<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 SEPTEMBER 30, 1997
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 November 6, 1997, 6,508,100 Common Shares, without par value, were
outstanding.
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CORRPRO COMPANIES, INC.
-----------------------
INDEX
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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 7-11
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
PART II. OTHER INFORMATION
- --------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 6. Exhibits and Reports on Form 8-K 18
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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>
September 30, March 31,
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,899 $ 3,233
Accounts receivable, net 44,099 32,622
Inventories 26,188 18,031
Costs and estimated earnings in excess of billings
on uncompleted contracts 4,110 2,498
Prepaid expenses and other 4,476 4,126
Net assets held for sale 9,918 11,277
--------- ---------
Total current assets 91,690 71,787
--------- ---------
Property and Equipment, net 11,449 10,520
Other Assets:
Goodwill 27,305 21,218
Patents and other intangibles 1,957 1,923
Other 2,542 1,470
--------- ---------
Total other assets 31,804 24,611
--------- ---------
$ 134,943 $ 106,918
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 2,810 $ 2,052
Accounts payable 15,790 13,607
Accrued liabilities and other 11,074 9,769
--------- ---------
Total current liabilities 29,674 25,428
--------- ---------
Long-Term Debt, net of current portion 46,625 25,635
Deferred Income Taxes 975 706
Commitments and Contingencies -- --
Minority Interest 506 473
Shareholders' Equity:
Series A junior participating preferred shares -- --
Common shares 2,245 2,238
Additional paid-in capital 50,685 50,590
Accumulated earnings 5,663 1,773
--------- ---------
58,593 54,601
Cumulative translation adjustment 528 894
Common shares in treasury, at cost (1,958) (819)
--------- ---------
Total shareholders' equity 57,163 54,676
$ 134,943 $ 106,918
========= =========
</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 Amounts)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
September 30 September 30
--------------------- ----------------------
1997 1996 1997 1996
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues:
Engineering & construction services $25,121 $ 18,546 $44,546 $ 34,209
Product sales 23,545 18,744 39,670 37,059
------- -------- ------- --------
48,666 37,290 84,216 71,268
Cost of sales:
Engineering & construction services 16,918 12,169 30,040 22,104
Product sales 17,394 13,504 29,231 26,991
------- -------- ------- --------
34,312 25,673 59,271 49,095
------- -------- ------- --------
Gross profit 14,354 11,617 24,945 22,173
Selling, general & administrative expenses 9,725 7,685 17,416 15,440
Unusual charge -- 2,400 -- 2,400
------- -------- ------- --------
Operating income 4,629 1,532 7,529 4,333
Interest expense 684 490 1,046 919
------- -------- ------- --------
Income from continuing operations before income taxes 3,945 1,042 6,483 3,414
Provision for income taxes 1,578 414 2,593 1,338
------- -------- ------- --------
Income from continuing operations 2,367 628 3,890 2,076
Discontinued operations:
Loss from discontinued operations, net of taxes -- (145) -- (373)
------- -------- ------- --------
Net income $ 2,367 $ 483 $ 3,890 $ 1,703
======= ======== ======= ========
Earnings per share:
Income from continuing operations $ 0.35 $ 0.09 $ 0.58 $ 0.30
Loss from discontinued operations -- (0.02) -- (0.05)
------- -------- ------- --------
Net income $ 0.35 $ 0.07 $ 0.58 $ 0.25
======= ======== ======= ========
Weighted average shares 6,765 6,801 6,763 6,793
======= ======== ======= ========
</TABLE>
The accompanying notes to Consolidated Financial Statements are an
integral part of these statements.
