1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-12282
CORRPRO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1422570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
As of February 7, 2001, 7,823,768 Common Shares, without par value, were
outstanding.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
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INDEX
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Page
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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 12-16
PART II. OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 17
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)
December 31, March 31,
2000 2000
---------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,581 $ 1,965
Accounts receivable, net 45,692 38,561
Inventories 24,022 24,118
Other current assets 10,053 9,203
-------- --------
Total current assets 81,348 73,847
-------- --------
Property, plant and equipment, net 14,668 16,153
Other Assets:
Goodwill 39,135 40,437
Other assets 9,833 10,427
-------- --------
Total other assets 48,968 50,864
-------- --------
$ 144,984 $ 140,864
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 1,191 $ 1,316
Accounts payable 15,297 15,157
Accrued liabilities and other 7,618 7,891
-------- --------
Total current liabilities 24,106 24,364
-------- --------
Long-term debt, net of current portion 65,435 61,070
Deferred income taxes 1,477 1,039
Commitments and contingencies -- --
Minority interest 88 156
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,276 2,276
Additional paid-in capital 51,013 51,486
Accumulated earnings 11,624 10,247
-------- --------
64,913 64,009
Accumulated other comprehensive loss (3,662) (1,699)
Common shares in treasury, at cost (7,373) (8,075)
-------- --------
Total shareholders' equity 53,878 54,235
-------- --------
$ 144,984 $ 140,864
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three For the Nine
Months Ended Months Ended
December 31, December 31,
------------- ------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues $42,709 $45,746 $126,955 $131,293
Cost of sales 29,296 31,186 85,824 88,434
------- ------ ------- -------
Gross profit 13,413 14,560 41,131 42,859
Selling, general & administrative expenses 10,692 10,386 34,062 30,071
------- ------ ------- -------
Operating income 2,721 4,174 7,069 12,788
Interest expense 1,747 1,352 4,774 3,983
------- ------ ------- -------
Income from continuing operations
before income taxes 974 2,822 2,295 8,805
Provision for income taxes 391 1,128 918 3,521
------- ------ ------- -------
Income from continuing operations 583 1,694 1,377 5,284
Discontinued operations:
Loss from operations, net -- -- -- (353)
Loss on disposal, net -- -- -- (4,024)
------- ------ ------- -------
Net income $ 583 $ 1,694 $ 1,377 $ 907
======= ====== ======= =======
Earnings per share - Basic:
Income from continuing operations $ 0.08 $ 0.22 $ 0.18 $ 0.69
Discontinued operations:
Loss from operations, net -- -- -- (0.05)
Loss on disposal, net -- -- -- (0.52)
------- ------ ------- -------
Net income $ 0.08 $ 0.22 $ 0.18 $ 0.12
======= ====== ======= =======
Earnings per share - Diluted:
Income from continuing operations $ 0.07 $ 0.22 $ 0.18 $ 0.67
Discontinued operations:
Loss from operations, net -- -- -- (0.04)
Loss on disposal, net -- -- -- (0.51)
------- ------ ------- -------
Net income $ 0.07 $ 0.22 $ 0.18 $ 0.12
======= ====== ======= =======
Weighted average shares -
Basic 7,731 7,643 7,703 7,665
Diluted 7,783 7,763 7,757 7,854
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)
Nine Months Ended
December 31,
----------------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 1,377 $ 907
Adjustments to reconcile net income to net cash
provided by (used for) continuing operations:
Depreciation and amortization 4,462 3,837
401K matching contributions in Treasury shares 221 --
Deferred income taxes 437 (71)
Loss on sale of assets (82) (64)
Loss on disposal of discontinued operations -- 4,024
Minority interest
(62) (41)
Changes in assets and liabilities:
Accounts receivable (7,420) 3,500
Inventories (488) 2,365
Prepaid expenses and other (2,095) (3,577)
Other assets 71 2,119
Accounts payable and accrued expenses (144) (3,407)
------ -------
Total adjustments (5,100) 8,685
------ -------
Net cash provided by (used for) continuing operations (3,723) 9,592
Net cash provided by discontinued operations -- 900
------ -------
