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 SEPTEMBER 30, 2001
OR
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-12282
CORRPRO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1422570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
As of November 14, 2001, 8,165,596 Common Shares, without par value, were
outstanding.
1
CORRPRO COMPANIES, INC.
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INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6-11
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-22
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 23
PART II. OTHER INFORMATION
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ITEM 1. Legal Proceedings 24
ITEM 4. Submission of Matters to a Vote of Security Holders 25
ITEM 6. Exhibits and Reports on Form 8-K 25
2
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
September 30, March 31,
2001 2001
-------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,399 $ 3,900
Accounts receivable, net 38,861 43,222
Inventories 21,482 22,298
Prepaid expenses and other 7,679 4,734
Deferred income taxes 2,691 2,688
----- -----
Total current assets 75,112 76,842
------ ------
Property, plant and equipment, net 11,735 13,245
Other Assets:
Goodwill 37,008 37,139
Other assets 11,015 10,908
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Total other assets 48,023 48,047
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$134,870 $138,134
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 6,276 $ 3,155
Accounts payable 12,805 14,007
Accrued liabilities and other 9,081 10,423
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Total current liabilities 28,162 27,585
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Long-term debt, net of current portion 59,300 65,134
Commitments and contingencies -- --
Minority interest 58 92
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,276 2,276
Additional paid-in capital 48,141 49,979
Accumulated earnings 6,663 5,541
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57,080 57,796
Accumulated other comprehensive loss (6,048) (6,449)
Common shares in treasury, at cost (3,682) (6,024)
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Total shareholders' equity 47,350 45,323
-------- --------
$134,870 $138,134
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three For the Six
Months Ended Months Ended
September 30, September 30,
------------------------------- ----------------------------
2001 2000 2001 2000
---------------- ---------- -------------- ----------
Revenues $43,231 $43,486 $87,608 $84,246
Cost of sales 28,950 29,483 59,917 56,528
------ ------ ------ ------
Gross profit 14,281 14,003 27,691 27,718
Selling, general & administrative expenses 10,742 11,710 21,944 23,370
------ -------- ------ ------
Operating income 3,539 2,293 5,747 4,348
Interest expense 1,924 1,571 3,744 3,027
------ ------- ------ -------
Income before income taxes 1,615 722 2,003 1,321
Provision for income taxes 718 288 881 527
----- ----- ------ -----
Net income $ 897 $ 434 $ 1,122 $ 794
======= ======= ======= =======
Earnings per share:
Basic $ 0.11 $ 0.06 $ 0.14 $ 0.10
Diluted $ 0.11 $ 0.06 $ 0.14 $ 0.10
Weighted average shares:
Basic 8,073 7,706 8,016 7,692
Diluted 8,104 7,760 8,041 7,747
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
4
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
September 30,
----------------------------
2001 2000
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Cash flows from operating activities:
Net income $1,122 $ 794
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,861 2,903
401(k) matching contribution in Treasury shares 465 --
Deferred income taxes (3) 95
Gain on sale of assets (86) (46)
Minority interest (36) (48)
Changes in operating assets and liabilities:
Accounts receivable 4,226 (8,170)
Inventories 920 (655)
Prepaid expenses and other (3,606) (2,190)
Other assets (614) (31)
Accounts payable and accrued expenses (2,026) 2,470
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Total adjustments 2,101 (5,672)
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Net cash provided by (used for) operating activities 3,223 (4,878)
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Cash flows from investing activities:
Additions to property, plant and equipment (433) (1,576)
Proceeds from disposal of property, plant and equipment 615 348
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Net cash provided by (used for) investing activities 182 (1,228)
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Cash flows from financing activities:
Net (payments) borrowings under revolving credit facility and
lines of credit (2,706) 7,198
Net payments under other long-term debt (295) (601)
Net proceeds from issuance of Common Shares -- 4
Net proceeds from employee stock purchase plan 40 89
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Net cash provided by (used for) financing activities (2,961) 6,690
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Effects on cash of foreign currency exchange rates 55 (47)
Net increase in cash and cash equivalents 499 537
Cash and cash equivalents at beginning of period 3,900 1,965
------- --------
Cash and cash equivalents at end of period $ 4,399 $ 2,502
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 788 $ 934
Interest $ 3,627 $ 2,693
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
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 2001 amounts have been reclassified to conform
with the fiscal 2002 presentation.
The information furnished in the accompanying interim consolidated
financial statements has not been audited by independent accountants, however,
in the opinion of management, the interim consolidated financial statements
include all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the three months or for the six months ended September
30, 2001 are not necessarily indicative of the results that may be expected for
the fiscal year ending March 31, 2002 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, 2001.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 - INVENTORIES
September 30, March 31,
2001 2001
---- ----
Inventories consist of the following:
Component parts and raw material $10,316 $9,450
Work in process 780 2,140
Finished goods 11,695 11,717
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22,791 23,307
Inventory reserve (1,309) (1,009)
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$21,482 $22,298
====== ======
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NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
September 30, March 31,
2001 2001
---- ----
Property, plant and equipment consists of the following:
Land $ 594 $ 593
Buildings and improvements 6,403 6,615
Equipment, furniture and fixtures 19,182 19,667
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26,179 26,875
Less: Accumulated depreciation (14,444) (13,630)
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$11,735 $13,245
====== ======
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 8,073 and 7,706 for the three months ended September 30, 2001
and 2000, respectively, and 8,016 and 7,692 for the six months ended September
30, 2001 and 2000, respectively. Diluted EPS for the period has been determined
by dividing net income by the weighted average number of common shares and
potential common shares outstanding for the period which was 8,104 and 7,760 for
the three months ended September 30, 2001 and 2000, respectively, and 8,041 and
7,747 for the six months ended September 30, 2001 and 2000, 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
In fiscal 2001, the Company adopted a plan whereby holders of stock options
covered under the 1997 Long-Term Incentive Plan of Corrpro Companies, Inc. (the
"1997 Option 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 at the fair market value of the common shares at that
time. During the six months ended September 30, 2001, the Company granted
options to purchase 648 common shares at an exercise price of $2.55 per share in
exchange for options previously surrendered under this program.