4
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,890 $ 1,703
Adjustments to reconcile net income to net cash
provided by (used for) continuing operations:
Depreciation and amortization 1,653 1,440
Deferred income taxes 1,411 (694)
Gain (loss) on sale of fixed assets (35) 5
Loss from discontinued operations -- 373
Minority interest 36 (35)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (6,080) (6,092)
Inventories (4,845) (2,982)
Contracts in progress, net (1,432) (578)
Prepaid expenses and other (853) 3,392
Accounts payable and accrued expenses 420 4,505
Other assets (69) (419)
-------- --------
Total adjustments (9,794) (1,085)
-------- --------
Net cash provided by (used for) continuing operations (5,904) 618
Net cash provided by (used for) discontinued operations 1,359 (682)
-------- --------
Net cash used for operating activities (4,545) (64)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (547) (1,271)
Disposal of property and equipment 60 92
Acquisition of CPS (15,248) --
Other assets -- (500)
-------- --------
Net cash used for investing activities (15,735) (1,679)
Cash flows from financing activities:
Proceeds from long-term debt 21,553 17,855
Repayment of long-term debt (15,343) (15,764)
Repayment of short-term borrowings, net (195) (26)
Refinance of domestic credit facility (26,619) --
Initial borrowings under new domestic credit facility 42,350 --
Net proceeds from issuance of Common Shares 33 207
Repurchase of Common Shares (1,139) --
-------- --------
Net cash provided by financing activities 20,640 2,272
-------- --------
Effect of changes in foreign currency exchange rates (694) (54)
Net increase (decrease) in cash (334) 475
Cash and cash equivalents at beginning of period 3,233 3,249
-------- --------
Cash and cash equivalents at end of period $ 2,899 $ 3,724
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 1,206 $ 906
Interest $ 1,442 $ 959
</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>
Series A
Junior Common Common
Participating 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, 1997 $ -- $2,238 $50,590 $1,773 $ 894 $ (819) $ 54,676
Net income -- -- -- 3,890 -- -- 3,890
Exercise of 20 stock
options -- 7 95 -- -- -- 102
Repurchase of 110
Common Shares -- -- -- -- -- (1,139) (1,139)
Cumulative translation
adjustment -- -- -- -- (366) -- (366)
------------- ------ ------- ------ ----- ------- --------
September 30, 1997 $ -- $2,245 $50,685 $5,663 $ 528 $(1,958) $ 57,163
============= ====== ======= ====== ===== ======= ========
<FN>
* Shares held in treasury totaled 112 at March 31, 1997 and 222 at September 30,
1997.
</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 Per Share Data)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements include the
accounts of Corrpro Companies, Inc. and subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain fiscal 1997 amounts have been reclassified to conform
with the fiscal 1998 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 six months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 1998 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, 1997.
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 and
disclosure of contingent 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 - ACQUISITIONS
Effective July 1, 1997, the Company acquired all the outstanding shares
of capital stock of Cathodic Protection Services Company ("CPS"). The purchase
price was $15,248 in cash which included the repayment in full of certain
indebtedness and management fees owed by CPS to its senior lenders and its
former stockholders as well as certain costs directly related to the
acquisition. The acquisition was funded using proceeds from the Company's new
domestic bank credit facility. See Note 6. The purchase agreement provides for a
post-closing purchase price adjustment based on differences in CPS' working
capital, as defined, between March 31, 1997 and June 30, 1997.
CPS provides materials and services for the evaluation, design,
installation and maintenance of cathodic protection systems.
The acquisition of CPS has been accounted for using the purchase method
of accounting. Accordingly, the purchase price has been allocated to the net
assets acquired based upon a preliminary estimate of their fair market values at
the date of acquisition. The excess of the
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purchase price over the estimated fair value of net assets acquired totaled $6.6
million at September 30, 1997 and is being amortized over 40 years on a
straight-line basis. This allocation was based on preliminary estimates and is
subject to revision at a later date.
The results of CPS have been included in the Company's results since
the effective date of the acquisition. Pro forma results of operations have not
been presented as the effect of the acquisition on the Company's financial
statements did not exceed the applicable materiality thresholds.
NOTE 3 - INVENTORY
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
------- -------
<S> <C> <C>
Inventories consist of the following:
Component parts and raw materials $10,537 $ 8,437
Work in process 1,166 955
Finished goods 14,485 8,639
------- -------
$26,188 $18,031
======= =======
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
------- -------
Property, plant and equipment consists of the following:
<S> <C> <C>
Land $ 553 $ 553
Buildings and improvements 4,922 4,840
Equipment, furniture and fixtures 13,436 12,358
------- -------
18,911 17,751
Less: Accumulated depreciation (7,462) (7,231)
------- -------
$11,449 $10,520
======= =======
</TABLE>
NOTE 5 - EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of Common and Common Share equivalents outstanding. Common Share
equivalents are computed using the treasury stock method. The weighted average
number of Common and Common Share equivalents outstanding were 6,765 and 6,801,
respectively for the three months ended September 30, 1997 and 1996 and 6,763
and 6,793, respectively for the six months ended September 30, 1997 and 1996.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share", which the Company is required to adopt for the
quarter ending December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods presented in comparative statements.
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Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded from the calculation. Due to
the immaterial amount of common stock equivalents in the Company's current
primary earnings per share calculation, the adoption of SFAS No. 128 is not
expected to have a material impact on the calculations of earnings per share.
