<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, 1998
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 6, 1999, 7,780,265 Common Shares, without par value, were
outstanding.
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CORRPRO COMPANIES, INC.
-----------------------
INDEX
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<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 7-11
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 20
ITEM 6. Exhibits and Reports on Form 8-K 20
</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>
December 31, March 31,
1998 1998
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,989 $ 8,687
Accounts receivable, net 49,396 38,733
Inventories 27,366 24,458
Prepaid expenses and other 9,196 9,355
Net assets held for sale 1,029 7,422
--------- ---------
Total current assets 91,976 88,655
--------- ---------
Property and Equipment, net 13,828 12,510
Other Assets:
Goodwill 33,679 28,515
Other Assets 8,197 6,595
--------- ---------
Total other assets 41,876 35,110
--------- ---------
$ 147,680 $ 136,275
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 623 $ 683
Accounts payable 17,198 17,319
Accrued liabilities and other 11,192 10,113
--------- ---------
Total current liabilities 29,013 28,115
--------- ---------
Long-Term Debt, net of current portion 27,997 17,695
Senior Notes 30,000 30,000
Deferred Income Taxes 2,041 2,035
Commitments and Contingencies --- ---
Minority Interest 420 469
Shareholders' Equity:
Serial preferred shares --- ---
Common shares 2,248 2,245
Additional paid-in capital 50,784 50,708
Accumulated earnings 12,298 8,664
--------- ---------
65,330 61,617
Accumulated other comprehensive income (1,175) 482
Common shares in treasury, at cost (5,946) (4,138)
--------- ---------
Total shareholders' equity 58,209 57,961
--------- ---------
$ 147,680 $ 136,275
========= =========
</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 Nine
Months Ended Months Ended
December 31, December 31,
-------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Engineering & construction services $ 32,378 $ 23,832 $ 87,182 $ 68,378
Product sales 19,379 23,560 60,212 63,230
--------- --------- --------- ---------
51,757 47,392 147,394 131,608
--------- --------- --------- ---------
Cost of sales:
Engineering & construction services 20,487 16,371 55,541 46,411
Product sales 14,079 17,223 44,780 46,454
--------- --------- --------- ---------
34,566 33,594 100,321 92,865
--------- --------- --------- ---------
Gross profit 17,191 13,798 47,073 38,743
Selling, general & administrative expenses 11,399 9,651 31,446 27,067
--------- --------- --------- ---------
Operating income 5,792 4,147 15,627 11,676
Interest expense 1,066 675 2,903 1,721
--------- --------- --------- ---------
Income from continuing operations
before income taxes 4,726 3,472 12,724 9,955
Provision for income taxes 1,893 1,389 5,092 3,982
--------- --------- --------- ---------
Income from continuing operations 2,833 2,083 7,632 5,973
Discontinued operation - loss on disposal,
net of tax ---- ---- (3,998) ----
--------- --------- --------- ---------
Net income $ 2,833 $ 2,083 $ 3,634 $ 5,973
========= ========= ========= =========
Earnings per share - Basic:
Income from continuing operations $ 0.36 $ 0.26 $ 0.97 $ 0.73
Discontinued operation - loss on disposal,
net of tax benefit ---- ---- (0.51) ----
--------- --------- --------- ---------
Net income $ 0.36 $ 0.26 $ 0.46 $ 0.73
========= ========= ========= =========
Earnings per share - Diluted:
Income from continuing operations $ 0.35 $ 0.24 $ 0.92 $ 0.70
Discontinued operation - loss on disposal,
net of tax benefit ---- ---- (0.48) ----
--------- --------- --------- ---------
Net income $ 0.35 $ 0.24 $ 0.44 $ 0.70
========= ========= ========= =========
Weighted average shares -
Basic 7,812 8,135 7,879 8,186
Diluted 8,192 8,507 8,270 8,476
</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>
Nine Months Ended
December 31
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,634 $ 5,973
Adjustments to reconcile net income to net cash
used for continuing operations:
Depreciation and amortization 3,266 2,656
Deferred income taxes 17 1,010
Gain on sale of fixed assets (49) (49)
Loss on disposal of discontinued operations 3,998 --
Minority interest (30) 64
Changes in assets and liabilities:
Accounts receivable (10,275) (5,472)
Inventories (1,922) (3,401)
Prepaid expenses and other 1,159 50
Accounts payable and accrued expenses (2,893) 2,692
Other assets 463 (513)
-------- --------
Total adjustments (6,266) (2,963)
-------- --------
Net cash provided by (used for) continuing operations (2,632) 3,010
Net cash provided by discontinued operations 336 1,386
-------- --------
Net cash provided by (used for) operating activities (2,296) 4,396
-------- --------
Cash flows from investing activities:
Additions to and disposals of property, plant and equipment (2,533) (1,103)
Acquisitions, net of cash acquired (7,452) (15,023)
-------- --------
Net cash used for investing activities (9,985) (16,126)
-------- --------
Cash flows from financing activities:
Long-term debt, net 10,750 5,350
Repayment of long-term debt (191) (1,840)
Repayment of short-term borrowings, net (317) (294)
Refinance of domestic credit facility -- (26,619)
Initial borrowings under new domestic credit facility -- 42,350
Net proceeds from issuance of Common Shares 53 35
Repurchase of Common Shares (1,808) (1,139)
-------- --------
Net cash provided by financing activities 8,487 17,843
-------- --------
Effect of changes in foreign currency exchange rates 96 (1,582)
Net increase (decrease) in cash (3,698) 4,531
Cash and cash equivalents at beginning of period 8,687 3,233
-------- --------
Cash and cash equivalents at end of period $ 4,989 $ 7,764
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 1,520 $ 1,625
Interest $ 2,411 $ 2,210
</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>
Accumulated
Common Other Common
Serial Shares Additional Compre- Shares
Preferred ($0.26 Paid-In- Accumulated hensive in
Shares Stated Value) Capital Earnings Income Treasury* Total
------ ------------- ------- -------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1998 $ ----- $ 2,245 $ 50,708 $ 8,664 $ 482 $ (4,138) $ 57,961
Net income ----- ----- ----- 3,634 ----- ----- 3,634
Exercise of 11 stock
options ----- 3 76 ----- ----- ----- 79
Repurchase of 173
shares of common
stock ----- ----- ----- ----- ----- (1,933) (1,933)
Issuance of 10 shares ----- ----- ----- ----- ----- 125 125
Cumulative translation
adjustment ----- ----- ----- ----- (1,657) ----- (1,657)
---------- -------- -------- -------- -------- -------- --------
December 31, 1998 $ ----- $ 2,248 $ 50,784 12,298 $ (1,175) $ (5,946) $ 58,209
========== ======== ======== ======== ======== ======== ========
</TABLE>
* Shares held in treasury totaled 473 at March 31, 1998 and 635 at December 31,
1998.
