product sales 21,555 17,507 64,535 56,159
--------- --------- --------- ---------
39,252 36,109 116,441 107,600
Cost of sales:
Engineering & construction services 11,648 13,082 33,752 37,820
Product sales 16,335 13,245 48,158 44,611
--------- --------- --------- ---------
27,983 26,327 81,910 82,431
--------- --------- --------- ---------
Gross profit 11,269 9,782 34,531 25,169
Selling, general & administrative expenses 8,215 7,598 24,975 26,110
Unusual charges -- 300 2,400 1,800
--------- --------- --------- ---------
Operating income (loss) 3,054 1,884 7,156 (2,741)
Interest expense 589 669 1,827 2,026
--------- --------- --------- ---------
Income (loss) before income taxes 2,465 1,215 5,329 (4,767)
Provision (benefit) for income taxes 985 500 2,146 (1,293)
--------- --------- --------- ---------
Net income (loss) $ 1,480 $ 715 $ 3,183 $ (3,474)
========= ========= ========= =========
Net income (loss) per share $ 0.22 $ 0.11 $ 0.47 $ (0.57)
========= ========= ========= =========
Number of common and
common share equivalents 6,794 6,716 6,793 6,095
========= ========= ========= =========
</TABLE>
The accompanying notes to Consolidated Financial Statements are an
integral part of these statements.
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<TABLE>
<CAPTION>
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
December 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,183 $ (3,474)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,984 2,718
Deferred income taxes (650) (163)
Gain on sale of fixed assets 5 (69)
Minority interest (39) 76
Changes in assets and liabilities:
Accounts receivable (3,366) (955)
Inventories (1,980) 158
Contracts in progress, net (651) 704
Prepaid expenses and other 4,200 186
Accounts payable and accrued expenses 969 1,966
Other assets (326) (239)
-------- --------
Total adjustments 1,146 4,382
-------- --------
Net cash provided by operating activities 4,329 908
-------- --------
Cash flows from investing activities:
Additions to property and equipment (1,917) (1,463)
Disposal of property and equipment 96 151
Other assets (500) (600)
-------- --------
Net cash used for investing activities (2,321) (1,912)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 26,293 19,047
Repayment of long-term debt (26,180) (17,413)
Repayment of short-term borrowings, net (23) (158)
Net proceeds from issuance of Common Shares 295 207
Repurchase of Common Shares (631) --
-------- --------
Net cash provided by (used for) financing activities (246) 1,683
-------- --------
Effect of changes in foreign currency exchange rates (335) 58
Net increase in cash 1,427 737
Cash and cash equivalents at beginning of period 3,256 1,385
-------- --------
Cash and cash equivalents at end of period $ 4,683 $ 2,122
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 1,246 $ 1,529
Interest $ 1,574 $ 1,451
</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 -- -- -- 3,183 -- -- 3,183
Exercise of 126
stock options -- 42 545 -- -- -- 587
Repurchase of
Common Shares -- -- -- -- -- (631) (631)
Cumulative translation
adjustment -- -- -- -- 1,699 -- 1,699
-------- -------- -------- -------- -------- -------- ---------
December 31, 1996 $ -- $ 2,238 $ 50,588 $ 5,146 $ 1,830 $ (683) $ 59,119
======== ======== ======== ======== ======== ======== =========
<FN>
* Shares held in treasury totaled 25 at March 31, 1995 and 1996 and 97 at
December 31, 1996.
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
6
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT 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 nine months ended December 31, 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
December 31, March 31,
1996 1996
---- ----
Inventories consist of:
Component parts and raw materials $ 9,295 $ 9,004
Work in process 1,160 1,492
Finished products 9,544 7,215
-------- --------
19,999 17,711
Reserve for slow moving and potentially
obsolete materials (528) (655)
-------- --------
$ 19,471 $ 17,056
======== ========
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<TABLE>
<CAPTION>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
December 31, March 31,
1996 1996
---- ----
<S> <C> <C>
Property, plant and equipment consists of the following:
Land $ 782 $ 782
Buildings 6,040 5,886
Equipment, furniture and fixtures 21,622 19,849
Leasehold improvements 604 529
-------- --------
29,048 27,046
Less: Accumulated depreciation (8,619) (6,431)
-------- --------
$ 20,429 $ 20,615
======== ========
</TABLE>
NOTE 4 - REPURCHASE OF COMMON SHARES
In November 1996, the Board of Directors authorized a program to
repurchase up to 600 shares of the Company's outstanding common shares. During
the three months ended December 31, 1996, the Company repurchased approximately
72 shares at a total cost of $631 under this program.