NOTE 6 - LONG-TERM DEBT
On July 16, 1997, the Company entered into a new five-year $55 million
domestic bank credit facility with a three-bank group. The credit facility
consisted of a $35 million revolver which expires July 15, 2002 and a $20
million term loan which matures on June 30, 2002. On September 18, 1997, the new
domestic credit facility was amended to increase the revolver from $35 million
to $40 million and add two additional banks to the bank group. Principal
payments under the term loan commence on June 30, 1998 at which time a $1,000
payment is due. Beginning September 30, 1998, the term loan provides for
quarterly principal payments as follows: $500 through June 30, 1999, $1,000
through June 30, 2000, $1,500 through June 30, 2001 and $1,750 through June 30,
2002. Interest on the revolver and term loan borrowings is based, at the
Company's option, on either (a) the prime rate, as defined in the credit
agreement or (b) the Euro Rate, as defined in the credit agreement, plus 0.5% to
1.5%. The spread over the Euro Rate varies based upon a certain financial
covenant. The Company is required to pay a commitment fee ranging from 0.2% to
0.3% on the unused revolver commitment. Borrowings under the credit facility are
initially secured by the Company's domestic accounts receivable, inventories,
certain intangibles and fixed assets, including those relating to CPS. The
credit agreement provides for the release of collateral upon the Company's
satisfaction of certain conditions. The credit agreement also requires the
Company to maintain certain financial covenants and places certain restrictions
on the Company's ability to pay cash dividends and to effect major acquisitions.
The Company was in compliance with all covenants at September 30, 1997.
Initial borrowings under the new credit facility were used to finance
the acquisition of CPS and to repay all outstanding borrowings under the
Company's $37.5 million domestic bank credit facility. The $37.5 million credit
facility was terminated by the Company in connection with the refinancing.
NOTE 7 - NET ASSETS HELD FOR SALE
During March 1997, the Company adopted a formal plan to sell its
Corrtherm operation. Corrtherm is reported as a discontinued operation and its
net assets and results of operations are reported separately in the consolidated
financial statements. The fiscal 1997 financial statements have been
reclassified to conform with the current period presentation.
Net assets held for sale relating to Corrtherm at September 30, 1997,
before adjustment for the estimated loss on disposal, consisted of working
capital of $2.5 million, net property and equipment of $7.0 million and other
assets of $3.0 million. These amounts are offset by a reserve for the estimated
loss on disposal and provisions for other estimated costs to be incurred in
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connection with the disposal. The amounts the Company will ultimately receive
could differ from these estimates.
The Company allocated interest of $0.2 million to Corrtherm for both
the three months ended September 30, 1997 and 1996, and $0.3 million for both
the six months ended September 30, 1997 and 1996, based on the estimated
proceeds to be realized from the divestiture. Revenues from Corrtherm, which are
excluded from consolidated revenues, totaled $1.0 million and $3.4 million for
the three months ended September 30, 1997 and 1996, respectively, and $3.5
million and $5.9 million for the six months ended September 30, 1997 and 1996,
respectively.
At March 31, 1997, net assets held for sale included $1.6 million
relating to a building located in Colorado which was sold in April 1997.
Proceeds received approximated the net book value of the building.
NOTE 8 - SHAREHOLDER RIGHTS PLAN
On July 23, 1997, the Company adopted a shareholder rights plan and
declared a dividend of one Right on each outstanding share of the Company's
common stock. Each Right would entitle shareholders to buy, upon certain
triggering events, one one-hundredth of a newly created Series A Junior
Participating Preferred Share at an exercise price of $75 (subject to certain
adjustments). The record date for the distribution was August 7, 1997.
Subject to certain exceptions, Rights will become exercisable only
after a person or group acquires 20% or more of the Company's Common Shares or
announces a tender offer for 20% or more of the Company's Common Shares. The
Company's Board of Directors can redeem the Rights at $0.01 per Right at any
time before a person acquires 20% or more of the Company's Common Shares. If a
person or group acquires 20% or more of the Company's Common Shares, each Right
will entitle holders, other than the acquiring party, to purchase Common Shares
of the Company having a market value of twice the exercise price of the Right.
If, after the Rights have become exercisable, the Company merges or otherwise
combines with another entity, each Right then outstanding will entitle its
holder to purchase a number of the acquiring party's common shares having a
market value of twice the exercise price of the Right. The Plan also contains
other customary provisions and is similar to plans adopted by many other
companies. The Rights will expire in July 2007.