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 1998 amounts have been reclassified to conform
with the fiscal 1999 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, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 1999 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, 1998.
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 amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - ACQUISITIONS
Acquisition of Wilson Walton Australia
- --------------------------------------
Effective July 1,1998, the Company acquired certain assets and assumed
certain liabilities of the group of companies referred to as Wilson Walton
Australia (now Corrpro Australia). The purchase price was $3,849 in an all cash
transaction. The purchase agreement provides for a post-closing purchase price
adjustment.
Corrpro Australia provides products and services for the evaluation,
design, installation and maintenance of corrosion protection systems in
Australia, New Zealand and Papua New Guinea.
The acquisition of Corrpro Australia has been accounted for using the
purchase method of accounting. Accordingly, the purchase price has been
allocated to the net assets acquired based upon preliminary estimates of their
fair market values at the date of acquisition. The excess of the purchase price
over the estimated fair value of net assets acquired totaled $3,760 at December
31, 1998 and is being amortized over 40 years on a straight-line basis. The
allocation was based on preliminary estimates and is subject to revision at a
later date.
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Acquisition of BASCO
- --------------------
Effective August 1, 1998, the Company acquired all the outstanding
shares of capital stock of the BASCO group of companies ("BASCO"). The purchase
price was $3,331 in an all cash transaction. The purchase agreement provides for
post-closing purchase price adjustments.
BASCO, which is based in the United Kingdom, provides corrosion
protection engineering services, materials and equipment primarily in Europe.
The acquisition of BASCO has been accounted for using the purchase
method of accounting. Accordingly, the purchase price has been allocated to the
net assets acquired based upon preliminary estimates of their fair market values
at the date of acquisition. The excess of the purchase price over the estimated
fair value of net assets acquired totaled $1,897 at December 31, 1998 and is
being amortized over 40 years on a straight-line basis. The allocation was based
on preliminary estimates and is subject to revision at a later date.
Acquisition of CPS
- ------------------
Effective July 1, 1997, the Company acquired all the outstanding shares
of capital stock of Cathodic Protection Services Company ("CPS"). The purchase
price was $15,023 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.
CPS, which was based in Houston, Texas, provides materials and services
for the evaluation, design, installation, and maintenance of cathodic protection
services.
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 their fair market values at the date of acquisition.
The excess of the purchase price over the fair value of net assets acquired
totaled $7,600 and is being amortized over 40 years on a straight-line basis.
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 were not material.
NOTE 3 - INVENTORY
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
---- ----
Inventories consist of the following:
<S> <C> <C>
Component parts and raw material $10,517 $10,007
Work in process 1,524 1,908
Finished goods 15,325 12,543
-------- -------
$27,366 $24,458
======= =======
</TABLE>
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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
---- ----
Property, plant and equipment consists of the following:
<S> <C> <C>
Land $ 526 $ 547
Buildings and improvements 5,259 4,545
Equipment, furniture and fixtures 17,681 15,696
------- -------
23,466 20,788
Less: Accumulated depreciation (9,638) (8,278)
------- -------
$13,828 $12,510
======= =======
</TABLE>
NOTE 5 - EARNINGS PER SHARE
In February 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." The Statement replaced the presentation of primary earnings per share
(EPS) with the presentation of basic EPS, and replaced fully diluted EPS with
diluted EPS. As required, the Company adopted SFAS 128 for the quarter ending
December 31, 1997. Fiscal 1998 results have been restated to conform with SFAS
128.
Basic EPS is computed by dividing net income for the period by the
weighted average number of shares of common shares outstanding for the period
which was 7,812 and 8,135, respectively, for the three months ending December
31, 1998 and 1997 and 7,879 and 8,186, respectively, for the nine months ending
December 31, 1998 and 1997. Diluted EPS for the period has been determined by
dividing net income by the weighted average number of shares of common shares
and potential common shares outstanding for the period which was 8,192 and
8,507, respectively, for the three months ending December 31, 1998 and 1997 and
8,270 and 8,476, respectively, for the nine months ending December 31, 1998 and
1997. Stock options are the only potential common shares included in the
Company's diluted EPS calculations. Potential common shares are computed using
the treasury stock method.
Weighted average shares reflects the five-for-four stock split that was
effected June 19, 1998. See Note 7.
NOTE 6 - STOCK PLANS
The Company granted options to purchase 91 Common Shares at exercise
prices ranging from $10.13 to $12.80 per share under the 1997 Long-Term
Incentive Plan of Corrpro Companies, Inc. (the "1997 Option Plan") during the
nine months ended December 31, 1998. During such period, the Company terminated
13 previously granted options in accordance with the provisions of its option
plans. There were 10 options exercised at exercise prices ranging from $1.86 to
$6.93 per share during the nine month period ended December 31, 1998.
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<PAGE> 10
The Company granted options to purchase 10 Common Shares at an exercise
price of $10.25 per share under the 1997 Non-Employee Directors' Stock Option
Plan.
During the current fiscal year, the Company amended the 1997 Option
Plan increasing the number of shares available for issuance by 300.
NOTE 7 - SHAREHOLDERS' EQUITY
During the current fiscal year, the Company amended its Articles of
Incorporation and increased from 12,000 to 40,000 the maximum number of
authorized Common Shares.
On May 19, 1998, the Company announced that its Board of Directors
approved a five-for-four stock split of the Company's common shares. The stock
split was effected as a stock dividend payable on June 19, 1998 to shareholders
of record as of June 5, 1998. The stock split increased outstanding shares by
approximately 1.6 million to approximately 7.9 million. All share amounts
contained in the consolidated statements and notes thereto have been adjusted to
reflect the stock split.
NOTE 8 - REPORTING COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income". The Company was required to adopt SFAS
130 for the quarter ending June 30, 1998. All periods presented have been
restated to conform with SFAS 130.