NOTE 5 - 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
nine months ended December 31, 1995, as the effect would be antidilutive. The
weighted average number of Common and Common Share equivalents outstanding for
the three months ended December 31, 1996 and 1995 were 6,794 and 6,716,
respectively and for the nine months ended December 31, 1996 and 1995 were 6,793
and 6,095, respectively.
NOTE 6 - OTHER INFORMATION
Stock options:
The Company granted options to purchase 151 Common Shares at exercise
prices between $8.11 and $9.69 per share under the 1994 Corrpro Stock Option
Plan (the "Plan") during the nine months ended December 31, 1996. During such
period, the Company terminated 4 previously granted options in accordance with
the provisions of the Plan. There were 126 Common Share options exercised at
exercise prices between $2.33 and $6.88 per share during the nine month period
ended December 31, 1996.
Also during the nine months ended December 31, 1996, the Company
granted options to purchase 6 Common Shares at exercise prices between $10.32
and $11.21 per share under the 1994 Corrpro Outside Directors' Stock Option Plan
(the "Directors' Plan"). During such period,
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the Company terminated 3 previously granted options in accordance with
provisions of the Directors' Plan.
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. Beginning in June 1995, securities
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 June 1, 1994 and June 19, 1995.
The Company and certain of its current or former directors and/or officers were
named defendants.
In addition, the Company is cooperating in an investigation being
conducted by the Securities and Exchange Commission ("SEC") concerning certain
matters, including those described above. The Company is unable to assess the
impact of the ultimate resolution of this matter.
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.
On October 17, 1996, the Company reached an agreement in principle to
settle the securities class action and shareholder derivative lawsuits. The
proposed settlement is subject to certain conditions including the negotiation
and signing of a definitive settlement agreement and court approval. The total
of the proposed settlement is $6.1 million. The Company has agreed to pay $1.1
million in cash, to issue a promissory note in the amount of $0.5 million and to
pay an additional $1.4 million in cash or equity securities valued at the time
of distribution. The Company's directors and officers liability insurance
("D&O") carrier has agreed to pay the balance of the settlement amount. During
the quarter ended September 30, 1996, the Company recorded an unusual charge
totaling $2.4 million relating to the settlement. Such amount represents the
Company's share of the proposed settlement, net of estimated litigation related
legal fees to be reimbursed by the D&O carrier.
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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 DECEMBER 31, 1996
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1995
Revenues
- --------
Revenues for the fiscal 1997 third quarter totaled $39.3 million, an
increase of $3.1 million or 8.7% over the fiscal 1996 third quarter. The revenue
growth was all internally generated as there were no acquisitions in either the
current or prior year.
During the fiscal 1997 third quarter, approximately 45% of the Company's
revenues related to services and 55% related to products, compared to 52% and
48%, respectively during the fiscal 1996 third quarter.
Revenues from services decreased $0.9 million or 4.9%. Service revenues
related to the Company's domestic market (historical core businesses) were
affected by several concrete contracts which have been delayed to future
periods. In addition, the Company continued to emphasize profitability over
revenue growth.
Product revenues increased $4.0 million or 23.1%. This growth is largely
due to improved performance by the Company's Wilson Walton UK operation which
benefited from several large offshore projects currently in process.
Gross Profit
- ------------
The Company's gross profit for the fiscal 1997 third quarter totaled $11.3
million (or 28.7% of revenues) compared to $9.8 million (or 27.1% of revenues)
for the fiscal 1996 third quarter. This represents an increase in gross profit
dollars of 15.2%. During fiscal 1996, the Company effected pricing disciplines
and implemented cost reductions, which have resulted in improved gross profit
margins.
Gross profit related to services totaled $6.0 million (or 34.2% of
revenues) for the fiscal 1997 third quarter, compared to $5.5 million (or 29.7%
of revenues) for the fiscal 1996 third quarter, an increase in gross profit
dollars of 9.6%. The improvement in service gross profit margins related
primarily to the Company's domestic core businesses and is the result of pricing
disciplines implemented during fiscal year 1996.