NOTE 9 - STOCK PLANS
The Company granted options to purchase 42 Common Shares at an exercise
price of $9.56 per share under the 1994 Corrpro Stock Option Plan (the "1994
Option Plan") during the six months ended September 30, 1997. During such
period, the Company terminated 6 previously granted options in accordance with
the provisions of the Plan. There were 20 Common Share options exercised at
exercise prices between $2.33 and $8.11 during the six month period ended
September 30, 1997.
On April 28, 1997, the Company adopted the 1997 Long-Term Incentive
Plan of Corrpro Companies, Inc. (the "1997 Option Plan"), subject to shareholder
approval, which was obtained
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on July 23, 1997. The 1997 Option Plan provides for the granting of up to 375
non-qualified stock options, stock appreciation rights, restricted stock awards
or stock bonus awards to officers, key employees and consultants of the Company.
In addition, the 1997 Option Plan provides that shares exercised, forfeited or
otherwise terminated under previously granted stock awards, other than awards
under the 1994 Non-Employee Directors Plan (the "1994 Directors Plan"), will
also be available for grant under the new plan. The option price per share will
generally be the fair market value of the Company's Common Shares on the date of
grant and the term of the options will not exceed 10 years. The 1997 Option Plan
will terminate on April 28, 2007. The Company granted options to purchase 91
Common Shares at exercise prices between $9.38 and $12.00 per share under the
1997 Option Plan during the six months ended September 30, 1997.
On April 28, 1997, the Company also adopted the 1997 Non-Employee
Directors' Stock Option Plan ("the 1997 Directors Plan"), subject to shareholder
approval which was obtained on July 23, 1997. The 1997 Directors Plan provides
for the granting of up to 50 non-qualified stock options to current and future
non-employee directors of the Company. Under this plan, each non-employee
director will annually be granted options to purchase 2 Common Shares. The
option price per share will be the fair market value of the Company's Common
Shares on the date of grant and the term of the options will be 10 years. The
1997 Directors Plan will terminate on April 28, 2007. The Company granted
options to purchase 8 Common Shares at an exercise price of $12.13 per share
under the 1997 Directors Plan during the six months ended September 30, 1997.
The 1994 Option Plan and the 1994 Directors Plan were terminated upon
the adoption of the 1997 Option Plan and the 1997 Directors Plan, respectively,
and no further awards may be granted under the terminated plans. All outstanding
awards, however, under both the 1994 Option Plan and the 1994 Directors Plan
will continue in full force and effect in accordance with the terms and
conditions of such awards.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
- ------ of Operations
Effective July 1, 1997, the Company acquired all the outstanding shares
of capital stock of CPS. The acquisition has been accounted for using the
purchase method of accounting and the results of CPS have been included in the
Company's results since the effective date.
The Company is currently implementing its plan for the integration of
CPS' operations into Corrpro in order to take advantage of the synergies and
consolidation opportunities that exist between the two companies. Five of CPS'
offices were located in cities where Corrpro also had facilities. In each of
these cities, the Company plans to merge the operations in order to reduce
overhead and administrative costs. To date, four of the operations have been
physically merged. The Company's integration plans also include the
consolidation of CPS' corporate and administrative functions into Corrpro's. To
date, progress has also been made in the consolidation of the various
administrative functions.
On a going forward basis, the results attributable to CPS will not be
separable due to the integration of CPS' operations into Corrpro.
The above statements regarding the synergies and consolidation
opportunities that exist between Corrpro and CPS constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might affect such forward-looking
statements include the Company's ability to successfully integrate CPS in a
timely manner.
A. RESULTS OF OPERATIONS - Three Months Ended September 30, 1997 Compared
to Three Months Ended September 30, 1996
Revenues
- --------
Revenues for the fiscal 1998 second quarter totaled $48.7 million, an
increase of $11.4 million or 30.5% over the fiscal 1997 second quarter.
Approximately 60% of this growth related to CPS. On a going forward basis, the
results attributable to CPS will not be separable due to the integration of CPS'
operations into Corrpro.
Revenues from services increased approximately $6.6 million or 35.5%.
Excluding the impact of the CPS acquisition, service revenues were up
approximately 12%, which related to the Company's domestic core business as well
as its Wilson Walton subsidiary. The Company continued to focus on growing the
engineering and construction side of the business.
Product revenues increased $4.8 million or 25.6 % of which 55% related
to the acquisition of CPS. The remainder of the increase in product revenues
related primarily to the Company's domestic core business.
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<PAGE> 13
During the fiscal 1998 second quarter, approximately 52% of the
Company's revenues related to services and 48% related to product sales. During
the fiscal 1997 second quarter, approximately 50% of the Company's revenues
related to services and 50% related to product sales.