Net cash provided by (used for) operating activities (3,723) 10,492
------ -------
Cash flows from investing activities:
Additions to and disposals of property, plant and equipment, net (972) (2,655)
Acquisitions, net of cash acquired -- (8,391)
------ -------
Net cash used for investing activities (972) (11,046)
------ -------
Cash flows from financing activities:
Long-term debt, net 4,733 1,968
Short-term borrowings, net (479) (1,348)
Net proceeds from issuance of Common Shares -- 504
Net proceeds from reissuance of Treasury Shares 93 --
Repurchase of Common Shares -- (1,429)
------ -------
Net cash provided by (used for) financing activities 4,347 (305)
------ -------
Effect of changes in foreign currency exchange rates (36) (330)
------ -------
Net decrease in cash (384) (1,189)
Cash and cash equivalents at beginning of period 1,965 3,957
------ -------
Cash and cash equivalents at end of period $ 1,581 $ 2,768
====== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 1,337 $ 1,269
Interest $ 4,207 $ 3,469
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)
Accumulated
Common Other Common
Serial Shares Additional Compre- Shares
Preferred ($0.26 Paid-In Accumulated hensive in
Shares Stated Value) Capital Earnings Loss Treasury* Total
------ ------------- ------- -------- ---- --------- -----
March 31, 2000 $ ----- $ 2,276 $ 51,486 $ 10,247 $ (1,699) $ (8,075) $ 54,235
Issuance of
Treasury Shares ----- ----- (473) ---- ----- 702 229
Comprehensive income (loss):
Net income ----- ----- ----- 1,377 ----- ----- 1,377
Cumulative translation
adjustment ----- ----- ----- ----- (1,963) ----- (1,963)
-------
Total comprehensive
loss ----- ----- ----- ----- ----- ----- (586)
------- ------- --------- --------- --------- --------- -------
December 31, 2000 $ ----- $ 2,276 $ 51,013 $ 11,624 $ (3,662) $ (7,373) $ 53,878
======= ===== ====== ====== ======= ======= ======
* Shares held in treasury totaled 849 at March 31, 2000 and 777 at December 31,
2000.
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 2000 amounts have been reclassified to conform
with the fiscal 2001 presentation.
The information furnished in the accompanying interim consolidated
financial statements has not been audited by independent accountants. However,
in the opinion of management, the interim consolidated financial statements
include all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the three and nine months ended December 31, 2000 are
not necessarily indicative of the results that may be expected for the quarter
or fiscal year ending March 31, 2001 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, 2000.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - INVENTORY
December 31, March 31,
2000 2000
---- ----
Inventories consist of the following:
Component parts and raw materials $10,912 $9,825
Work in process 1,831 2,609
Finished goods 13,105 14,316
------ ------
25,848 26,750
Inventory reserve (1,826) (2,632)
------ ------
$24,022 $24,118
====== ======
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NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
December 31, March 31,
2000 2000
---- ----
Property, plant and equipment consists of the following:
Land $ 608 $ 598
Buildings and improvements 6,720 7,523
Equipment, furniture and fixtures 21,356 20,234
------- ------
28,684 28,355
Less: Accumulated depreciation (14,016) (12,202)
------- -------
$ 14,668 $ 16,153
======= =======
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income for
the period by the weighted average number of common shares outstanding for the
period which was 7,731 and 7,643, for the three months ended December 31, 2000
and 1999, respectively and 7,703 and 7,655, for the nine months ended December
31, 2000 and 1999, respectively. 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 7,783 and
7,763, for the three months ended December 31, 2000 and 1999, respectively and
7,757 and 7,854, for the nine months ended December 31, 2000 and 1999,
respectively. 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.
NOTE 5 - STOCK PLANS
The Company granted options to purchase 425 common shares at exercise
prices ranging from $3.69 to $4.00 per share under the 1997 Long-Term Incentive
Plan and options to purchase 5 common shares under the 1997 Non-Employee
Directors' Stock Option Plan during the nine months ended December 31, 2000. In
addition, 32 previously granted options were terminated during the nine months
ended December 31, 2000.