In addition to the granting of options in exchange for the previously
surrendered options referred to above, the Company granted options to purchase
18 common shares at exercise prices ranging from $1.30 to $1.52 per share under
the 1997 Option Plan and options to purchase 8 common shares at an exercise
price of $2.16 under the 1997 Non-Employee Directors' Stock Option Plan during
the six months ended September 30, 2001. In addition, 118 previously granted
options were terminated during the six months ended September 30, 2001.
7
NOTE 6 - SHAREHOLDERS' EQUITY
The Company maintains the Corrpro Companies, Inc. 401(k) Savings Plan
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 began matching employee
contributions with treasury shares. For the six months ended September 30, 2001,
the Company issued 221 treasury shares for the Company's matching contribution.
NOTE 7 - COMPREHENSIVE INCOME
Comprehensive income (loss), which includes net income and other
comprehensive income (loss), amounted to $638 and ($673) for the quarters ended
September 30, 2001 and September 30, 2000, respectively, and $1,523 and ($1,340)
for the six months ended September 30, 2001 and September 30, 2000,
respectively. Other comprehensive income (loss) is comprised of the effects of
foreign currency translation adjustments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation"
which is excluded from net income but included as a component of total
shareholders' equity. Other comprehensive income (loss) amounted to ($259) and
($1,107) for the quarters ended September 30, 2001 and September 30, 2000,
respectively, and $401 and ($2,134) for the six months ended September 30, 2001
and September 30, 2000, respectively. The accumulated balance of foreign
currency translation adjustments excluded from net income, is presented in the
Consolidated Balance Sheets as "Accumulated other comprehensive loss."
NOTE 8 - BUSINESS SEGMENTS
In fiscal 2001, as a result of the Company's restructuring of its
internal operations, the Company reconfigured its business segments by combining
its operations in Europe, Asia and Australia with its operations in the Middle
East to form the International Operations segment. Previously, its operations in
Europe, Asia and Australia were included in its Other Operations segment. Prior
period business segment information has been reconfigured to conform with the
current period presentation. The Company's business segments and a description
of the products and services they provide are described below:
Domestic Core Operations. The Domestic Core Operations segment consists of the
Company's operations in the United States and Central and South America, which
provide products and services including corrosion control, coatings, pipeline
integrity, risk assessment and inspection services. This segment provides
corrosion control products and services to a wide-range of customers in a number
of industries including: energy, utilities, water and wastewater treatment,
chemical and petrochemical, pipelines, defense and municipalities. In addition,
this segment provides coatings services to customers in the defense,
entertainment, aerospace, transportation, petrochemical, pipeline and electric
power industries. This segment includes a production facility in the United
States that assembles and distributes cathodic protection products, such as
anodes, primarily to the United States market.
8
Canadian Operations. The Canadian Operations segment provides corrosion control,
pipeline integrity and inspection services to customers in Canada who are
primarily in the oil and gas industry. These customers include pipeline
operators, petrochemical plants and refineries. The Canadian Operations segment
also includes production facilities that assemble products such as anodes and
rectifiers.
International Operations. The International Operations segment consists of the
Company's operations in Europe, the Middle East, Australia and Asia, which
provide corrosion control products and services to customers in the petroleum,
utility, industrial, marine and offshore markets, as well as to governmental
entities in connection with their infrastructure assets. In addition to
corrosion control products and services, the Company's operation in Australia
also provides coatings and pipeline integrity services to its customer base,
which includes oil and gas, water treatment, mining and marine markets.
Other Operations. The Other Operations segment includes the Company's corrosion
monitoring equipment business, which assembles and sells products including
probes, instruments, access fittings and remote monitoring units to customers in
the oil and gas and chemical industries. In addition, this segment also includes
the Company's risk assessment and analysis software business, which sells or
licenses products to customers primarily in the oil and gas industry.
Financial information relating to the Company's operations by segment is
presented below:
For the Three Months Ended For the Six Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenue:
Domestic Core Operations $25,774 $24,311 $53,271 $47,792
Canadian Operations 5,336 6,537 10,789 11,928
International Operations 9,363 10,362 18,397 19,064
Other Operations 2,758 2,276 5,151 5,462
----- ----- ----- -----
$43,231 $43,486 $87,608 $84,246
====== ====== ====== ======
Operating Income:
Domestic Core Operations $4,447 $3,442 $9,223 $7,161
Canadian Operations 1,238 1,247 1,964 2,049
International Operations 690 673 876 848
Other Operations 414 75 399 354
Corporate Related Costs and Other (3,250) (3,144) (6,715) (6,064)
------ ------ ------ ------
$3,539 $2,293 $5,747 $4,348
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NOTE 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective April 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138.
As amended, SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position, measure those
instruments at fair value and recognize changes in the fair value of derivatives
in earnings in the period of change unless the derivative qualifies as an
effective hedge that offsets certain
9
exposures. The Company had no derivatives and therefore, no resulting transition
adjustments.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method be used for all business
combinations initiated after June 30, 2001, as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. The Company was required to adopt the
provisions of SFAS No. 141 immediately and SFAS No. 142 effective April 1, 2002.