Gross Profit
- ------------
The Company's gross profit for the fiscal 1998 second quarter totaled
$14.4 million (or 29.5% of revenues) compared to $11.6 million (or 31.2% of
revenues) for the fiscal 1997 second quarter. This represents an increase in
gross profit dollars of 23.6%. The acquisition of CPS did not have a significant
impact on gross profit as a percentage of revenues.
Gross profit related to services totaled $8.2 million (or 32.7% of
service revenues) for the fiscal 1998 second quarter compared to $6.4 million
(or 34.4% of service revenues) for the fiscal 1997 second quarter, an increase
in gross profit dollars of 28.6 %. The lower service margins are primarily the
result of business mix differences between years. The second quarter service
margins were, however, comparable to the levels achieved over the past few
quarters.
Gross profit related to product sales totaled $6.2 million (or 26.1% of
product revenues) for the fiscal 1998 second quarter compared to $5.2 million
(or 28.0% of product revenues) for the fiscal 1997 second quarter, an increase
in gross profit dollars of 17.4%. The decrease in product margins between years
related to lower anode margins at the core businesses as well as lower rectifier
margins. The prior year second quarter margins were, however, higher than the
levels achieved during the remainder of fiscal 1997.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative ("S,G&A") expense for the fiscal
1998 second quarter totaled $9.7 million (or 20.0% of revenues) compared to $7.7
million (or 20.6% of revenues) for the fiscal 1997 second quarter, an increase
of 26.5%. Approximately 70% to 75% of the increase related to CPS.
Unusual Items
- -------------
During the fiscal 1997 second quarter, the Company recorded a $2.4
million charge related to the final settlement of the securities and class
action and shareholder derivative lawsuits filed in 1995.
Operating Income
- ----------------
Operating income for the fiscal 1998 second quarter totaled $4.6
million compared to $1.5 million for the fiscal 1997 second quarter, an increase
of 202.2%. The prior year results included an unusual charge of $2.4 million
relating to the settlement of litigation.
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Interest Expense
- ----------------
Interest expense totaled $0.7 million for the fiscal 1998 second
quarter and $0.5 for the fiscal 1997 second quarter.
Income Tax Provision
- --------------------
The Company recorded a provision for income taxes of $1.6 million for
the fiscal 1998 second quarter compared to a provision of $0.4 million for the
fiscal 1997 second quarter. The effective tax rate for the fiscal 1998 second
quarter was 40.0% compared to 39.7% for the fiscal 1997 second quarter.
Income from Continuing Operations
- ---------------------------------
Income from continuing operations for the fiscal 1998 second quarter
totaled $2.4 million compared to a $0.6 million for the fiscal 1997 second
quarter, an increase of 276.9%.
Discontinued Operations
- -----------------------
The Company's operating loss from discontinued operations totaled $0.1
million for the fiscal 1997 second quarter.
Net Income
- ----------
The Company generated net income of $2.4 million for the fiscal 1998
second quarter compared to net income of $0.5 million for the fiscal 1997 second
quarter, an increase of 390.1%.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 1996
Revenues
- --------
Revenues for the six months ended September 30, 1997 totaled $84.2
million, an increase of $12.9 million or 18.2% over the fiscal 1997 six month
period. Approximately 55% of this growth related to CPS.
Revenues from services increased approximately $10.3 million or 30.2%.
Excluding the impact of the CPS acquisition, service revenues were up
approximately 18%, which related to the Company's domestic core business as well
as its Canadian and Wilson Walton subsidiaries. The Company continued to focus
on growing the engineering and construction side of the business.
Product revenues increased $2.6 million or 7.0%. The entire increase in
product revenues related to CPS.
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During the fiscal 1998 six months, approximately 53% of the Company's
revenues related to services and 47% related to product sales. During the fiscal
1997 six months, approximately 48% of the Company's revenues related to services
and 52% related to product sales.
Gross Profit
- ------------
The Company's gross profit for the fiscal 1998 six months totaled $24.9
million (or 29.6% of revenues) compared to $22.2 million (or 31.1% of revenues)
for the fiscal 1997 six months. This represents an increase in gross profit
dollars of 12.5%. The acquisition of CPS did not have a significant impact on
gross profit as a percentage of revenues.
Gross profit related to services totaled $14.5 million (or 32.6% of
service revenues) for the fiscal 1998 six months compared to $12.1 million (or
35.4% of service revenues) for the fiscal 1997 six months, an increase in gross
profit dollars of 19.8%. The lower service margins are primarily the result of
business mix differences between years as well as higher subcontracting costs at
the core businesses in the first quarter.