The Company adopted a plan whereby holders of stock options covered
under the Company's 1997 Long-Term Incentive Plan could surrender options
previously granted with the understanding that a like number of options would be
granted no sooner than six months after surrender. Accordingly, options for 625
shares with exercise prices ranging from $6.49 to $14.96 were surrendered during
the three months ended December 31, 2000.
NOTE 6 - SHAREHOLDERS' EQUITY
In November 1996, the Board of Directors authorized a program to
repurchase up to 750 shares of the Company's outstanding common shares. In April
1999, the Board of Directors authorized the repurchase of up to an additional
750 outstanding common shares. The Company repurchased 153 shares, at a total
cost of $1,429, during the nine months ended December 31, 1999. There were no
stock repurchases during the nine months ended December 31, 2000.
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In June 1999, the Company adopted an Employee Stock Purchase Plan under
which employees have a systematic long-term investment opportunity to own
Company shares. During the nine months ended December 31, 2000, the Company
issued 32 Treasury shares under the Employee Stock Purchase Plan.
The Company maintains the Corrpro Companies, Inc. Profit Sharing Plan
and Trust for all eligible employees in the United States under Section 401 (k)
of the Internal Revenue Code. The Company may, at its discretion, make
contributions to the plan. In addition, the Company matches a portion of
employees' contributions. Effective October 1, 2000, the Company started
matching employee contributions with Treasury Stock. During the nine months
ended December 31, 2000, the Company issued 39 Treasury shares for the Company's
matching portion.
NOTE 7 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive
income. Other comprehensive income is comprised of other revenues, expenses,
gains, and losses that are excluded from net income but included as a component
of total shareholders' equity. Other comprehensive income (loss) for the three
months ended December 31, 2000 and 1999 totaled $171 and $212, respectively, and
for the nine months ended December 31, 2000 and 1999, ($1,963) and $277,
respectively, which is comprised of the effects of foreign currency translation
adjustments. The accumulated balance of foreign currency translation
adjustments, excluded from net income, is presented in the Consolidated Balance
Sheets and Statements of Shareholders' Equity as "Accumulated other
comprehensive loss."
NOTE 8 - BUSINESS SEGMENTS
The Company reports the following operating segments: Domestic Core Operations,
Canadian Operations, Middle East Operations and Other Operations. The Company's
operating segments and a description of the products and services they provide
are described below:
Domestic Core Operations. The Domestic Core Operations consist of the Company's
offices in the United States which provide products and services including
corrosion control, coatings, pipeline integrity and non-destructive testing
("NDT"). This segment provides corrosion control products and services to a
wide-range of customers in a number of industries including the following:
energy, utilities, water and wastewater treatment, chemical and petrochemical,
pipelines, defense and municipalities. In addition, this segment provides
coatings services to customers in the entertainment, aerospace, transportation,
petrochemical and electric power industries as well as NDT services to customers
in the pharmaceutical, chemical and energy industries.
Canadian Operations. The Canadian Operations provide corrosion control, pipeline
integrity and NDT products and services to customers who are primarily in the
oil and gas industries. These customers include pipeline operators,
petrochemical plants and refineries. In addition, the Canadian Operations
provide specialty coatings application services through the Company's CSI
Coatings Services subsidiary that was acquired in April 1999. The Canadian
Operations also include a production facility that assembles products such as
anodes, rectifiers, coke breeze and remote monitoring units.
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Middle East Operations. The Middle East Operations provide corrosion control
products and services to customers in the petroleum and utility industries as
well as to governmental entities in connection with infrastructure assets. One
of the largest components of the Middle East Operations' revenues is related to
reinforced concrete structures.