As of the date of adoption of SFAS No. 142, the Company expects to have
unamortized goodwill in the amount of approximately $36.1 million that will be
subject to the transition provisions. Amortization expense related to goodwill
was approximately $1.7 million and $0.9 million for the year ended March 31,
2001 and the six months ended September 30, 2001, respectively. Because of the
extensive effort needed to comply with adopting the new rules, it is not
practical to reasonably estimate the impact of adopting these statements on the
Company's financial statements as of the date of this report, including whether
any transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
The Financial Accounting Standards Board also recently issued SFAS No.
143, "Accounting for Asset Retirement Obligations" and SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 143 requires companies to record the fair value of a liability
for asset retirement obligations in the period in which they are incurred. The
statement applies to a company's legal obligations associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. This statement is effective for fiscal years beginning
after June 30, 2002.
SFAS No. 144 addresses the accounting and reporting for the impairment
or disposal of long-lived assets. The statement provides a single accounting
model for long-lived assets to be disposed of. New criteria must be met to
classify the asset as an asset held-for-sale. This statement also focuses on
reporting the effects of a disposal of a segment of a business. This statement
is effective for fiscal years beginning after December 15, 2001.
The Company has not yet assessed the impact of SFAS No. 143 and 144 on
its financial statement position.
NOTE 10 - LONG TERM DEBT
The Company currently has a Revolving Credit Facility, as amended in
November 2001, in the amount of $40.0 million and subject to a borrowing base
formula which limits the amount the Company can borrow under the facility to the
lesser of $40.0 million or borrowing base amounts as defined. This
10
Revolving Credit Facility expires on October 31, 2002. In addition to the
Revolving Credit Facility, the Company has various smaller lines of credit with
foreign banks that totaled approximately $5.8 million as of September 30, 2001.
Total availability under the Revolving Credit Facility and foreign credit
facilities at September 30, 2001 was approximately $9.0 million after giving
consideration to the borrowing base limitations under the Revolving Credit
Facility. As of September 30, 2001, the Company was in compliance with all debt
covenants.
The Company's Senior Notes, in the amount of $30.0 million, require
monthly principal payments commencing February 2002. Such payments are $0.9
million per month for the period February 2002 through June 2002 and then $0.4
million per month thereafter. The Revolving Credit Facility provides that any
principal payments made under the Senior Notes will result in a proportionate
reduction in the commitment amount under the Revolving Credit Facility.
Therefore, it will be necessary for the Company to generate adequate cash flow
from its operations to allow it to meet its principal payment requirements, or
the Company will need to amend its existing loan agreements, refinance its
indebtedness or obtain additional capital on reasonable terms. While the Company
believes cash flow from operations will be adequate to allow it to fund its
working capital needs and the principal payments required, there can be no
assurances that the Company will be able to do so.
In addition, because the Revolving Credit Facility expires on October
31, 2002, it will be necessary for the Company to amend this Revolving Credit
Facility to extend the expiration date. If the Company is unable to extend the
expiration date, it will be necessary for the Company to refinance or repay this
debt. The Company cannot assure that it will be able to obtain additional
maturity extensions, refinance its indebtedness or obtain additional capital on
reasonable terms or at all. Failure to extend the expiration date, refinance or
repay this indebtedness would have a material adverse effect on the Company's
operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Corrpro provides corrosion control related services, systems, equipment
and materials to the infrastructure, environmental and energy markets. Our
products and services include (i) corrosion control engineering services,
systems and equipment ("corrosion control"), (ii) coatings services ("coatings")
and (iii) pipeline integrity and risk assessment services.
CORROSION CONTROL. Corrpro's specialty in the corrosion control market is
cathodic protection. We offer a comprehensive range of services in this area,
which include the design, manufacture, installation, maintenance and monitoring
of cathodic protection systems. Cathodic protection is an electrochemical
process that prevents corrosion for new structures and stops the corrosion
process for existing structures. It can provide a cost-effective alternative to
the replacement of corroding structures. In order to understand how cathodic
protection works, it is helpful to first understand the corrosion process.
Steel, the most common metal protected by cathodic protection, is produced from
iron ore. To produce steel, the iron ore is subjected to a refining process that
adds energy. Once the steel is put back into the environment, it begins to
revert back to its original state (i.e., iron ore) by releasing the added energy
back into the surrounding environment. This process of dispersing energy is
called corrosion. Cathodic protection electrodes, called anodes, are placed
near, and connected to, the structure to be protected (i.e., the cathode).
Anodes are typically made from cast iron, graphite, aluminum, zinc or magnesium.
A cathodic protection system works by passing an electrical current from the
anode to the cathode. This process maintains the energy level on the cathode,
thus stopping it from corroding. Instead, the anode corrodes, sacrificing itself
to maintain the integrity of the structure. In order for the electrical current
to pass from the anode to the cathode, they both must be in a common
environment. Therefore, cathodic protection can only be used to protect
structures that are buried in soil, submerged in water or encased in concrete.
Structures commonly protected against corrosion by the cathodic protection
process include oil and gas pipelines, offshore platforms, above and underground
storage tanks, ships, electric power plants, bridges, parking garages, transit
systems and water and wastewater treatment equipment.
In addition to cathodic protection, our corrosion control services
include corrosion engineering, material selection, inspection services, advanced
corrosion research and testing and corrosion monitoring (including remote
monitoring). We also sell a variety of materials and equipment, including
anodes, rectifiers and corrosion monitoring probes, used in cathodic protection
and corrosion monitoring systems.