Comprehensive income includes net income and other revenues, expenses,
gains, and losses that are excluded from net income but included as a component
of total shareholders' equity. Comprehensive income for the quarter ended
December 31, 1998 was $688 and comprehensive loss for the quarter ended December
31, 1997 was $446. Comprehensive loss for the nine months ended December 31,
1998 and 1997 was $1,657 and $812, respectively. These amounts are comprised of
the effect of foreign currency translation adjustments in accordance with SFAS
No. 52, "Foreign Currency Translation". The accumulated balance of foreign
currency translation adjustments, excluded from net income, is presented in the
Consolidated Balance Sheet and Statement of Shareholders' Equity as "Accumulated
other comprehensive income".
NOTE 9 - NET ASSETS HELD FOR SALE
During March 1997, the Company adopted a formal plan to sell its
Corrtherm foundry operation located in Louisiana. To date, the Company's efforts
to divest of this operation have been unsuccessful. Corrtherm is reported as a
discontinued operation and its net assets and results of operations are reported
separately in the consolidated financial statements.
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As a result of the adoption of the divestiture plan, the Company
recorded a $6,000 charge ($3,960 net of the related tax benefit) in March 1997.
The charge included the estimated loss on disposal and provision for other
estimated costs to be incurred in connection with the disposal. During September
1998, the Company recorded an additional charge of $6,057 ($3,998 net of the
related tax benefit), which represented an addition to the estimated loss on
disposal.
Net assets held for sale relating to Corrtherm at December 31, 1998,
before adjustment for the estimated loss on disposal, consisted of working
capital of $4,742, net property and equipment of $6,163 and other assets of
$2,796. These amounts are offset by a reserve for the estimated loss on disposal
and provisions for other estimated costs to be incurred in connection with the
disposal. The amounts the Company will ultimately realize could differ from the
estimates.
The Company allocated interest of $0.2 million to Corrtherm for both
the three months ended December 31, 1998 and 1997, and $0.5 million for both the
nine months ended December 31, 1998 and 1997, based on the estimated proceeds to
be realized from the divestiture. Revenues from Corrtherm, which are excluded
from consolidated revenues, totaled $1.3 million and $2.1 million for the three
months ended December 31, 1998 and 1997, respectively, and $4.7 million and $7.8
million for the nine months ended December 31, 1998 and 1997, respectively. The
revenues included intercompany sales of $0.3 million and $1.6 million for the
three months ended December 31, 1998 and 1997, respectively, and $1.7 million
and $3.8 million for the nine months ended December 31, 1998 and 1997,
respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains certain statements that 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 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 mix of products and services, timing of jobs,
the availability and value of larger jobs, the impact of weather on the
Company's operations, the Company's ability to successfully integrate acquired
businesses in a timely manner, the ultimate disposition of Corrtherm, the
passing of the underground storage tank upgrade deadline, the impact of the
current low energy prices on the Company's business and the impact of the
Year 2000.
A. RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1997
REVENUES
- --------
Revenues for the fiscal 1999 third quarter totaled $51.8 million, an
increase of $4.4 million or 9.2% over the fiscal 1998 third quarter. The current
year revenues include the results of Corrpro Australia, which was acquired
effected July 1, 1998 and BASCO, which was acquired effective August 1, 1998.
Excluding the impact of these two acquisitions, total revenues for the quarter
were up 2% as the increase in service revenues was offset, in part, by the
decline in lower margin product revenues.
During the fiscal 1999 third quarter, approximately 63% of the
Company's revenues related to services and 37% related to product sales. During
the fiscal 1998 third quarter, approximately 50% of the Company's revenues
related to services and 50% related to product sales.
Service revenues for the fiscal 1999 third quarter increased $8.5
million or 35.9% over the prior year period. Excluding the impact of the two
acquisitions, service revenues for the quarter increased 29.8%. This increase
is primarily the result of growth at the Company's domestic core business. A
large portion of this growth related to the providing of corrosion protection
systems to the underground storage tank (UST) market. Federal law mandated that
all UST's meeting certain specified criteria must have corrosion protection
systems in place by December 22, 1998 or else they must be replaced or closed.
The corrosion protection requirement has had a favorable impact on the Company's
business as it provides such systems to the UST market. Although there can be no
assurances, the Company does not believe that the passing of the December 1998
compliance deadline will have a
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material impact on its results of operations, particularly in the long term.
This is based, in part, on the Company's understanding that there continues to
be a number of non-compliant UST's in place after the passing of the deadline.
Product revenues for the fiscal 1999 third quarter decreased $4.2 million
or 17.7% over the prior years third quarter, which related largely to the
Company's European operations. In the prior year, the European operations
benefited from several large offshore contracts that expired at the end of
fiscal 1998. Excluding the impact of the two acquisitions, product revenues for
the third quarter decreased 26.0%.
On an overall basis, the Company's business is somewhat impacted by low
energy prices. The largest impact relates to the Company's product revenues. The
Company believes it can mitigate the impact on its service business by shifting
the mix from new capital projects, which generally are delayed or put on hold
during periods of low energy prices, to maintenance-type work which is typically
higher margin. Although there can be no assurances, the Company believes that
while low energy prices may impact its revenues, they should not have a material
impact on its overall profitability.
GROSS PROFIT
- ------------
The Company's gross profit for the fiscal 1999 third quarter totaled
$17.2 million (or 33.2% of revenues) compared to $13.8 million (or 29.1% of
revenues) for the fiscal 1998 third quarter. This represents an increase in
gross profit dollars of $3.4 million or 24.6%.
Gross profit related to service revenues totaled $11.9 million (or
36.7% of service revenues) for the 1999 third quarter compared to $7.5 million
(or 31.3% of service revenues) in the fiscal 1998 third quarter, an increase in
gross profit dollars of $4.4 million or 59.4%. The improvement in service
margins was the result of a more profitable business mix in the current-year
period.
Gross profit related to product revenues totaled $5.3 million (or 27.3%
of product revenues) for the fiscal 1999 third quarter compared to $6.3 million
(26.9% of product revenues) in the fiscal 1998 third quarter, a decrease in
gross profit dollars of $1.0 million or 16.4%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
- -------------------------------------------
Selling, general and administrative ("S,G&A") expense for the fiscal
1999 third quarter totaled $11.4 million (or 22.0% of revenues) compared to $9.6
million (or 20.4% of revenues) for the fiscal 1998 third quarter, an increase of
18.1%. Approximately 50% of the increase relates to the acquisitions of Corrpro
Australia and Basco. The remainder results primarily from higher benefit costs
as well as costs associated with a software implementation for the Company's
domestic operations. See Year 2000 Readiness Disclosure.
