<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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 10, 1999, 7,609,713 Common Shares, without par value, were
outstanding.
1
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
----------------------------------------
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to the Consolidated Financial Statements 7-11
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 6. Exhibits and Reports on Form 8-K 21
2
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PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
-------------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,783 $ 3,957
Accounts receivable, net 48,600 47,232
Inventories 25,721 26,182
Other current assets 9,771 7,270
Net assets held for sale -- 5,110
--------- ---------
Total current assets 88,875 89,751
--------- ---------
Property, plant and equipment, net 15,602 13,647
Other Assets:
Goodwill 40,322 34,423
Other assets 9,431 9,774
--------- ---------
Total other assets 49,753 44,197
--------- ---------
$154,230 $147,595
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 1,256 $ 2,235
Accounts payable 17,137 13,951
Accrued liabilities and other 10,568 10,747
--------- ---------
Total current liabilities 28,961 26,933
--------- ---------
Long-term debt, net of current portion 37,660 30,864
Senior notes 30,000 30,000
Deferred income taxes 1,520 1,545
Commitments and contingencies -- --
Minority interest 155 197
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,256 2,255
Additional paid-in capital 50,973 50,945
Accumulated earnings 12,128 12,915
--------- ---------
65,357 66,115
Accumulated other comprehensive loss (1,348) (1,413)
Common shares in treasury, at cost (8,075) (6,646)
--------- ---------
Total shareholders' equity 55,934 58,056
--------- ---------
$ 154,230 $ 147,595
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $44,623 $46,014 $85,547 $86,294
Cost of sales 29,976 30,670 57,248 57,850
------- ------- ------- -------
Gross profit 14,647 15,344 28,299 28,444
Selling, general & administrative expenses 9,734 9,918 19,685 19,089
------- ------- ------- -------
Operating income 4,913 5,426 8,614 9,355
Interest expense 1,365 889 2,631 1,749
------- ------- ------- -------
Income from continuing operations
before income taxes 3,548 4,537 5,983 7,606
Provision for income taxes 1,419 1,815 2,393 3,042
------- ------- ------- -------
Income from continuing operations 2,129 2,722 3,590 4,564
Discontinued operations:
Income (loss) from operations, net (301) 163 (353) 235
Loss on disposal, net (4,024) (3,998) (4,024) (3,998)
------- ------- ------- -------
Net income (loss) $(2,196) $(1,113) $ (787) $ 801
======= ======= ======= =======
Earnings per share - Basic:
Income from continuing operations $ 0.28 $ 0.35 $ 0.47 $ 0.58
Discontinued operations:
Income (loss) from operations, net (0.04) 0.02 (0.05) 0.03
Loss on disposal, net (0.53) (0.51) (0.53) (0.51)
------- ------- ------- -------
Net income (loss) $ (0.29) $ (0.14) $ (0.10) $ 0.10
======= ======= ======= =======
Earnings per share - Diluted:
Income from continuing operations $ 0.27 $ 0.33 $ 0.45 $ 0.55
Discontinued operations:
Income (loss) from operations, net (0.04) 0.02 (0.04) 0.03
Loss on disposal, net (0.52) (0.48) (0.51) (0.48)
------- ------- ------- -------
Net income (loss) $ (0.28) $ (0.13) $ (0.10) $ 0.10
======= ======= ======= =======
Weighted average shares -
Basic 7,618 7,884 7,661 7,913
Diluted 7,787 8,252 7,902 8,309
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (787) $ 801
Adjustments to reconcile net income to net cash
provided by (used for) continuing operations:
Depreciation and amortization 2,558 2,098
Deferred income taxes (72) 21
Loss on sale of assets (56) (38)
Loss on disposal of discontinued operations 4,024 3,998
Minority interest (42) 22
Changes in assets and liabilities:
Accounts receivable 149 (6,796)
Inventories 719 (1,150)
Contracts in progress, net (2,509) (463)
Prepaid expenses and other (735) (900)
Other assets (127) 1,016
Accounts payable and accrued expenses 810 (3,820)
---------- --------
Total adjustments 4,719 (6,012)
---------- --------
Net cash provided by (used for) continuing operations 3,932 (5,211)
Net cash provided by discontinued operations 900 383
---------- --------
Net cash provided by (used for) operating activities 4,832 (4,828)
---------- --------
Cash flows from investing activities:
Additions to and disposals of property, plant and equipment (1,419) (1,540)
Acquisition, net of cash acquired (5,155) (7,452)
---------- --------
Net cash used for investing activities (6,574) (8,992)
---------- --------
Cash flows from financing activities:
Long-term debt, net 5,647 11,033
Short-term borrowings, net (1,295) 201
Net proceeds from issuance of Common Shares 17 50
Repurchase of Common Shares (1,429) (1,240)