Other Operations. The Company's Other Operations consist of all of the Company's
other businesses including those in Europe, Australia and Asia as well as the
Company's corrosion monitoring equipment business. In addition, Other Operations
include a production facility in the U.S. that assembles and distributes
cathodic protection products such as anodes primarily to the Company's
businesses in the U.S. The Company's operations in Europe and Asia primarily
provide corrosion control products and services to customers in the marine,
offshore and industrial markets. In addition to corrosion control products and
services, the Company's operations in Australia are also beginning to provide
coatings, NDT and pipeline integrity services to its customer base which
includes participants in the oil and gas, water treatment, mining and marine
industries. The Company's corrosion monitoring equipment business assembles and
sells products including probes, instruments and access fittings to customers in
the oil and gas and chemical industries.
The Company's operations by segment are presented below:
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
Domestic Core Operations $25,565 $26,914 $ 76,856 $ 77,197
Canadian Operations 6,863 7,635 19,046 20,183
Middle East Operations 2,994 4,587 9,256 13,349
Other Operations 8,439 9,189 27,124 27,755
Eliminations (1,152) (2,579) (5,327) (7,191)
------ ------ ------ ------
$42,709 $45,746 $126,955 $131,293
====== ====== ======= =======
Operating Income:
Domestic Core Operations $ 3,558 $ 4,102 $ 10,269 $ 12,975
Canadian Operations 1,589 1,917 3,629 4,625
Middle East Operations 48 732 582 2,278
Other Operations 911 509 2,455 2,081
Corporate Related Costs and Other (3,385) (3,086) (9,866) (9,171)
------ ------ ------ ------
$ 2,721 $ 4,174 $ 7,069 $ 12,788
====== ====== ====== ======
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NOTE 9 - DISCONTINUED OPERATIONS
The Company completed the disposition of its UK and Asia foundry
operations during September 1999. The divested UK and Asia foundry operations
are reported as discontinued operations and the consolidated financial
statements have been reclassified to report separately the net assets and
results of operations of the divested foundries.
For the nine months ended December 31, 1999, the Company allocated
interest of $45 based on the proceeds realized from the divestiture. Revenues
from the UK and Asia foundry operations, which are excluded from consolidated
revenues, totaled $6,416 for the nine months ended December 31, 1999 which
included intercompany sales of $2,122. Loss from discontinued operations totaled
$353 for the nine months ended December 31, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information, the matters discussed in this
document are forward-looking statements that involve risks and uncertainties.
The forward-looking statements are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition to factors
referred to in the other portions of this document, there are other important
factors that could cause actual results to differ materially including, but not
limited to, the Company's mix of products and services, timing of jobs, the
availability and value of larger jobs, termination provisions relating to
government jobs, the impact of weather on the Company's operations, the
Company's ability to successfully integrate and develop acquired businesses in a
timely manner, the Company's ability to successfully execute its sales and
marketing initiatives, the impact of energy prices on the Company's and its
customers' businesses, and the impact of existing, new or changed regulatory
initiatives. Additional factors that may affect the Company's business and
performance are set forth in other Company's documents filed with the Securities
and Exchange Commission.
The fiscal 2001 results include three small acquisitions that were
completed during fiscal 2000 . The results of these acquisitions are no longer
separable as they have been integrated into the Company's operations.
The sale of the Company's UK and Asia foundry operations was completed
in September 1999. The decision to divest these operations was consistent with
the Company's strategy of focusing on the higher margin service side of the
business. For financial reporting purposes, the fiscal year 2000 UK and Asia
foundry operations were reported as discontinued operations and the consolidated
financial statements were reclassified to separately report the UK and Asia
foundry operations' net assets and results of operations.
A. RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED
TO THREE MONTHS ENDED DECEMBER 31, 1999
REVENUES
--------
Revenues for the fiscal 2001 third quarter totaled $42.7 million
compared to $45.7 million in the fiscal 2000 third quarter, a decrease of $3.0
million or 6.6%.
Fiscal 2001 third quarter revenues relating to the Domestic Core
Operations totaled $25.6 million compared to $26.9 million in the fiscal 2000
third quarter, a decrease of $1.3 million or 5.0%. Increases in revenues
relating to the domestic coatings service business were offset by lower revenues
from our offices which are dependent on the oil and gas industry.