OPERATING INCOME
- ----------------
Operating income for the fiscal 1999 third quarter totaled $5.8 million
compared to $4.1 million for the fiscal 1998 third quarter, an increase of $1.6
million or 39.7%.
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INTEREST EXPENSE
- ----------------
Interest expense totaled $1.1 million for the fiscal 1999 third quarter
compared to $0.7 million for the fiscal 1998 third quarter, an increase of $0.4
million or 57.9%. Approximately $0.2 million of the increase relates to
increased borrowings related to the acquisitions of Corrpro Australia and Basco.
The remainder of the increase relates to higher working capital levels.
INCOME TAX PROVISION
- --------------------
The Company recorded a provision for income taxes of $1.9 million for
the fiscal 1999 third quarter compared to a provision of $1.4 million for the
fiscal 1998 third quarter. The effective rate was 40.0% for both the fiscal 1999
and 1998 third quarters.
NET INCOME
- ----------
Net income for the fiscal 1999 third quarter totaled $2.8 million, or
36 cents per share (35 cents diluted), compared with $2.1 million, or 26 cents
per share (24 cents diluted) for the fiscal 1998 third quarter, an increase of
36.0%.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE
MONTHS ENDED DECEMBER 31, 1997
REVENUES
- --------
Revenues for the fiscal 1999 nine month period totaled $147.4 million,
an increase of $15.8 million or 12.0% over the fiscal 1998 nine month period.
The current year revenues include the results of Cathodic Protection Services
Company (CPS) which was acquired effective July 1, 1997 as well as the results
of Corrpro Australia and Basco. Excluding the impact of the three acquisitions,
management estimates that revenues increased approximately 3% during the nine
month period.
During the fiscal 1999 nine months, approximately 59% of the Company's
revenues related to services and 41% related to product sales. During the fiscal
1998 nine months, approximately 52% of the Company's revenues related to
services and 48% related to product sales.
Revenues from services for the fiscal 1999 nine months increased $18.8
million or 27.5% over the prior year period. This increase is primarily the
result of growth at the Company's domestic core business. A large portion of
this growth related to the providing of corrosion protection systems to the UST
market. Federal law mandated that all UST's meeting certain specified criteria
must have corrosion protection systems in place by December 22, 1998 or else
they must be replaced or closed. The corrosion protection requirement has had a
favorable impact on the Company's business as it provides such systems to the
UST market. Although
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<PAGE> 15
there can be no assurances, the Company does not believe that the passing of the
December 1998 compliance deadline will have a material impact on its results of
operations, particularly in the long term. This is based, in part, on the
Company's understanding that there continues to be a number of non-compliant
UST's in place after the passing of the deadline.
Product revenues for the fiscal 1999 nine months decreased $3.0 million
or 4.8% over the prior years nine month period. The decrease in product sales is
related largely to the Company's European operations. The prior year product
revenues included amounts relating to several large offshore projects being
completed by the Company's European operation. These contracts expired at the
end of fiscal 1998.
On an overall basis, the Company's business is somewhat impacted by
low energy prices. The largest impact relates to the Company's product
revenues. The Company believes it can mitigate the impact on its service
business by shifting the mix from new capital projects, which generally are
cutback, during periods of low energy prices, to maintenance-type work which is
typically higher margin. Although there can be no assurances, the Company
believes that while low energy prices may impact its revenues, they should not
have a material impact on its overall profitability.
GROSS PROFIT
- ------------
The Company's gross profit for the fiscal 1999 nine month period
totaled $47.1 million (or 31.9% of revenues) compared to $38.7 million (or 29.4%
of revenues) for the fiscal 1998 nine month period. This represents an increase
in gross profit dollars of $8.3 million or 21.5%.
Gross profit related to service revenues totaled $31.6 million (or
36.3% of service revenues) for the fiscal 1999 nine month period compared to
$22.0 million (or 32.1% of service revenues) for the fiscal 1998 nine month
period, an increase in gross profit dollars of $9.7 million or 44.0%. The
improvement in service margins was the result of a more profitable business mix
in the fiscal 1999 nine month period.
Gross profit related to product revenues totaled $15.4 million (or
25.6% of product revenues) for the fiscal 1999 nine month period compared to
$16.8 million (or 26.5% of product revenues) in the fiscal 1998 nine month
period, a decrease in gross profit dollars of $1.3 million or 8.0%. The lower
product margins relate primarily to the Company's European operation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
- -------------------------------------------
S,G&A expense for the fiscal 1999 nine month period totaled $31.4
million (or 21.3% of revenues) compared to $27.1 million (or 20.6% of revenues)
for the fiscal 1998 nine month period, an increase of $4.4 million or 16.2%. The
largest component of the increase related to the three acquisitions. The
remainder results primarily from higher benefit costs as well as costs
associated with a software implementation for the Company's domestic operations.
15
<PAGE> 16
OPERATING INCOME
- ----------------
Operating income for the fiscal 1999 nine month period totaled $15.6
million compared to $11.7 million for the fiscal 1998 nine month period, an
increase of $4.0 million or 33.8%.
INTEREST EXPENSE
- ----------------
Interest expense totaled $2.9 million for the fiscal 1999 nine month
period compared to $1.7 million for the fiscal 1998 nine month period, an
increase of $1.2 million or 68.7%. The increase relates primarily to higher
borrowings related to acquisitions.
INCOME TAX PROVISION
- --------------------
The Company recorded a provision for income taxes of $5.1 million for
the fiscal 1999 nine month period compared to a provision of $4.0 million for
the fiscal 1998 nine month period. The effective rate was 40.0% for both the
fiscal 1999 and 1998 nine month period.
INCOME FROM CONTINUING OPERATIONS
- ---------------------------------
Income from continuing operations for the nine month period increased
27.8% to $7.6 million, or 97 cents per share (92 cents diluted), compared with
$6.0 million, or 73 cents per share (70 cents diluted), in the prior-year
period.
DISCONTINUED OPERATIONS
- -----------------------
The Company recorded a $4.0 million charge, net of tax benefit, which
represented an addition to the estimated loss on disposal of the Company's
Corrtherm foundry operation in Louisiana.