COATINGS. Corrpro offers a wide variety of coatings-related services designed to
provide our customers with longer coatings life, reduced corrosion, improved
aesthetics and lower life-cycle costs for their coated structures. Coatings
services include research, testing, evaluation and application of coatings. In
addition, we provide project management services for coatings maintenance
programs, including condition surveys, failure analysis, selection of site
surface preparation methods and selection and application of coatings. We also
provide specialized coatings application services for structures with aggressive
corrosion conditions such as the inside and outside of storage tanks and
pipelines.
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PIPELINE INTEGRITY AND RISK ASSESSMENT SERVICES. Corrpro offers a comprehensive
line of pipeline integrity, risk assessment and inspection services, including
assessments, surveys, inspections, analyses, repairs and ongoing maintenance. By
offering a wide range of services, we are able to provide pipeline owners with
one-stop shopping for the preservation of their pipeline systems.
A. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Revenues for the fiscal 2002 second quarter totaled $43.2 million
compared to $43.5 million in the fiscal 2001 second quarter, a decrease of $0.3
million or 0.6%. When taking into consideration revenues lost as a result of our
shutdown of several under-performing district offices and the sale of a small
non-core business unit in fiscal 2001, revenues from our on-going operations
increased approximately 5.9% for the fiscal 2002 second quarter over the
year-earlier period. In general, increased revenues in our Domestic Core
Operations were offset by lower revenue volume in our Canadian Operations and
International Operations.
Fiscal 2002 second quarter revenues relating to our Domestic Core
Operations segment totaled $25.8 million compared to $24.3 million in the fiscal
2001 second quarter, an increase of $1.5 million or 6.0%. This revenue growth
related primarily to the increased activity from our coatings services business
and strong demand for cathodic protection and pipeline integrity services in the
U.S.
Our Canadian Operations segment revenues for the second quarter of
fiscal 2002 totaled $5.3 million compared to $6.5 million in the prior-year
second quarter, a decrease of $1.2 million or 18.4%. This decrease is due
principally to a lower level of material sales as well as some larger
construction projects being delayed until the third quarter of fiscal 2002.
Fiscal 2002 second quarter revenues relating to the International
Operations segment totaled $9.4 million compared to $10.4 million in the fiscal
2001 second quarter, a decrease of $1.0 million or 9.6%. This decline in revenue
is primarily related to lower revenue levels in Europe versus the year-earlier
period. In the second quarter of fiscal 2001 our European operations benefited
from an unusually large material order which was absent from fiscal 2002 second
quarter results.
Revenues relating to the Other Operations segment totaled $2.8 million
in the fiscal 2002 second quarter compared to $2.3 million in the fiscal 2001
second quarter, an increase of $0.5 million or 21.2%. This increase is due to
strong revenue volume in our corrosion monitoring equipment business, as well as
continued growth in our risk assessment and analysis software business.
GROSS PROFIT
Gross profit margins were 33.0% for the fiscal 2002 second quarter
compared to 32.2% for the fiscal 2001 second quarter.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses totaled $10.7 million
(24.8% of revenues) for the fiscal 2002 second quarter compared to $11.7 million
(26.9% of revenues) in the fiscal 2001 second quarter, a decrease of 8.3%. The
decrease is the result of a number of cost reduction programs we implemented in
the latter part of fiscal 2001 and our continuing efforts to reduce our selling,
general and administrative expenses.
OPERATING INCOME
Operating income totaled $3.5 million for the fiscal 2002 second
quarter compared to $2.3 million for the fiscal 2001 second quarter, an increase
of $1.2 million or 54.3%. The improvement in operating income was the result of
higher gross profit margins as a percentage of revenues and a $1.0 million
reduction in selling, general and administrative expenses for the quarter as
compared to the year-earlier period.
INTEREST EXPENSE
Interest expense totaled $1.9 million in the second quarter of fiscal
2002 compared to $1.6 million in the second quarter of fiscal 2001. This
increase relates to higher effective interest rates and higher debt levels at
the beginning of the second quarter of fiscal 2002 as compared to the
year-earlier period. The higher effective interest rates are the result of
amendments to our Revolving Credit Facility and our Senior Notes Agreement.
INCOME TAX PROVISION
The Company recorded a provision for income taxes of $0.7 million for
the fiscal 2002 second quarter compared to a provision of $0.3 million for the
fiscal 2001 second quarter. Our effective tax rate was 44.5% for the second
quarter of fiscal 2002 and 40.0% for the second quarter of fiscal 2001. Our
effective tax rate is based on the statutory rates in effect in the countries in
which we operate. The increase in our effective tax rate is the result of
expected changes in the mix of income we generated in the various countries in
which we operate.
NET INCOME
Net income totaled $0.9 million in the second quarter of fiscal 2002
compared to $0.4 million in the prior-year period, an increase of $0.5 million
or 106.7%. Earnings per share on a diluted basis totaled $0.11 per share
compared to $0.06 per share in the year-earlier period.
14
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 2000
REVENUES
Revenues for the six months ended September 30, 2001 totaled $87.6
million compared to prior-year revenues of $84.2 million, an increase of $3.4
million or 4.0%. When taking into consideration revenues lost as a result of our
shutdown of several under-performing district offices and the sale of a small
non-core business unit in fiscal 2001, revenues from our on-going operations
increased approximately 12.1% for the six months ended September 30, 2001 over
the year-earlier period. In general, increased revenues in our Domestic Core
Operations were offset by lower revenue volume in our Canadian Operations and
International Operations.
For the six months ended September 30, 2001, revenues relating to the
Domestic Core Operations totaled $53.3 million compared to prior-year results of
$47.8 million, an increase of $5.5 million or 11.5%. This revenue growth relates
primarily to the increased activity from our coatings services business and
strong demand for cathodic protection and pipeline integrity services in the
U.S.