Gross profit related to product sales totaled $10.4 million (or 26.3%
of product revenues) for the fiscal 1998 six months compared to $10.1 million
(or 27.2% of product revenues) for the fiscal 1997 six months, an increase in
gross profit dollars of 3.7%. The decrease in product margins between years
related to lower anode margins at the core businesses in the second quarter as
well as lower rectifier margins.
Selling, General and Administrative Expense
- -------------------------------------------
S,G&A expense for the fiscal 1998 six months totaled $17.4 million (or
20.7% of revenues) compared to $15.4 million (or 21.7% of revenues) for the
fiscal 1997 six months, an increase of 12.8%. Approximately 70% to 75% of the
increase related to CPS.
Operating Income
- ----------------
Operating income for the fiscal 1998 six months totaled $7.5 million
compared to $4.3 million for the fiscal 1997 six months, an increase of 73.8%.
The prior year results included an unusual charge of $2.4 million relating to
the settlement of litigation.
Interest Expense
- ----------------
Interest expense totaled $1.0 million for the fiscal 1998 six months
and $0.9 for the fiscal 1997 six months.
Income Tax Provision
- --------------------
The Company recorded a provision for income taxes of $2.6 million for
the fiscal 1998 six months compared to a provision of $1.3 million for the
fiscal 1997 six months. The effective tax rate for the fiscal 1998 six months
was 40.0% compared to 39.2% for the fiscal 1997 six months.
15
<PAGE> 16
Income from Continuing Operations
- ---------------------------------
Income from continuing operations for the fiscal 1998 six months
totaled $3.9 million compared to a $2.1 million for the fiscal 1997 six months,
an increase of 87.4%.
Discontinued Operations
- -----------------------
The Company's operating loss from discontinued operations totaled $0.4
million for the fiscal 1997 six months.
Net Income
- ----------
The Company generated net income of $3.9 million for the fiscal 1998
six months compared to net income of $1.7 million for the fiscal 1997 six
months, an increase of 128.4%.
B. LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital (excluding net
assets held for sale) of $52.1 million compared to $35.1 million at March 31,
1997, an increase of $17.0 million or 48.5%. Approximately $6.9 million of this
increase related to the acquisition of CPS. The remainder of the increase is
primarily the result of seasonally higher levels of business activity. The
Company's working capital levels have historically been the highest at the end
of September and lowest at the end of March.
During the six months ended September 30, 1997, cash used for operating
activities totaled $4.5 million. This is primarily the result of the increase in
working capital discussed above. Cash used for investing activities during the
six months ended September 30, 1997 totaled $15.7 million, which included $15.2
million related to the acquisition of CPS. Cash provided by financing activities
during the six months ended September 30, 1997 totaled $20.6 million of which
approximately $15 million represented borrowings incurred in connection with the
acquisition of CPS.
On July 16, 1997, the Company entered into a new $55 million domestic
bank credit facility which consists of a five-year $35 million revolver which
expires June 30, 2002 and a five-year $20 million term loan which matures on
June 30, 2002. Initial borrowings under the credit facility were used to finance
the acquisition of CPS and to repay existing bank indebtedness. The credit
agreement was amended on September 18, 1997 to increase the revolver from $35
million to $40 million. See Note 7 in Part I, Item 1 Financial Statements.
In addition to the new domestic bank credit facility, the Company has
various smaller lines of credit with foreign banks which totaled approximately
$4.3 million. Total availability under the domestic and foreign credit
facilities is currently approximately $18.1 million. The Company was in
compliance with all of its debt covenants at September 30, 1997.
16
<PAGE> 17
The Company believes that cash generated by operations and amounts
available under its new domestic bank credit facility and foreign lines of
credit will be sufficient to satisfy the Company's liquidity requirements for at
least the next twelve months.
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.
17
<PAGE> 18
PART II. OTHER INFORMATION
- --------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders
- -------
A vote by ballot was taken by the Company's shareholders at the Annual
Meeting of Shareholders of the Company held on July 23, 1997 for the election of
four directors of the Company for terms expiring in 1999, for the adoption of
the 1997 Long-Term Incentive Plan and the approval of the 1997 Non-Employee
Directors' Stock Option Plan. The aggregate number of Common Shares in person or
by proxy (a) voted for, and proxies withheld for, each nominee and (b) voted for
or against each proposal, and abstentions and broker non-votes as to each
proposal were as follows:
Director Nominees For Withheld
----------------- --- --------
Robert E. Hodge 5,823,286 36,753
David H. Kroon 5,832,136 27,903
C. Richard Lynham 5,831,786 28,253
Joseph W. Rog 5,818,463 41,576
Abstentions and
---------------
Proposals For Against Broker Non-Votes
--------- --- ------- ----------------
Approval of 1997 Long-Term
Incentive Plan 3,120,320 896,178 1,843,541
Approval of 1997 Non-Employee
Directors' Stock Option Plan
3,739,903 218,977 1,101,159
ITEM 6. Exhibits and Reports on Form 8-K
- -------
A. EXHIBITS
Exhibit 10 First Amendment to Credit Agreement dated as of
September 18, 1997 by and among Corrpro Companies,
Inc., the Lenders Party Thereto and PNC Bank NA.