NET INCOME
- ----------
Net income for the fiscal 1999 nine month period totaled $3.6 million,
or 46 cents per share (44 cents diluted), compared with $6.0 million, or 73
cents per share (70 cents diluted) for the fiscal 1998 nine month period.
16
<PAGE> 17
B. LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital (excluding net
assets held for sale) of $61.9 million compared to $53.1 million at March 31,
1998, an increase of $8.8 million or 16.6%. The increase is primarily the result
of higher receivable levels which resulted from the Company's third quarter
revenues being significantly higher than these achieved in the fourth quarter of
last fiscal year.
During the nine months ended December 31, 1998, cash used for operating
activities totaled $2.3 million. This is primarily the result of the increase in
working capital discussed above. Cash used for investing activities during the
nine months ended December 31, 1998 totaled $10.0 million, which included $7.5
million related to acquisitions. Also included in cash used for investing
activities is $2.5 million related to capital expenditures. Cash provided by
financing activities during the nine months ended December 31, 1998 totaled $8.5
million, which included net borrowings of $10.2 million which were offset, in
part, by $1.8 million related to the repurchase of common shares.
The Company has a domestic bank credit facility consisting of a $40
million revolver that expires in 2002. In addition, the Company has various
smaller lines of credit with foreign banks which totaled approximately $4.8
million. Total availability under the domestic and foreign credit facilities at
December 31, 1998 was approximately $17.1 million. The Company was in compliance
with all of its debt covenants at December 31, 1998.
The Company used proceeds from its domestic and foreign credit
facilities along with cash on hand to fund the Corrpro Australia and BASCO
acquisitions.
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 finance the Company's working capital requirements and
capital expenditures through 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 increased foreign sales are manageable.
D. YEAR 2000 READINESS DISCLOSURE
The Company has developed plans to address possible exposures related
to the Year 2000 issue. The Company is considering the effect of Year 2000
issues on the services and products the Company provides, the processing
capabilities of the Company's computers and other internal information systems,
non-informational systems which effect the Company's operational capabilities,
and the key sources of supply of products and services to the Company. In
addition, the Company is addressing the status of its significant customers'
Year 2000 compliance.
17
<PAGE> 18
State of Readiness
- ------------------
The Company has substantially completed its review of products and
services which could experience Year 2000 issues. The Company's business of
providing corrosion control engineering and other services does not inherently
involve software-resident Year 2000 issues for Corrpro's customers. The
substantial majority of company products are not date sensitive. With the
exception of several software components for which upgrades are available,
Corrpro believes that, during their estimated useful lives, unmodified products
containing software should not experience Year 2000 issues when used as
intended.
In January 1999, the Company completed the implementation of a new
software upgrade which will be utilized by the majority of its U.S. operations.
In addition to addressing the Year 2000 issue, the new software is expected to
provide additional capabilities and functionality that will help enhance the
Company's business. Assessments of the Year 2000 compliance of software utilized
by the Company's other operations has been substantially completed and upgrades
are being implemented, as required.
The Company is in the process of assessing its non-informational systems
for Year 2000 compliance and expects to complete such assessment by March 1999.
In addition, the Company has communicated with its key suppliers, vendors and
significant customers and requested information regarding the status of their
own Year 2000 compliance. Based on responses to date, the Company has not been
notified of any circumstances of its suppliers, vendors and significant
customers reasonably likely to have a material adverse impact on the Company's
operations.
Costs
- -----
The cost of implementing the new software upgrade for the Company's U.S.
operations, including the cost of Year 2000 compliance which is not separately
determinable, is currently estimated to total approximately $1.4 million. Over
90% of these costs have already been incurred and such costs have not had, nor
are they expected to have, a material adverse impact on the Company's financial
position, results of operations or cash flows. The majority of these costs have
been incurred under capital projects that will result in additional capabilities
and functionality while also addressing the Year 2000 issues. The Company is
currently in the process of estimating its other future Year 2000 costs.
However, such costs are not expected to be material.
Risks
- -----
If needed modifications or conversion of information and non-information
systems are not made on a timely basis, including third party systems, or
contingency plans not implemented, the Company could experience loss of revenue
from customers whose operations are disrupted, unavailability of materials,
supplies, and services from its vendors whose operations are disrupted, and
difficulty in supplying its own products and services on a timely basis. On a
consolidated basis, no one customer accounts for greater than 10% of the
Company's revenue, and no one vendor supplies more than 10% of the Company's
purchases. On a regional or local basis, however, the disruption of customer and
vendor operations could more significantly adversely affect such regional or
local operations. In addition, if multiple customers or vendors experienced
disruption in their operations, the effect on the Company's consolidated results
could be materially impacted.
18
<PAGE> 19
Contingency Plans
- -----------------
At present the Company is in early stages of determining the scope of
appropriate contingency plans.
This information contains certain statements regarding the Year 2000
that constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company expects that it will be
able to modify or replace the various systems effected by the Year 2000 issue in
time to avoid any material disruption to its operations; however, the dates of
completion and the costs of the project are based on management's estimates,
which were derived utilizing assumptions of future events, including the
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved, and if
the actual timing and costs differ materially from those anticipated, the
Company's financial results and financial condition could be materially
adversely affected. Management is keeping the Board of Directors informed as to
the status of the Company's Year 2000 related activities.
19
<PAGE> 20
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceeding
- ------------------------
As previously reported, the Company has cooperated in an investigation
by the Securities and Exchange Commission's (the "Commission") relating to its
financial statements for the fiscal year ended March 31, 1995. In September
1998, the Company and the Commission entered into an agreement under which,
without admitting or denying the Commission's findings, the Company agreed to an
order to cease and desist from committing or causing violations of the
reporting, records, and controls requirements under the federal securities laws.
The Commission did not find any intentional misconduct by the Company and no
monetary sanctions were imposed and the investigation is concluded.