The Canadian Operations' revenues for the six months ended September
30, 2001 totaled $10.8 million compared to prior-year results of $11.9 million,
a decrease of $1.1 million or 9.5%. The decrease is due to a lower level of
material sales, as well as some larger construction projects being delayed until
the third quarter of fiscal 2002.
For the six months ended September 30, 2001, revenues relating to the
International Operations totaled $18.4 million compared to prior-year results of
$19.1 million, a decrease of $0.7 million or 3.5%. Lower revenue levels in
Europe, which benefited from a large material order in fiscal 2001, and
Australia were offset by higher revenue levels in Asia. Revenue levels in the
Middle East were flat with prior-year results.
Revenues relating to the Other Operations for the six months ended
September 30, 2001, totaled $5.2 million compared to prior-year results of $5.5
million, a decrease of $0.3 million.
GROSS PROFIT
Consolidated gross profit margins were 31.6% for the six months ended
September 30, 2001 compared to 32.9% for the prior-year period. Gross profit
margins, although up for the second quarter of fiscal 2002, are below the
year-earlier period primarily because of the business mix in the first quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses totaled $21.9 million
(25.0% of revenues) for the six months ended September 30, 2001 compared to
$23.4 million (27.7% of revenues) for the prior-year period, a decrease of $1.4
million or 6.1%. The decrease is the result of a number of cost reduction
programs we implemented in the latter part of fiscal 2001 and our continuing
efforts to reduce our selling, general and administrative expenses.
15
OPERATING INCOME
Operating income totaled $5.7 million for the six months ended
September 30, 2001 compared to $4.3 million in the prior-year period, an
increase of $1.4 million or 32.2%. This increase is primarily the result of the
higher revenue levels and lower selling, general and administrative expenses,
partially offset by lower gross profit margins.
INTEREST EXPENSE
Interest expense totaled $3.7 million for the six months ended
September 30, 2001 compared to $3.0 million in the prior-year period. This
increase is a result of higher debt levels during fiscal 2002 and higher
effective interest rates. The higher effective interest rates are the result of
amendments to our Revolving Credit Facility and our Senior Notes Agreement.
INCOME TAX PROVISION
The Company recorded a provision for income taxes of $0.9 million for
the six months ended September 30, 2001 compared to a provision of $0.5 million
for the prior-year period. Our effective tax rate was 44.0% for the first six
months of fiscal 2002 and 40.0% for the first six months of fiscal 2001. Our
effective tax rate is based on the statutory rates in effect in the countries in
which we operate. The increase in our effective tax rate is the result of
expected changes in the mix of income we generated in the various countries in
which we operate.
NET INCOME
Net income totaled $1.1 million for the six months ended September 30,
2001 compared to $0.8 million in the prior-year period, an increase of $0.3
million or 41.3%. Earnings per share on a diluted basis totaled $0.14 per share
compared to $0.10 per share in the prior-year period.
B. LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, we had net working capital of $47.0 million
compared to $49.3 million at March 31, 2001, a decrease of $2.3 million or 4.7%.
Consistent with our emphasis on asset management, net working capital decreased
during our first six months of fiscal 2002 even though we were then in our
seasonally busiest time of the year. Improvements in our accounts receivable
days sales outstanding ("DSO") and inventory turns were the primary reasons for
our reductions in working capital assets.
During the first six months of fiscal 2002, cash provided by operating
activities totaled $3.2 million. In the first six months of fiscal 2001, cash
used by operating activities totaled $4.9 million. This improvement in cash flow
from operating activities was primarily the result of improvement in our
accounts receivable DSO. Cash provided by investing activities totaled $0.2
million during the first six months of fiscal 2002, which represented proceeds
from the sale of capital assets which was partially offset by capital
expenditures. Cash used for financing activities totaled $3.0 million during the
first six months of fiscal 2002 primarily as a result of payments under our
Revolving Credit Facility and lines of credit.
16
We currently have a Revolving Credit Facility, as amended in November
2001, in the amount of $40.0 million, subject to a borrowing base formula which
limits the amount we can borrow under the facility to the lesser of $40.0
million or borrowing base amounts as defined. This Revolving Credit Facility
expires on October 31, 2002. In addition to the Revolving Credit Facility, we
have various smaller lines of credit with foreign banks that totaled
approximately $5.8 million as of September 30, 2001. Total availability under
the Revolving Credit Facility and foreign credit facilities at September 30,
2001 was approximately $9.0 million after giving consideration to the borrowing
base limitations under the Revolving Credit Facility. As of September 30, 2001,
we were in compliance with all debt covenants.
Our Senior Notes, in the amount of $30.0 million, require monthly
principal payments commencing February 2002. Such payments are $0.9 million per
month for the period February 2002 through June 2002 and then $0.4 million per
month thereafter. Our Revolving Credit Facility provides that any principal
payments made under the Senior Notes will result in a proportionate reduction in
the commitment amount under the Revolving Credit Facility. Therefore, it will be
necessary for us to generate adequate cash flow from our operations to allow us
to meet our principal payment requirements, or we will need to amend our
existing loan agreements, refinance our indebtedness or obtain additional
capital on reasonable terms. While we believe cash flow from operations will be
adequate to allow us to fund our working capital needs and the principal
payments required, there can be no assurances that we will be able to do so.
In addition, because our Revolving Credit Facility expires on October
31, 2002, it will be necessary for us to amend this Revolving Credit Facility to
extend the expiration date. If we are unable to extend the expiration date, it
will be necessary for the Company to refinance or repay this debt. We cannot
assure that we will be able to obtain additional maturity extensions, refinance
our indebtedness or obtain additional capital on reasonable terms or at all.