---------- --------
Net cash provided by financing activities 2,940 10,044
---------- --------
Effect of changes in foreign currency exchange rates (372) (42)
Net increase (decrease) in cash 826 (3,818)
Cash and cash equivalents at beginning of period 3,957 8,687
---------- --------
Cash and cash equivalents at end of period $ 4,783 $ 4,869
========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 881 $ 1,053
Interest $ 2,575 $ 1,496
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Common Other Common
Serial Shares Additional Compre- Shares
Preferred ($0.26 Paid-In- Accumulated hensive in
Shares Stated Value) Capital Earnings Income (Loss) Treasury* Total
--------- ------------- ---------- ----------- ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1999 $ ----- $ 2,255 $ 50,945 $ 12,915 $ (1,413) $ (6,646) $ 58,056
Comprehensive income (loss):
Net loss ----- ----- ----- (787) ----- ----- (787)
Cumulative translation
adjustment ----- ----- ----- ----- 65 ----- 65
-------
Total comprehensive loss ----- ----- ----- ----- ----- ----- (722)
Exercise of 5 stock options ----- 1 28 ----- ----- ----- 29
Repurchase of 153
Common Shares ----- ----- ----- ----- ----- (1,429) (1,429)
------ -------- -------- -------- ---------- ---------- ---------
September 30, 1999 $ ----- $ 2,256 $ 50,973 $ 12,128 $ (1,348) $ (8,075) $ 55,934
======= ======== ======== ======== ========== ========== ========
</TABLE>
* Shares held in treasury totaled 696 at March 31, 1999 and 849 at September 30,
1999.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
6
<PAGE> 7
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 1999 amounts have been reclassified to conform
with the fiscal 2000 presentation.
The information furnished in the accompanying interim consolidated
financial statements has not been audited by independent accountants, however,
in the opinion of management, the interim consolidated financial statements
include all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the six months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 2000 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, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - ACQUISITIONS
ACQUISITION OF CSI COATING SYSTEMS
Effective April 1, 1999, the Company acquired certain assets and
assumed certain liabilities of CSI Coatings Systems ("CSI"). The purchase price
was $5,060 in cash plus the assumption of $893 of long-term debt.
CSI provides specialty coatings application services such as custom
shop coating as well as field coating work on a variety of structures such as
tanks, pipelines and vessels in Canada.
The acquisition of CSI has been accounted for using the purchase method
of accounting. Accordingly, the purchase price has been allocated to the net
assets acquired based upon preliminary estimates of their fair market value at
the date of acquisition. The excess of the purchase price over the estimated
fair value of net assets acquired totaled $4,838 at September 30, 1999 and is
being amortized over 40 years on a straight-line basis. The allocation was based
on preliminary estimates and is subject to revision at a later date.
7
<PAGE> 8
NOTE 3 - INVENTORY
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
---- ----
<S> <C> <C>
Inventories consist of the following:
Component parts and raw material $10,770 $12,892
Work in process 2,620 2,891
Finished goods 12,331 10,399
------ ------
$25,721 $26,182
====== ======
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
---- ----
<S> <C> <C>
Property, plant and equipment consists of the following:
Land $ 595 $ 539
Buildings and improvements 7,016 5,792
Equipment, furniture and fixtures 19,493 16,861
------ ------
27,104 23,192
Less: Accumulated depreciation (11,502) (9,545)
------- ------
$15,602 $13,647
====== ======
</TABLE>
NOTE 5 - 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 7,618 and 7,884, for the three months ending September 30, 1999
and 1998, respectively and 7,661 and 7,913, for the six months ending September
30, 1999 and 1998, 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 7,787 and
8,252, for the three months ending September 30, 1999 and 1998, respectively and
7,902 and 8,309, for the six months ending September 30, 1999 and 1998,
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 6 - STOCK PLANS
The Company granted options to purchase 21 Common Shares at an exercise
price ranging from $6.00 to $9.94 per share under the 1997 Long-Term Incentive
Plan of Corrpro Companies, Inc. (the "1997 Option Plan") during the six months
ended September 30, 1999. During such period, 9 previously granted options
terminated in accordance with the provisions of its option plans. There were 5
options exercised at exercise prices ranging from $1.86 to $6.49 per share
during the six-month period ended September 30, 1999.