The Canadian Operations' revenues for the fiscal 2001 third quarter
totaled $6.9 million compared to $7.6 million in the fiscal 2000 third quarter,
a decrease of $0.8 million or 10.1%. Revenues relating to the Canadian coating
application business increased but were offset by a decline in the cathodic
protection business which primarily related to the pipeline market.
Fiscal 2001 third quarter revenues relating to the Middle East
Operations totaled $3.0 million compared to $4.6 million in the fiscal 2000
third quarter, a decrease of $1.6 million or 34.7%. The decrease is due to the
fact that there were fewer large projects going on in this region. Our business
in this region has
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historically been characterized by large projects and the Middle East Operations
had a record year in fiscal 2000 as several large projects were in progress at
the same time.
Revenues relating to the Other Operations and Eliminations totaled $7.3
million in the fiscal 2001 third quarter compared to $6.6 million in the fiscal
2000 third quarter, an increase of $0.7 million or 10.2%. Other Operations
experienced revenue growth primarily in Europe which was offset, in part, by
revenue declines in Asia, Australia and at our corrosion monitoring business.
GROSS PROFIT
------------
Gross profit margins were 31.4% for the fiscal 2001 third quarter
compared to 31.8% for the fiscal 2000 third quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Operating expenses totaled $10.7 million for the fiscal 2001 third
quarter compared to $10.4 million in the fiscal 2000 third quarter, an increase
of 2.9%. In the fiscal 2001 second quarter, the Company implemented a number of
cost reduction measures designed to bring operating expenses more in line with
current revenue levels. As a result of these measures, fiscal 2001 third quarter
operating expenses are down approximately $1.0 million from the levels reported
in the fiscal 2001 second quarter. The impact of the cost reduction measures is
partially offset by higher operating expenses related to our coatings business.
Operating expenses related to the coatings business are up due to significant
growth in this business.
OPERATING INCOME
----------------
Operating income totaled $2.7 million for the fiscal 2001 third quarter
compared $4.2 million for the fiscal 2000 third quarter, a decrease of $1.5
million or 34.8%. The decrease is largely the result of lower revenue levels.
INTEREST EXPENSE
----------------
Interest expense totaled $1.7 million in the third quarter of fiscal
2001 compared to $1.4 million in the third quarter of fiscal 2000. This increase
relates primarily to higher interest rates in the third quarter of fiscal 2001
as compared to the prior-year period.
INCOME TAX PROVISION
--------------------
The Company recorded a provision for income taxes of $0.4 million for
the fiscal 2001 third quarter compared to a provision of $1.1 million for the
fiscal 2000 third quarter. The effective tax rate was 40% for both the fiscal
2001 and fiscal 2000 third quarters.
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INCOME FROM CONTINUING OPERATIONS
---------------------------------
Income from continuing operations totaled $0.6 million in the fiscal
2001 third quarter compared to $1.7 million in the fiscal 2000 third quarter, a
decrease of 65.6%. Earnings per share on a diluted basis totaled $0.07 compared
to $0.22 in the prior-year period.
B. RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO
NINE MONTHS ENDED DECEMBER 31, 1999
REVENUES
--------
Revenues for the nine months ended December 31, 2000 totaled $127.0
million compared to prior-year revenues of $131.3 million, a decrease of $4.3
million or 3.3%.
For the nine months ended December 31, 2000, revenues relating to the
Domestic Core Operations totaled $76.9 million compared to prior-year results of
$77.2 million, a decrease of $0.3 million or less than 1%. Revenue increases
relating to the Company's fast growing coatings services business have been
offset by declines in the core corrosion protection business, particularly at
domestic offices which are dependant on the oil and gas industry. The increase
in the coatings services business results primarily from several new contracts
secured by the Company from the Department of the Navy and Sea World.
The Canadian Operations' revenues for the nine months ended December
31, 2000 totaled $19.0 million compared to prior-year results of $20.2 million,
a decrease of $1.1 million or 5.6%. The Canadian Operations cathodic protection
business was down while its coatings application business was flat.