Failure to extend the expiration date, refinance or repay this indebtedness
would have a material adverse effect on our operations. See "Factors Influencing
Future Results and Accuracy of Forward Looking Information."
17
FACTORS INFLUENCING FUTURE RESULTS AND ACCURACY OF FORWARD LOOKING INFORMATION
This document includes certain statements that may be deemed
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based on management's expectations and beliefs
concerning future events and discuss, among other things, anticipated future
performance and revenues, expected growth and future business plans. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" or variations of such words and similar expressions are intended to
identify such forward-looking statements. We believe that the following factors,
among others, could affect our future performance or the price and liquidity of
our common shares and cause our actual results to differ materially from those
results expressed or implied by forward-looking statements: our mix of products
and services; our ability to obtain extensions, amendments or waivers under our
debt agreements and the availability and terms of additional or alternative
sources of financing and capital; the timing of jobs; the availability and value
of larger jobs; qualification requirements and termination provisions relating
to government jobs; our ability to satisfy the New York Stock Exchange's
continued listing requirements; the impact of inclement weather on operations;
the impact of energy prices on the Company's and its customers' businesses;
changing global, political and economical conditions; adverse developments in
pending litigation or regulatory matters; and the impact of existing, new or
changed regulatory initiatives. In addition, any forward-looking statement
speaks only as of the date on which such statement is made and we do not
undertake any obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise.
All phases of our operations are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control. Any one of
such influences, or a combination, could materially affect the accuracy of the
forward-looking statements and the assumptions on which the statements are
based. Some important factors that could cause actual results to differ
materially from the anticipated results or other expectations expressed in our
forward-looking statements include the following:
OUR PROFITABILITY CAN BE IMPACTED BY OUR MIX OF PRODUCTS AND SERVICES. Given
that our selling, general and administrative costs are largely fixed in terms of
dollars, our profitability is dependent upon the amount of gross profit that we
are able to realize. We typically generate higher gross profit margins on pure
engineering service jobs than on those jobs that include a material or
installation component. In addition, our gross profit margins also can be
negatively impacted when we utilize subcontractors. Therefore, a shift in
business mix from engineering services to more construction and installation
type work or an increase in the amount of subcontracting costs could have a
negative impact on our operating results. In addition, certain products that we
sell have gross profit margins that are considerably lower than our overall
average gross profit margin. A shift in business mix which results in a greater
percentage of revenues relating to these lower margin products also would have a
negative impact on our operating results.
18
OUR ABILITY TO OBTAIN EXTENSIONS, AMENDMENTS OR WAIVERS UNDER OUR DEBT
AGREEMENTS AND AVAILABILITY OF ADDITIONAL SOURCES OF FINANCING AND CAPITAL. On
July 12, 2001, we executed amendments, effective as of June 29, 2001, to our
Revolving Credit Facility and Senior Notes which, among other things, reset
certain covenants under these agreements. We executed additional amendments to
our Revolving Credit Facility on August 10, 2001 and November 12, 2001 which
together extended the expiration date to October 31, 2002. Failure to satisfy or
perform any one or more of the covenants contained in these debt agreements at
any given time in the future will require us to obtain a waiver, consent or
amendment from our lenders, or refinance our credit facilities. Due to the fact
that our current Revolving Credit Facility expires on October 31, 2002, we will
be required to amend this Revolving Credit Facility in order to extend the
expiration date or refinance this debt. We cannot provide assurance that we will
be able to obtain future maturity extensions, waivers, consents and amendments,
or refinance our indebtedness or obtain additional capital on reasonable terms
or at all. If we cannot raise funds on acceptable terms when needed, we may not
be able to meet our obligations as they become due, which could seriously harm
our business and ultimately could impact our ability to operate as a going
concern.
THE TIMING OF JOBS CAN IMPACT OUR PROFITABILITY. There are a number of factors,
some of which are beyond our control, that can cause projects to be delayed and
thus negatively impact our profitability for the related period. These factors
include the availability of labor, equipment or materials, customer scheduling
issues, delays in obtaining required permits and weather. In addition, when we
are working as a subcontractor on a project, our portion of the project can be
delayed as a result of factors relating to other contractors.
THE AVAILABILITY AND VALUE OF LARGER JOBS CAN IMPACT OUR PROFITABILITY. While
the majority of our jobs are relatively small, we can have a number of
individual contracts in excess of $1 million in progress at any particular time.
These larger contracts typically generate more gross profit dollars than our
average size jobs. Therefore, the absence of larger jobs, which can generally
result from a number of factors, including market conditions, can have a
negative impact on our operating results.
QUALIFICATION REQUIREMENTS AND TERMINATION PROVISIONS RELATING TO GOVERNMENT
JOBS. We derive revenues from contracts with the United States, its agencies and
other governmental entities. Government contracting is subject to competitive
bidding processes and there can be no assurance that we will be the successful
bidder for future contracts. Fluctuations in government spending also could
adversely affect our revenues and profitability. In addition, it is the policy
of the United States that certain small businesses and other concerns have the
maximum practicable opportunity to participate in performing contracts let by
any Federal agency. To the extent that we do not meet applicable criteria for
government jobs, we could be limited in our ability to participate directly in
contracts being let by the United States and other governmental entities with
similar requirements. Certain contracts with governmental entities contain
provisions permitting the governmental entities to terminate the contract for
convenience prior to completion of the contract. To the extent that any of our
contracts with a government entity are so terminated, our revenues and
profitability could be adversely impacted.