Although in the Company's opinion the following claim is without merit and
will have no material effect on the Company, disclosure is being made in order
to comply with applicable requirements of the Commission. The Company is a
defendant in a complaint filed on November 12, 1998, as subsequently amended, in
United States District Court, Northern District of Ohio, Eastern Division. The
lawsuit arises out of the adoption by the Environmental Protection Agency
("EPA") and the American Society for Testing and Materials ("ASTM") of
regulations permitting non-invasive methods for inspecting and testing
underground storage tanks. Prior to the adoption of such regulations,
underground storage tanks were inspected by visual manned inspections. After
convening a task force to study the issue, the EPA and ASTM recognized several
other methods of tank assessment, including statistical and analytical methods
used by the Company and other corrosion control service providers. The
plaintiffs in the lawsuit, Armor Shield, Inc. and Doublewall Retrofit Systems,
Inc., have claimed that the methods used by the Company are not as protective of
human health and the environment as internal manned tank inspection, that ASTM
procedures were manipulated and that EPA approval was obtained fraudulently. The
plaintiffs, which provide internal manned inspection and lining services and
equipment, have claimed violations of federal and state anti-trust laws,
unreasonable restraint of trade, false advertising and unfair competition, which
allegedly caused injury to their businesses and property in excess of $30
million. They are seeking damages and injunctive relief. The complaint also
names, among others, an executive officer of the Company and a director of the
Company.
The Company believes that the claims are without merit and has filed a
motion to dismiss the anti-trust claim for failure to state a claim and on the
basis that there has been no injury to competition. The Company denies any
allegations of wrongdoing and is preparing to vigorously defend the claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 3.1 - Amended and Restated Articles of Incorporation of
Corrpro Companies, Inc.
B. There were no reports on Form 8-K filed during the quarter.
20
<PAGE> 21
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 , 1999 /s/ Joseph W. Rog
------------------ -------------------------------
Joseph W. Rog
Chairman of the Board, President
and Chief Executive Officer
/s/ Neal R. Restivo
-------------------------------
Neal R. Restivo
Executive Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
21
<PAGE> 1
EXHIBIT A
---------
ARTICLES OF INCORPORATION
OF
CORRPRO COMPANIES, INC.
AMENDED AND RESTATED
AS OF SEPTEMBER 27, 1993
FIRST: The name of the Corporate is CORRPRO COMPANIES, INC.
SECOND: The Corporation's principal office is located in the City of
Medina, County of Medina, State of Ohio.
THIRD: The purposes or purposes for which, or for any of which, it is
formed are to enter into, promote or conduct any kind of business, contract or
undertaking permitted to corporations for profit organized under the General
corporation Laws of the State of Ohio, to engage in any lawful act or activity
for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code, and, in connection therewith, to exercise
all express and incidental powers normally permitted such corporations.
FOURTH: The maximum number of shares which the Corporation is
authorized to have outstanding is thirteen million (13,000,000) shares,
consisting of twelve million (12,000,000) Common Shares, without par value, and
one million (1,000,000) Serial Preferred Shares, without par value, of which
five hundred thousand (500,000) shares shall be voting and five hundred thousand
(500,000) shares shall be nonvoting.
(a) COMMON SHARES. The Common Shares shall be subject to the express terms
of the Serial Preferred Shares and of any series thereof. Each Common
Shares shall be equal to every other Common Share and shall have the
following powers, rights, qualifications and limitations:
(1) Each Common Share shall entitle the holder thereof to one
vote.
(2) Whenever the full dividends upon any outstanding Serial
preferred Shares for all past dividend periods shall have been
paid and the full dividends thereon for the then current
respective dividend periods shall have been paid, or declared
and a sum sufficient for the respective payments thereof set
apart, the holders of the Common Shares shall be entitled to
receive
<PAGE> 2
such dividends and distributions, payable in cash or
otherwise, as may be declared thereon by the Board of
Directors from time to time out of assets or funds of the
Corporation legally available therefor.
(3) In the event of any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, after the
payment or setting apart for payment to the holders of any
outstanding Serial Preferred Shares of the full preferential
amounts to which such holders are entitled as herein provided
or referred to, all of the remaining assets of the Corporation
shall belong to and be distributable in equal amounts per
share to the holders of the Common Shares. For purposes of
this paragraph 3, a consolidation or merger of the Corporation
with any other corporation, or the sale, transfer or lease of
all or substantially all its assets shall not constitute or be
deemed a liquidation, dissolution or winding up of the
Corporation.
(b) SERIAL PREFERRED SHARES. The Serial Preferred Shares ma be issued, from
time to time, in one or more series, with such designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions
providing for the issue of such series adopted by the Board of
Directors. All shares of any one series shall rank equally and be
identical in all respects except insofar as they may vary with respect
to the matters which the Board of Directors is hereby expressly
authorized to determine in the resolution or resolutions providing for
the issue of any series of the Serial Preferred Shares.
(1) The Board of Directors, in such resolution or resolutions (a
copy of which shall be filed and recorded as required by law),
is also expressly authorized to fix:
(i) The distinctive serial designations and the division
of such shares into series and the number of shares
of a particular series, which may be increased or
decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed,
filed and recorded as required by law;
2
<PAGE> 3
(ii) The annual dividend rate for the particular series,
and the date or dates from which dividends on all
shares of such series shall be cumulative, if
dividends on shares of the particular series shall be
cumulative;
(iii) The redemption price or prices, if any, for the
particular series;
(iv) The right, if any, of the holders of a particular
series to convert such stock into other classes of
shares, and the terms and conditions of such
conversions; and
(v) The obligation, if any, of the Corporation to
purchase and retire and redeem shares of a particular
series as a sinking fund or redemption or purchase
account, the terms thereof and the redemption price
or prices per share for such series redeemed pursuant
to the sinking fund or redemption or purchase
account.
(2) The holders of voting Serial Preferred Shares shall be entitled to one
vote for each voting Serial Preferred Share upon all matters presented
to the shareholders, and, except as otherwise provided by these
Articles of Incorporation or required by law, the holders of voting
Serial Preferred Shares and the holders of Common Shares shall vote
together as one class on all matters. No adjustment of the voting
rights of holders of voting Serial Preferred Shares shall be made in
the event of an increase or decrease in the number of Common Shares
authorized or issued or in the event of a stock split or combination of
the Common Shares or in the event of a stock dividend on any class of
stock payable solely in Common Shares. The holders of nonvoting Serial
Preferred Shares shall have no voting rights unless otherwise provided
by law or these Amended and Restated Articles of Incorporation.