For the nine months ended December 31, 2000, revenues relating to the
Middle East Operations totaled $9.3 million compared to prior-year results of
$13.3 million, a decrease of $4.1 million. The decrease is due to the fact that
there were fewer large projects going on in this region. The business in this
region has historically been characterized by large projects and the Middle East
Operations had a record year in fiscal 2000 as several large projects were in
progress at the same time.
Revenues relating to the Other Operations and Eliminations for the nine
months ended December 31, 2000 totaled $21.8 million compared to prior-year
results of $20.6 million, an increase of $1.2 million or 6.0%. Other Operations
experienced revenue growth in Europe which was offset, in part, by revenue
declines in Asia, Australia and at our corrosion monitoring business.
GROSS PROFIT
------------
Consolidated gross profit margins were 32.4% for the nine months ended
December 31, 2000 compared to 32.6% for the prior-year period.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Operating expenses totaled $34.1 million for the nine months ended
December 31, 2000 compared to $30.1 million in the prior year period, an
increase of $4.0 million or 13.3%. Investments in sales and marketing as well as
in new technology contributed to this increase. In the fiscal 2001 second
quarter, the Company implemented a number of cost reduction measures designed to
bring operating expenses more in line with current revenue levels. The cost
reduction measures are expected to be approximately $4.8 million on an annual
basis. In addition, the Company expects to reduce cash expenses by approximately
$1 million annually by funding certain employee benefit amounts using the
Company's common shares. While the full benefit of these reductions is not
expected to be realized until the beginning of fiscal 2002, the Company has
started to see benefits of these cost reductions measures in the third quarter.
Including the impact of non-cash employee benefit amounts, operating expenses
dropped approximately $1.0 million between the second and third quarters. The
impact of the cost reduction measures is being partially offset by higher
operating expenses relating to the coatings business. The operating expenses of
the coatings business are up due to the significant growth of coatings business
which has resulted in the opening of five satellite offices and the hiring of
130 new employees in recent months.
OPERATING INCOME
----------------
Operating income totaled $7.1 million for the nine months ended
December 31, 2000 compared to $12.8 million in the prior-year period, a decrease
of $5.7 million or 44.7%. The decrease in operating income is primarily
attributable to the increase in operating expenses and lower revenue levels.
INTEREST EXPENSE
----------------
Interest expense totaled $4.8 million for the nine months ended
December 31, 2000 compared to $4.0 million in the prior-year period. This
increase relates primarily to higher interest rates in fiscal 2001 as compared
to the prior-year period.
INCOME TAX PROVISION
--------------------
The Company recorded a provision for income taxes of $0.9 million for
the nine months ended December 31, 2000 compared to a provision of $3.5 million
for the prior-year period. The effective tax rate was 40% for both the fiscal
2001 and fiscal 2000 nine month periods.
INCOME FROM CONTINUING OPERATIONS
---------------------------------
Income from continuing operations totaled $1.4 million for the nine
months ended December 31, 2000 compared to $5.3 million in the prior-year
period. Earnings per share on a diluted basis totaled $0.18 compared to $0.67 in
the prior-year period.
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B. LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had working capital of $57.2 million
compared to $49.5 million at March 31, 2000, an increase of $7.8 million or
15.7%. Consistent with prior years, working capital increased during the first
nine months of the fiscal year as the Company experienced the seasonally busiest
time of year. During the nine months of fiscal 2001, cash used for continuing
operating activities totaled $3.7 million as a result of the increased working
capital levels. Cash used for investing activities totaled $1.0 million during
fiscal 2001, which represented net capital expenditures. Cash provided by
financing activities totaled $4.3 million during fiscal 2001, which primarily
represented net borrowings.
The Company has a $50 million revolving credit facility that expires on
April 30, 2002. Initial borrowings were used to repay existing domestic bank
indebtedness. Borrowings under the facility are secured by the Company's
domestic accounts receivable, inventories, certain intangibles, machinery and
equipment and owned real estate as well as certain assets in Canada. The Company
has also pledged slightly less than two-thirds of the capital stock of two of
its foreign subsidiaries. The facility requires the Company to maintain certain
financial ratios and places certain limitations on the Company's ability to pay
cash dividends, incur additional indebtedness and to make investments, including
acquisitions. As of December 31, 2000, the Company was in compliance with all
debt covenants.