B. REPORTS ON FORM 8-K
On July 31, 1997, the Company filed a report on Form 8-K relating to
the acquisition of Cathodic Protection Services Company.
18
<PAGE> 19
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: November 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)
19
<PAGE> 1
Exhibit 10
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (the "Amendment") dated as of
September 18, 1997 by and among Corrpro Companies, Inc., an Ohio corporation
(the "Borrower"), each of the Guarantors (as defined in the Credit Agreement),
PNC Bank, National Association ("PNC"), Bank One, NA ("BankOne"), National City
Bank ("NCB"), LaSalle National Bank ("LaSalle") and Harris Trust and Savings
Bank ("Harris" and together with PNC, Bank One, NCB and LaSalle, the "Banks"),
and PNC Bank, National Association, in its capacity as agent for the Banks (the
"Agent").
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, PNC, Bank One, NCB and the
Agent are parties to that certain Credit Agreement dated as of July 16, 1997
(the "Credit Agreement"), pursuant to which PNC, Bank One and NCB provided a
$35,000,000 revolving credit facility and a $20,000,000 term loan to the
Borrower; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as
hereinafter provided to increase the amount of the revolving credit facility to
$40,000,000 and to add LaSalle National Bank ("LaSalle") and Harris Trust and
Savings Bank ("Harris") as Banks, each of LaSalle and Harris to assume
$2,500,000 of the increase in the Revolving Credit Commitment;
WHEREAS, simultaneously with the execution and delivery of this
Amendment No. 1, PNC is entering into an Assignment and Assumption Agreement
(the "Assignment") pursuant to which it is assigning to, and each of LaSalle and
Harris are assuming $2,500,000 of PNC's Revolving Credit Commitment and
$2,500,000 of PNC's Term Loan Commitment.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. DEFINITIONS.
------------
Defined terms used herein unless otherwise defined herein shall have
the meanings ascribed to them in the Credit Agreement as amended by this
Amendment.
2. AMENDMENTS OF CREDIT AGREEMENT.
-------------------------------
A. The first recital paragraph on page 1 of the Credit
Agreement is hereby amended by deleting in the second line the number
"$35,000,000" and inserting in lieu thereof the number "$40,000,000".
<PAGE> 2
B. Section 5.4.1(iii) clause (z) of the Credit Agreement is
hereby amended and restated to read as follows:
(z) the total principal amount of such prepayment,
which shall not be less than $1,000,000 with respect to Loans
to which the Euro-Rate Option applies and $50,000 with respect
to Loans to which the Base Rate Option applies.
C. SCHEDULE. Schedule 1.1(B)(1) to the Credit Agreement is
hereby amended and restated to read as set forth on the new schedule 1.1 (B)(1)
attached hereto.
3. CONDITIONS OF EFFECTIVENESS OF THIS AGREEMENT.
----------------------------------------------
The effectiveness of this Amendment No. 1 is expressly conditioned upon
satisfaction of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; NO DEFAULTS. The
representations and warranties of the Loan Parties contained in Section 6 of the
Credit Agreement shall be true and accurate on the date hereof with the same
effect as though such representations and warranties had been made on and as of
such date (except representations and warranties which relate solely to an
earlier date or time, which representations and warranties shall be true and
correct on and as of the specific dates or times referred to therein); the Loan
Parties shall have performed and complied with all covenants and conditions
hereof; and no Event of Default or Potential Default under the Credit Agreement
shall have occurred and be continuing or shall exist.
(b) AMENDED AND RESTATED REVOLVING CREDIT NOTES AND TERM
NOTES. The Agent, on behalf of PNC, LaSalle and Harris, shall have received
Revolving Credit Notes and Term Notes duly executed by the Borrower giving
effect to this Amendment No. 1 and the Assignment in form satisfactory to the
Agent and such Banks.
(c) OPINIONS OF COUNSEL. There shall be delivered to the Agent
for the benefit of each Bank a written opinion of Benesch Friedlander Coplan &
Aronoff LLP, counsel for the Loan Parties, dated the date hereof in form and
substance reasonably satisfactory to the Agent.