(3) The affirmative vote of the holders of at least a majority of the
Serial Preferred Shares at the time outstanding, given in person or by
proxy at a meeting called for the purpose at which the holders of
Serial Preferred Shares shall vote separately as a class, shall De
necessary to adopt any amendment to the Articles of Incorporation (but
so far as the holders of Serial Preferred Shares are concerned, such
amendment may be adopted with such vote) which:
3
<PAGE> 4
(i) changes issued shares of Serial Preferred Shares of all series
then outstanding into a lesser number of shares of the
Corporation of the same class and series or into the same or a
different number of shares of the Corporation of any other
class or series; or
(ii) changes the express terms of the Serial Preferred Shares in
any manner substantially prejudicial to the holders of all
series thereof then outstanding; or
(iii) authorizes shares of any class, or any security convertible
into shares of any class, ranking prior to the Serial
Preferred Shares; or
(iv) changes in the express terms of issued shares of any class
ranking prior to the Serial Preferred Shares in any manner
substantially prejudicial to the holders of all series of
Serial Preferred Shares then outstanding;
and the affirmative vote of the holders of at least a majority of each
affected series of Serial Preferred Shares at the time outstanding,
given in person or by proxy at a meeting called for the purpose at
which the holders of each affected series of Serial Preferred Shares
shall vote separately as a series, shall be necessary to adopt any
amendment to the Articles of Incorporation (but so far as the holders
of each such series of Serial Preferred Shares are concerned, such
amendment may be adopted with such vote) which:
(i) changes issued shares of Serial Preferred Shares of one or
more but not all series then outstanding into a lesser number
of shares of the Corporation of the same series or into the
same or a different number of shares of the Corporation of any
other class or series; or
(ii) changes the express terms of any series of the Serial
Preferred Shares in any manner substantially prejudicial to
the holders of one or more but not all series thereof then
outstanding; or
(iii) changes the express terms of issued shares of any class
ranking prior to the Serial Preferred Shares in any manner
substantially prejudicial to the holders of
4
<PAGE> 5
one or more but not all series of Serial Preferred Shares then
outstanding.
(4) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, before any distribution or payment shall
have been made to the holders of the Common Shares, the holders of the
Serial Preferred Shares of each series shall be entitled to be paid, or
to have set apart in trust for payment, an amount from the net assets
of the Corporation equal to that stated and expressed in the resolution
or resolutions adopted by the Board of Directors which provide for the
issue of such series, respectively. The remaining net assets of the
Corporation shall be distributed solely among the holders of the Common
Shares according to their respective shares.
(5) Whenever reference is made herein to shares "ranking prior to the
Serial Preferred Shares," such reference shall mean and include all
shares of the Corporation in respect of which the rights of the holders
thereof either as to the payment of dividends or as to distributions in
the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation are given preference over the rights of
the holders of Serial Preferred Shares; whenever reference is made to
shares "on a parity with the Serial Preferred Shares," such reference
shall mean and include all Shares of the Corporation in respect of
which the rights of the holders thereof (i) neither as to the
payment of dividends nor as to distributions in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation are given preference over the rights of the holders of
Serial Preferred Shares and (ii)either as to the payment of dividends
or as to distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation rank equally
(except as to the amounts fixed therefor) with the rights of the
holders of Serial Preferred Shares; and whenever reference is made to
shares "ranking junior co the Serial Preferred Shares," such reference
shall mean and include all shares of the Corporation in respect of
which the rights of the holders thereof both as to the payment of
dividends and as to distribution in the event of a voluntary or
involuntary liquidation,dissolution or winding up of the Corporation
are junior and subordinate to the rights of the holders of the Serial
Preferred Shares.
FIFTH: The amount of stated capital with which the Corporation will begin
business shall be not less than $500.
5
<PAGE> 6
SIXTH: To the extent permitted by law, the Corporation, by action of its
Board of Directors, may purchase or otherwise acquire shares in the open market
or at private or public sale of any class issued by it at such times, for such
consideration and upon such terms and conditions as its Board of Directors may
determine, and the Board of Directors is hereby empowered to authorize such
purchase or acquisition without any vote of the holders of any class of shares
now or hereafter authorized and outstanding at the time of any such purchase,
subject, however, to such limitation or restriction, if any, as is contained in
the express terms of any class of shares of the Corporation outstanding at the
time of such purchase or acquisition.
SEVENTH: The affirmative vote or consent of the holders of at least 60% of
the voting power of the shares of the Corporation or of any class or classes of
shares shall be necessary to effect any amendment, alteration or repeal, whether
by merger, consolidation or otherwise, of any of the provisions of the Amended
and Restated Articles of Incorporation or the Amended and Restated Code of
Regulations of the Corporation which effects (i) the manner in which shareholder
proposals are considered at a meeting of the shareholders; (ii) the
classification, election, or tenure of office of the directors; or (iii) the
indemnification of directors, officers, employees and others. Except as
otherwise provided in these Amended and Restated Articles of Incorporation,
notwithstanding any provision in Section 1701.01 to 1701.98, inclusive, of the
Ohio Revised Code, now or hereafter in effect, requiring for any purpose the
vote, consent, waiver or release of the holders of a designated proportion (but
less than all) of the shares of the Corporation or of any particular class or
classes of shares, as the case may be, the vote, consent, waiver or release of
the holders of shares entitling them to exercise a majority of the voting power
of the shares of the Corporation or of any class or classes of shares, as the
case may be, shall be required and sufficient for any such purpose.
EIGHTH: The pre-emptive right to purchase additional shares or other
securities of the Corporation is expressly denied to all shareholders of all
classes.
NINTH: The right of shareholders to vote cumulatively in the election of
Directors of the Corporation is expressly denied to all shareholders of all
classes.
TENTH: These Amended and Restated Articles of Incorporation shall take the
place of and supersede the Corporation's existing Articles of Incorporation.
6
<PAGE> 7
ANNEX A
-------
(c) Series A Junior Participating Preferred Shares:
(1) DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Shares" (the "Series A
Preferred Shares") and the number of shares constituting the Series A Preferred
Shares shall be 500,000.
(2) DIVIDENDS AND DISTRIBUTIONS.