Gross profit related to product sales totaled $5.2 million (or 24.2% of
revenues) for the fiscal 1997 third quarter, compared to $4.3 million (or 24.3%
of revenues) for the fiscal 1996 third quarter, an increase in gross profit
dollars of 22.5%.
10
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Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative ("S,G&A") expense for the fiscal 1997
third quarter totaled $8.2 million (or 20.9% of revenues) compared to $7.6
million (or 21.0% of revenues) for the fiscal 1996 third quarter, an increase of
8.1%. The change resulted primarily from higher levels of business activity.
Also, additional costs have been incurred as the Company positioned itself for
the future.
Unusual Charge
- --------------
During the fiscal 1996 third quarter, the Company recorded a $0.3 million
unusual charge which consisted of litigation-related legal expenses.
Operating Income
- ----------------
Operating income during the fiscal 1997 third quarter totaled $3.1 million
compared to $1.9 million for the fiscal 1996 third quarter, an increase of
62.1%. The increase relates to the higher revenue levels as well as the improved
gross profit margins.
Interest Expense
- ----------------
Interest expense totaled $0.6 million for the 1997 third quarter compared
with $0.7 million for the 1996 third quarter.
Income Tax Provision
- --------------------
The Company recorded a provision for income taxes of $1.0 million for the
fiscal 1997 third quarter compared to a provision of $0.5 million for the fiscal
1996 third quarter. The effective tax rate for the fiscal 1997 third quarter was
40.0% compared to 41.2% for the fiscal 1996 third quarter.
Net Income
- ----------
The Company generated net income of $1.5 million for the fiscal 1997 third
quarter compared to net income of $0.7 million for the fiscal 1996 third
quarter.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE
MONTHS ENDED DECEMBER 31, 1995
Revenues
- --------
Revenues for the nine months ended December 31, 1996 totaled $116.4
million, an increase of $8.8 million or 8.2% over the fiscal 1996 nine month
period. The revenue growth was all internally generated as there were no
acquisitions in either the current or prior year.
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<PAGE> 12
During the fiscal 1997 nine months, approximately 45% of the Company's
revenues related to services and 55% related to products, compared to 48% and
52%, respectively during the fiscal 1996 nine months.
Revenues from services during the fiscal 1997 nine months were essentially
flat as the Company continued to emphasize profitability over revenue growth.
Product revenues increased $8.4 million or 14.9%. The increase relates to
growth at Wilson Walton as well as growth related to the Company's domestic core
businesses.
The Company believes that a portion of the overall increase for the nine
month period is a carryover of business from the fourth quarter of fiscal 1996,
when severe winter weather delayed certain engineering and construction projects
to future periods.
Gross Profit
- ------------
The Company's gross profit for the fiscal 1997 nine months totaled $34.5
million (or 29.7% of revenues) compared to $25.2 million (or 23.4% of revenues)
for the fiscal 1996 nine months. This represents an increase in gross profit
dollars of 37.2%. During fiscal 1996, the Company effected pricing disciplines
and implemented cost reductions which have resulted in improved gross profit
margins.
Gross profit related to services totaled $18.2 million (or 35.0% of
revenues) for the fiscal 1997 nine months, compared to $13.6 million (or 26.5%
of revenues) for the fiscal 1996 nine months, an increase in gross profit
dollars of 33.3%. The improvement in service gross profit margins is the result
of pricing disciplines implemented during fiscal year 1996. In addition, fiscal
1996 nine month gross margins were negatively impacted as the Company completed
a number of lower margin jobs and orders which were in backlog at the beginning
of such fiscal year.
Gross profit related to product sales totaled $16.4 million (or 25.4% of
revenues) for the fiscal 1997 nine months, compared to $11.5 million (or 20.6%
of revenues) for the fiscal 1996 nine months, an increase in gross profit
dollars of 41.8%. Product margins have improved between years at the Company's
domestic core businesses as well as at the Company's Corrtherm operation.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative ("S,G&A") expense for the fiscal 1997
nine months totaled $25.0 million (or 21.4% of revenues) compared to $26.1
million (or 24.3% of revenues) for the fiscal 1996 nine months, a decrease of
4.3%. This improvement reflects the benefits from cost reduction measures
implemented during the prior fiscal year.