(d) LEGAL DETAILS; COUNTERPARTS. All legal details and
proceedings in connection with the transactions contemplated by this Amendment
shall be in form and substance satisfactory to the Agent. The Agent shall have
received counterparts of this Amendment No. 1 duly executed by the Borrower, the
Guarantors and the Banks, and the Agent shall have received all such other
counterpart originals or certified or other copies of such documents and
proceedings in connection with such transactions, in form and substance
satisfactory to the Agent. This Amendment No. 1 may be executed by the parties
hereto in any number of separate counterparts, each of which when taken
together and duly executed and delivered shall together constitute one and the
same instrument.
-2-
<PAGE> 3
(e) LOAN PARTY CERTIFICATE. The Agent shall have received a
certificate signed by the Secretary or Assistant Secretary of the Borrower and
each other Loan Party certifying as to all action taken by the Borrower and each
other Loan Party to authorize the execution, delivery and performance of this
Amendment No. 1.
(f) COSTS, FEES AND EXPENSES. The Agent shall have received
the fee as set forth in that certain letter agreement dated September 18, 1997
between the Agent and the Borrower regarding this Amendment No. 1.
4. FORCE AND EFFECT.
-----------------
No novation is intended by the Amendment No. 1 and except as expressly
modified by this Amendment, the Credit Agreement and the other Loan Documents
are hereby ratified and confirmed and shall remain in full force and effect on
and after the date hereof.
5. GOVERNING LAW.
--------------
This Amendment No. 1 shall be deemed to be a contract under the laws of
the Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed and enforced in accordance with the internal laws of the Commonwealth
of Pennsylvania without regard to its conflict of laws principles.
6. EFFECTIVE DATE.
---------------
This Amendment No. 1 shall be dated as of and shall be effective as of
the date and year first above written, which date shall be the date of the
satisfaction of all conditions precedent to effectiveness set forth in this
Amendment No. 1.
7. CONFIRMATION OF GUARANTY.
------------------------
Each Guarantor confirms that it has read and understands this Amendment
No. 1. Each Guarantor hereby ratifies and confirms each of the Loan Documents to
which it is a party by signing below as indicated, including without limitation
each Guaranty Agreement and each Pledge Agreement to which it is a party,
including, without limitation, all schedules thereto. Each Guarantor further
confirms that the Guaranteed Indebtedness (as defined in the Guaranty) includes
without limitation and in addition to all other Indebtedness and liabilities of
the Borrower to the Bank under the Credit Agreement, all principal of and
interest on each and every Loan under the Revolving Credit Notes and the Term
Notes as amended in accordance with this Amendment No. 1.
-3-
<PAGE> 4
[SIGNATURE PAGE 1 OF 3 TO AMENDMENT NO. 1]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first above
written.
BORROWER:
CORRPRO COMPANIES, INC.
By: /s/ Neal R. Restivo
------------------------------------
Title: Senior Vice President - CFO
---------------------------------
GUARANTORS:
PSG CORROSION ENGINEERING, INC.
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
GOOD-ALL ELECTRIC, INC.
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
CORRTHERM, INC.
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
ROHRBACK COSASCO SYSTEMS, INC.
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
-4-
<PAGE> 5
[SIGNATURE PAGE 2 OF 3 TO AMENDMENT NO. 1]
OCEAN CITY RESEARCH CORP.
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
CCFC, INC.
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
HARCO OFFSHORE, INC.
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
CATHODIC PROTECTION SERVICES
COMPANY
By: /s/ Neal R. Restivo
------------------------------------
Title: Secretary
---------------------------------
-5-
<PAGE> 6
[SIGNATURE PAGE 3 OF 3 TO AMENDMENT NO. 1]
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By: /s/ David J. Williams
------------------------------------
Title: Vice President
---------------------------------
BANK ONE, NA, individually and as
Documentation Agent
By: /s/ Babette Casey Coerdt
------------------------------------
Title: Vice President and Group Manager
---------------------------------
NATIONAL CITY BANK
By: /s/ Sean P. Richardson
------------------------------------
Title: Vice President
---------------------------------
LASALLE NATIONAL BANK
By: /s/ Keith D. Slifer
------------------------------------
Title: First Vice President
---------------------------------
HARRIS TRUST AND SAVINGS BANK
By: /s/ Jeffrey C. Nicholson
------------------------------------
Title: Vice President
---------------------------------
-6-
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<NAME> CORRPRO COMPANIES, INC.
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