(i) Subject to the rights of the holders of any shares of any
class of preferred shares ranking prior and superior to the Series A
Preferred Shares with respect to dividends, the holders of Series A
Preferred Shares, in preference to the holders of Common Shares,
without par value (the "Common Shares"), of the Corporation, and of any
other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for
that purpose, quarterly dividends payable in cash on the first day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a Series A Preferred Share, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1 or
(b) subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in
Common Shares or a subdivision of the outstanding shares of Common
Shares (by reclassification or otherwise), declared on the Common
Shares since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since
the first issuance of any share or fraction of Series A Preferred
Shares. In the event that the Corporation shall at any time declare or
pay any dividend on the Common Shares payable in Common Shares, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Shares (by reclassification or otherwise than by
payment of a dividend in Common Shares) into a greater or lesser number
of Common Shares, then in each such case the amount to which holders of
Series A Preferred Shares were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of Common Shares outstanding immediately after such event and
the denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution
on the Series A Preferred Shares as provided in paragraph (i) of this
Section immediately after it declares a dividend or distribution on the
Common Shares (other than a dividend payable in Common Shares);
provided that, in the event that no dividend or distribution shall have
been declared on the Common Shares during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of
1
<PAGE> 8
$1 per share on the Series A Preferred Shares shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on
outstanding Series A Preferred Shares from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of Series A
Preferred Shares entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series A Preferred Shares in an amount
less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of
Series A Preferred Shares entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than
60 days prior to the date fixed for the payment thereof.
(3) VOTING RIGHTS. The holders of Series A Preferred Shares shall have
the following voting rights:
(i) Each Series A Preferred Share shall entitle the holder
thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation. The holders of fractional Series A
Preferred Shares shall not be entitled to any vote on any matter
submitted to a vote of the shareholders of the Corporation.
(ii) Except as otherwise provided herein, in the Amended
Articles of Incorporation of the Corporation, in any other Certificate
of Amendment creating a series of Serial Preferred Shares or any
similar stock, or by law, the holders of Series A Preferred Shares and
the holders of Common Shares and any other capital stock of the
Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of shareholders of the
Corporation.
(iii) Except as set forth herein, in the Amended Articles of
Incorporation of the Corporation, or as otherwise provided by law,
holders of Series A Preferred Shares shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Shares as set forth
herein) for taking any corporate action.
(4) CERTAIN RESTRICTIONS.
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Shares as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on
2
<PAGE> 9
Series A Preferred Shares outstanding shall have been paid in full, the
Corporation shall not:
(a) declare or pay dividends, or make any other
distributions, on any shares of any class ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Shares;
(b) declare or pay dividends, or make any other
distributions, on any shares of any class ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Shares, except
dividends paid ratably on the Series A Preferred Shares and
all such shares ranking on a parity with the Series A
Preferred Shares on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(c) redeem or purchase or otherwise acquire for
consideration shares of any class ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Shares, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Shares; or
(d) redeem or purchase or otherwise acquire for
consideration any Series A Preferred Shares, or any shares of
any class ranking on a parity with the Series A Preferred
Shares, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of the Corporation unless the Corporation could, under paragraph
(i) of this Section 4, purchase or otherwise acquire such shares at
such time and in such manner.
(5) REACQUIRED SHARES. Any Series A Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued Serial Preferred Shares and
may be reissued as part of a new series of Serial Preferred Shares subject to
the conditions and restrictions on issuance set forth herein, in the Amended
Articles of Incorporation, or in any other Certificate of Amendment creating a
series of Serial Preferred Shares or any similar class of shares or as otherwise
required by law.
3
<PAGE> 10
(6) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of any class ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Shares,
including the Common Shares, unless, prior thereto, the holders of Series A
Preferred Shares shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of Series A Preferred
Shares shall be entitled to receive an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Shares, or (2)
to the holders of shares of any class ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Shares, except distributions made ratably on the Series A Preferred
Shares and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event that the Corporation shall at any time declare or pay
any dividend on the Common Shares payable in Common Shares, or effect a
subdivision or combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by payment of a dividend in Common Shares)
into a greater or lesser number of Common Shares, then in each such case the
aggregate amount to which holders of Series A Preferred Shares were entitled
immediately prior to such event under the proviso in clause (1) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
(7) CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the Common Shares are exchanged for or changed into other shares or securities,
cash and/or any other property, then in any such case each Series A Preferred
Share shall at the same time be similarly exchanged or changed into an amount
per share, subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount of shares, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
Common Share is changed or exchanged. In the event that the Corporation shall at
any time declare or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise than by payment of a
dividend in Common Shares) into a greater or lesser number of Common Shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of Series A Preferred Shares shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.
(8) NO REDEMPTION. The Series A Preferred Shares shall not be
redeemable.
(9) RANK. The Series A Preferred Shares shall rank, with respect
to the payment of dividends and the distribution of assets, on a parity with any
other series of Serial Preferred
4
<PAGE> 11
Shares and shall rank junior to any series of any other class of preferred
shares of the Corporation which by its terms is senior to the Serial Preferred
Shares.
(10) AMENDMENT. Subject to the provisions of Article FOURTH of the
Amended Articles of Incorporation, the Amended Articles of Incorporation and the
Code of Regulations of the Corporation shall not be amended, altered or repealed
in any manner which would affect adversely the voting powers or any other rights
or preferences of the holders of the Series A Preferred Shares so as to affect
them adversely without the affirmative vote of the holders of at least a
majority of the outstanding Series A Preferred Shares, voting together as a
single class.
5
<PAGE> 12
CERTIFICATE OF AMENDMENT
TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CORRPRO COMPANIES, INC.
The undersigned, being the Chairman of the Board and Secretary of Corrpro
Companies, Inc., an Ohio corporation (the "Company"), hereby certify that a
meeting of the shareholders of the Company held on July 22, 1998, at which a
quorum was present, the following amendment to amend the Amended and Restated
Articles of Incorporation was adopted by an affirmative vote of a majority of
the voting power of the Company:
RESOLVED, that the Company's current Amended and Restated Articles of
Incorporation be amended as follows: the first sentence of Article
Fourth thereof is deleted in its entirety and a new first sentence of
Article Fourth be and hereby is substituted in its place:
The maximum number of shares which the Corporation is authorized to
have outstanding is forty-one million (41,000,000) shares, consisting
of forty million (40,000,000) Common Shares, without par value, and one
million (1,000,000) Serial Preferred Shares, without par value, of
which five hundred thousand (500,000) shares shall be voting and five
hundred thousand (500,000) shares shall be non-voting.
EXECUTED this ________ day of ___________, 1998.
------------------------------------------------
Joseph W. Rog, Chairman of the Board
------------------------------------------------
Neal R. Restivo, Secretary
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<FISCAL-YEAR-END> MAR-31-1999
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