In addition to the domestic bank credit facility, the Company has
various smaller lines of credit with foreign banks, which totaled approximately
$5.7 million. Total availability under the domestic and foreign credit
facilities at December 31, 2000 was approximately $13.7 million after giving
consideration to the borrowing base limitations contained in the domestic credit
facility.
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's cash flow and earnings are subject to fluctuations due to
exchange rate variations. Foreign currency risk exists by the nature of the
Company's global operations, however, because those operations are conducted in
a number of different countries, the foreign currency risk is lessened and the
Company does not hedge these investments. The Company's investments in foreign
subsidiaries with a foreign currency are generally considered long-term.
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PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
As previously reported, the Company is a defendant in a suit filed in
the United States District Court, Northern District of Ohio, Eastern Division by
Armor Shield, Inc. and Doublewall Retrofit Systems, Inc. There have been no
material developments in that action during the nine months of fiscal 2001. The
Company believes that the claims made in the suit are without merit, denies any
allegations of wrongdoing and is vigorously defending the claims.
As previously reported, the Company filed a complaint in the Circuit
Court for the County of Ingham, Michigan and appealed a January 2000 Michigan
Department of Environmental Quality ("MDEQ") administrative decision which could
have the effect of modifying MDEQ's 1995 approval of certain assessment
methodologies utilized by the Company in determining whether certain underground
storage tanks met Michigan's regulatory requirements for upgrade by means of
cathodic protection. These assessment methodologies have been and remain
recognized by the United States Environmental Protection Agency and the other
states in which the Company utilized such methodologies for virtually identical
purposes. The Company believes that MDEQ's decision is in error and on January
24, 2000 filed a complaint and claim of appeal in the Circuit Court for the
County of Ingham, Michigan seeking declaratory relief and appealing the decision
on several grounds. A hearing on the appeal was held on November 1, 2000.
On November 14, 2000, the Ingham Circuit Court entered an order
reversing MDEQ's administrative decision that directed the Company take certain
actions. The circuit court also found that MDEQ did not approve of the full use
of the assessment methodologies utilized by the Company in Michigan. The Company
believes that such finding is not supported by any evidence contained in the
administrative record. Further, the Company believes that such finding is
contradicted by evidence contained in the administrative record that the circuit
court failed to consider. On December 5, 2000, the Company filed in the Michigan
Court of Appeals an application for leave to appeal the circuit court's finding
that MDEQ did not approve the full use of the assessment methodologies utilized
by the Company in Michigan. A decision on the application for leave to appeal is
pending.
As previously reported during the fiscal year, the Company discovered
that a former employee used an incorrect assessment standard in connection with
the evaluation of whether certain underground storage tanks located at as many
as sixty-seven sites were eligible for upgrade using cathodic protection. The
Company is continuing to work with the states and the EPA to develop a field
investigation program to assess the current status of the affected sites. Based
on currently available information, the Company does not believe that the cost
of the field investigation program will have a material effect on the future
operations, financial position or cash flows of the Company.
The Company is subject to other legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability, if any, with respect to any such matters will not
materially affect future operations.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits.
Exhibit 10.1 Form of employment agreement entered into between the
Company and certain of its executive officers named in the Company's
most recent proxy statement.
Exhibit 10.2 Form of change in control agreement entered into between
the Company and certain of its executive officers named in the
Company's most recent proxy statement.
Exhibit 10.3 Form of indemnification agreement entered into between the
Company and certain of its executive officers named in the Company's
most recent proxy statement.
B. Reports on Form 8-K.
On December 15, 2000, the Company filed a Form 8-K regarding
developments in legal proceedings described in Part II, Item 1 above.
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SIGNATURES
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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 9, 2000 /s/ Joseph W. Rog
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Joseph W. Rog
Chairman of the Board, President
and Chief Executive Officer
/s/ John L. Brack, Jr.
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John L. Brack, Jr.
Interim Chief Financial Officer
(interim principal financial
and accounting officer)
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