Unusual Charges
- ---------------
During the fiscal 1997 nine month period, the Company recorded a $2.4
million unusual charge related to the proposed settlement of the securities
class action and shareholder derivative
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litigation. The fiscal 1996 nine month period included a $1.8 million unusual
charge which consisted primarily of litigation-related legal expenses.
Operating Income (Loss)
- -----------------------
The Company had operating income of $7.2 million during the fiscal 1997
nine months compared with an operating loss of $2.7 million for the fiscal 1996
nine months. The fiscal 1997 nine months includes a $2.4 million unusual charge.
The increase in operating income relates primarily to the improved gross profit
margins as well as higher revenues and reduced S,G&A expense.
Interest Expense
- ----------------
Interest expense totaled $1.8 million for the 1997 nine months compared
with $2.0 million for the 1996 nine months.
Income Tax Provision
- --------------------
The Company recorded a provision for income taxes of $2.1 million for the
fiscal 1997 nine months compared to a benefit of $1.3 million for the fiscal
1996 nine months. The effective tax rate for the fiscal 1997 nine months was
40.3% compared to (27.1)% for the fiscal 1996 nine months.
Net Income
- ----------
The Company generated net income of $3.2 million for the fiscal 1997 nine
months compared to a net loss of $3.5 million for the fiscal 1996 nine months.
B. LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $37.4 million
compared to $33.8 million at March 31, 1996, an increase of $3.6 million or
10.7%. The increase is primarily the result of seasonally higher levels of
business activity.
During the nine months ended December 31, 1996, cash provided by
operating activities totaled $4.3 million. Cash used for investing activities
during the nine months ended December 31, 1996 totaled $2.3 million and included
$1.8 million of net capital expenditures and the disbursement of $0.5 million
relating to the purchase of technology rights. Cash used for financing
activities during the nine months ended December 31, 1996 totaled $0.2 million
which included $0.6 million related to the repurchase of the Company's common
shares.
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
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credit agreement, however, provides for the elimination of borrowing base
limitations upon the Company's achievement of certain financial ratios. The
credit agreement was amended as of October 23, 1996 to revise certain
definitions.
In addition to the domestic bank credit facility, the Company has
various smaller lines of credit with foreign banks which totaled approximately
$4.5 million. Total availability under the domestic and foreign credit
facilities at December 31, 1996 was approximately $13.6 million. The Company was
in compliance with all of its debt covenants at December 31, 1996.
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. Securities
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. In addition, the Company is cooperating in an
investigation being conducted by the SEC. See Part II, Item 1, Legal
Proceedings. 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' fees) 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.
On October 17, 1996, the Company reached an agreement in principle to
settle the securities class action and shareholder derivative lawsuits. The
proposed settlement is subject to certain conditions including the negotiation
and signing of a definitive settlement agreement and court approval. The total
of the proposed settlement is $6.1 million. The Company has agreed to pay $1.1
million in cash, to issue a promissory note in the amount of $0.5 million and to
pay an additional $1.4 million in cash or equity securities valued at the time
of distribution. The Company's D&O carrier has agreed to pay the balance of the
settlement amount. The Company is unable to assess at this time the impact of
the ultimate resolution of the SEC investigation.
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. This includes any cash requirements relating to the
settlement of the litigation discussed above.
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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<PAGE> 15
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.
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 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. The Company is unable to assess
the impact of the ultimate resolution of this matter.
On October 17, 1996, the Company reached an agreement in principle to
settle the securities class action and shareholder derivative lawsuits. The
proposed settlement is subject to certain conditions including the negotiation
and signing of a definitive settlement agreement and court approval. The total
of the proposed settlement is $6.1 million. The Company has agreed to pay $1.1
million in cash, to issue a promissory note in the amount of $0.5 million and to
pay an additional $1.4 million in cash or equity securities valued at the time
of distribution. The Company's D&O carrier has agreed to pay the balance of the
settlement amount. The Company
15
<PAGE> 16
recorded a pretax charge of $2.4 million related to the settlement in the fiscal
1997 second quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. No exhibits required.
B. REPORTS ON FORM 8-K
On November 18, 1996, the Company filed a report on Form 8-K relating
to the appointment of the Company's certifying accountants.
16
<PAGE> 17
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: February 10, 1997 /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)
17
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<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
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