19
OUR COMPLIANCE WITH THE CONTINUED LISTING STANDARDS OF THE NEW YORK STOCK
EXCHANGE. Our common shares are currently listed and traded on the New York
Stock Exchange (the "NYSE"). In April 2001, we received a notice from the NYSE
indicating that we did not currently meet its continued listing standards. As
required by the NYSE rules, we issued a press release disclosing the
non-compliance and submitted a business plan to the NYSE that we believe
demonstrates our meeting or exceeding all of the continued listing standards
within 18 months of our receiving notice of non-compliance from the NYSE. On
August 6, 2001, the NYSE accepted the plan. While we believe that we will be in
compliance with all of the NYSE's continued listing criteria under our plan as
provided by the NYSE rules, there can be no assurance that we will continue to
remain in compliance in the future. If our common shares are delisted from the
NYSE, we would pursue an alternative national trading venue. Nevertheless,
delisting could have a material adverse affect on the price and/or liquidity of
our common shares and on our ability to raise capital in the future from the
sale or issuance of our securities.
OUR OPERATIONS CAN BE IMPACTED BY INCLEMENT WEATHER. A large portion of our
service work is performed in the field. Therefore, excessive amounts of rain,
snow or cold, as well as other unusual weather conditions, including hurricanes
and typhoons, can result in work stoppages. Also, working under inclement
weather conditions can reduce our efficiencies, which can have a negative impact
on our profitability.
OUR BUSINESS IS IMPACTED BY CHANGES IN ENERGY PRICES. The products and services
we provide to our customers in the energy markets are, to some extent,
deferrable in the event that these customers reduce their capital and
discretionary maintenance expenditures. The level of spending on these types of
expenditures can be influenced by oil and gas prices and industry perceptions of
future prices. Our experience indicates that our energy customers react to
declining oil and gas prices by reducing their capital and discretionary
maintenance expenditures. This reaction has in the past, and may in the future,
have a negative impact on our business. We are unable to predict future oil and
gas prices. However, we believe that a prolonged period of low energy prices
could have a negative impact on our business. Typically, there is a delay
between the time prices decline and when we start to experience a negative
impact on our results of operations. Conversely, there is also a delay between
the time energy prices increase and when we start to experience a positive
impact on our results of operations.
THE IMPACT OF CHANGING GLOBAL, POLITICAL AND ECONOMIC CONDITIONS. Changing
political and economic conditions on a regional or worldwide basis can adversely
impact our business. Deteriorating political and general economic conditions may
result in customers delaying or canceling contracts and orders for our products
and services, difficulties and inefficiencies in the performance of our services
including work stoppages, and difficulties in collecting payment from our
customers. As a result, such conditions can negatively impact our results of
operations and our cash flows.
20
ADVERSE DEVELOPMENTS IN PENDING LITIGATION OR REGULATORY MATTERS. From time to
time, we are involved in litigation and regulatory proceedings, including those
disclosed in Item 1 of Part II ("Legal Proceedings") of this quarterly report
and in our other periodic reports filed with the Securities and Exchange
Commission. There are always significant uncertainties involved in litigation
and regulatory proceedings. As to current matters in litigation, we believe that
our positions and defenses are meritorious. However, the litigation process
involves unpredictability and we cannot guarantee the result of any action.
Regulatory compliance is often complex and subject to variation and unexpected
changes, including changing interpretations and enforcement agendas affecting
the regulatory community. We may need to expend significant financial resources
in connection with legal and regulatory procedures and our management may be
required to divert attention from other portions of our business. If, as a
result of any proceeding, a judgment is rendered, decree is entered or
administrative action is taken against us or our customers, it may materially
and adversely affect our business, financial condition and results of
operations.
EXISTING, NEW OR CHANGED REGULATORY INITIATIVES CAN IMPACT OUR BUSINESS. Corrpro
and its customers are subject to federal, state and local environmental and
other laws and regulations. These laws and regulations affect our operations by
imposing standards for the protection of health, welfare and the environment.
Such laws and regulations, and applicable interpretations thereof, could expose
us to liability for acts which are or were in compliance at the time such acts
were performed. We cannot predict whether future legislative or regulatory
developments may occur which would have an adverse effect on Corrpro.
These risks must be considered by any investor or potential investor in
the Company.
21
C. CHANGES IN ACCOUNTING STANDARDS
Effective April 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138.
As amended, SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position, measure those
instruments at fair value and recognize changes in the fair value of derivatives
in earnings in the period of change unless the derivative qualifies as an
effective hedge that offsets certain exposures. The Company had no derivatives
and therefore, no resulting transition adjustments.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method be used for all business
combinations initiated after June 30, 2001, as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. The Company was required to adopt the
provisions of SFAS No. 141 immediately and SFAS No. 142 effective April 1, 2002.
As of the date of adoption of SFAS No. 142, the Company expects to have
unamortized goodwill in the amount of approximately $36.1 million that will be
subject to the transition provisions. Amortization expense related to goodwill
was approximately $1.7 million and $0.9 million for the year ended March 31,
2001 and the six months ended September 30, 2001, respectively. Because of the
extensive effort needed to comply with adopting the new rules, it is not
practical to reasonably estimate the impact of adopting these statements on the
Company's financial statements as of the date of this report, including whether
any transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
The Financial Accounting Standards Board also recently issued SFAS No.
143, "Accounting for Asset Retirement Obligations" and SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 143 requires companies to record the fair value of a liability
for asset retirement obligations in the period in which they are incurred. The
statement applies to a company's legal obligations associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. This statement is effective for fiscal years beginning
after June 30, 2002.
SFAS No. 144 addresses the accounting and reporting for the impairment
or disposal of long-lived assets. The statement provides a single accounting
model for long-lived assets to be disposed of. New criteria must be met to
classify the asset as an asset held-for-sale. This statement also focuses on
reporting the effects of a disposal of a segment of a business. This statement
is effective for fiscal years beginning after December 15, 2001.
The Company has not yet assessed the impact of SFAS No. 143 and 144 on
its financial statement position.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSURES
In the normal course of business, our operations are exposed to
continuing fluctuations in foreign currency values and interest rates that can
affect the cost of operating and financing our business.
INTEREST RATE RISK
Our primary interest rate risk exposure results from our variable
interest rate Revolving Credit Facility and various smaller lines of credit that
we maintain with foreign banks. If interest rates were to increase 200 basis
points (2%) from September 30, 2001 rates, and assuming no changes in debt from
the September 30, 2001 levels, the additional annual expense would be
approximately $0.7 million on a pre-tax basis.
FOREIGN OPERATIONS AND FOREIGN CURRENCY EXCHANGE RISK
Our foreign subsidiaries generally conduct business in local
currencies, creating foreign exchange risk. During the first six months of
fiscal 2002, the Company recorded a favorable foreign currency translation
adjustment of $0.4 million related to net assets located outside the United
States. This foreign currency translation adjustment resulted primarily from the
weakening of the United States dollar in relation to the British pound. We do
not enter into derivatives to hedge foreign currency exchange risk. Our foreign
operations are also subject to other customary risks of operating in a global
environment, such as unstable political situations, the effect of local laws and
taxes, tariff increases and regulations and requirements for export licenses,
the potential imposition of trade or foreign exchange restrictions and
transportation delays.
23
PART II. OTHER INFORMATION
-------- -----------------
ITEM 1. LEGAL PROCEEDINGS
As previously reported, in January 2000, the Michigan Department of
Environmental Quality ("MDEQ") issued an administrative decision which
effectively limited the scope of MDEQ's 1995 approval of certain assessment
methodologies utilized by Corrpro in determining whether certain underground
storage tanks meet Michigan's regulatory requirements for upgrade by means of
cathodic protection. The MDEQ decision also would have required us to conduct
further assessments and provide certain information. The assessment
methodologies at issue have been and remain recognized by the Environmental
Protection Agency ("EPA") and the other states in which we utilized such
methodologies for virtually identical purposes. We believed that MDEQ's decision
was 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. In its November 14, 2000 ruling,
the Ingham Circuit Court reversed MDEQ's decision that directed we take certain
actions and provide certain information, however, the court also found that MDEQ
had not approved the full use of the assessment methodologies we utilized in
Michigan.
We believed that the circuit court's finding that MDEQ had not approved
full use of the methodologies was not supported by the evidence, and was
contradicted by evidence contained in the administrative record. On December 5,
2000, we 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 we utilized in Michigan. By order dated February 14,
2001, the Michigan Court of Appeals denied our application for leave to appeal
the circuit court's finding. On March 7, 2001, we filed an application for leave
to appeal with the Supreme Court of the State of Michigan. On August 28, 2001,
the Michigan Supreme Court denied our application for leave to appeal.
As a result of these proceedings, the MDEQ's administrative decision,
finding that certain of our assessment methodologies were not approved in full,
was upheld, but the MDEQ was found not to have jurisdiction to enforce its
decision against us. Although our litigation with the MDEQ has ended, we
continue to communicate with the MDEQ to discuss resolution of this matter.
There can be no assurance that the MDEQ will not take action against underground
storage tank owners or operators who may have relied on our method of assessment
to upgrade their underground storage tanks with cathodic protection, nor can
there be any assurance that those owners or operators would not take action
against us.
During the six months ended September 30, 2001, there were no material
developments in the other legal proceedings reported in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2001.
24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A vote was taken by the Company's shareholders at the Annual Meeting of
Shareholders of the Company held on August 16, 2001 for the election of four
directors of the Company for terms expiring in 2003. The aggregate number of
votes cast for or withheld for each nominee were as follows:
DIRECTOR NOMINEES FOR WITHHELD
----------------- --- --------
David H. Kroon 7,147,641 107,363
C. Richard Lynham 7,149,531 105,473
Neal R. Restivo 7,182,965 72,039
Joseph W. Rog 7,141,521 113,483
For a description of the bases used in tabulating the above-referenced
votes, see the Company's definitive Proxy Statement used in connection with the
solicitation of proxies for the Annual Meeting of Shareholders held on August
16,2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. See the Exhibit Index at the last page of this Form 10-Q.
B. There were no reports on Form 8-K filed during the quarter.
25
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRPRO COMPANIES, INC.
(Registrant)
Date: November 14, 2001 /S/ JOSEPH W. ROG
------------------------------------
Joseph W. Rog
Chairman of the Board, President
and Chief Executive Officer
/S/ KURT R. PACKER
--------------------------------------
Kurt R. Packer
Executive Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
26
EXHIBIT INDEX
Exhibit
No. Exhibit
--- -------
4.1 Third Amendment to Credit Agreement dated as of August 10, 2001
relating to the Amended and Restated Credit Agreement dated as of June
9, 2000 among Corrpro Companies, Inc., CSI Coating Systems, Inc. and
the Lenders Party thereto. (1)
4.2 Fourth Amendment to Credit Agreement dated as of November 12, 2001
relating to the Amended and Restated Credit Agreement dated as of June
9, 2000 among Corrpro Companies, Inc., CSI Coating Systems, Inc. and
the Lenders Party thereto.
--------------------------------
(1) A copy of this exhibit was filed as Exhibit 4.1 to the Company's report
on Form 10-Q for the quarterly period ended June 30, 2001 and is
incorporated herein by reference.
27