8
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NOTE 7 - 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 47 and 99 shares, at a
total cost of $373 and $1,095 during the three months ended September 30, 1999
and 1998, respectively, and 153 and 121 shares, at a total cost of $1,429 and
$1,367 during the six months ended September 30, 1999 and 1998, respectively.
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. Shareholder approval for such adoption was obtained on July 22,
1999 and the plan will become effective January 1, 2000. In total 375 Corrpro
common shares are available for purchase under the plan.
NOTE 8 - 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
quarters ended September 30, 1999 and September 30, 1998 was $400 and ($1,089),
respectively, and for the six months ended September 30, 1999 and September 30,
1998, $65 and ($2,345), respectively, which is comprised of the effects of
foreign currency translation adjustments in accordance with SFAS No. 52,
"Foreign Currency Translation". The accumulated balance of foreign currency
translation adjustments, excluded from net income, is presented in the
Consolidated Balance Sheets and Statements of Shareholders' Equity as
"Accumulated other comprehensive income (loss)".
NOTE 9 - BUSINESS SEGMENTS
As a result of the disposition of its foundry operations in the UK and
Asia (see Note 10 - Net Assets Held For Sale), the Company has reconfigured its
operating segments. The Company will now be reporting the following operating
segments: Domestic Core Operations, Canadian Operations, Middle East Operations
and Other Operations. Prior period operating segment information has been
reconfigured to conform with the current period presentation.
Domestic Core Operations. The Domestic Core Operations consist of the
U.S. offices offering services which include contract research in various areas
of corrosion control, cathodic protection engineering services and general
corrosion engineering services associated with failure analysis, metallurgical
problems and material selection. The engineering services are provided to
private sector customers in the aerospace, defense, marine, chemicals, petroleum
and utilities industries and to governmental entities in connection with water
treatment and delivery systems, marine vessels, transit systems, weapons and
infrastructure assets. This sector also sells material and equipment in
conjunction with its services, and often sells these products to other
engineering and construction firms in connection with corrosion control
projects. Products sold include various cathodic protection anodes, rectifier
units and instrumentation, computer hardware and software for monitoring
corrosion, and accessory products.
9
<PAGE> 10
Canadian Operations. This segment resulted from the combination of
previously acquired Commonwealth Seager Group ("CSG") and UCC Corporation
("UCC") during fiscal 1995. Corrpro's Canadian Operations offer a combination of
expertise in engineering, construction and product supply in cathodic
protection. In addition, this operating unit provides material and equipment to
customers in the oil and gas industry with its primary focus on the needs of
pipeline operators. The Canadian Operations also specialize in pipeline
integrity issues, and designs internal inspection programs that are used to
detect corrosion and pipe weld flaws, clean pipelines, and confirm pipeline
orientation. The Canadian Operations also include the results of CSI, which was
acquired effective April 1, 1999.
Middle East Operations. This segment provides corrosion control
services to industrial markets in the Middle East. Corrosion engineering
services are provided to private and public sector customers in the petroleum
and utilities industries and to governmental entities in connection with
infrastructure assets. This segment also sells material and equipment in
conjunction with its services, and often sells these products to other
engineering, procurement and construction firms in connection with corrosion
control projects. Products sold include various cathodic protection anodes,
rectifier units and instrumentation, computer hardware and software for remote
monitoring, and accessory products.
Other Operations. This segment consists of all other businesses
including those in the Europe, Asia and Australia as well as the corrosion
monitoring equipment business. The businesses in Europe, Asia and Australia
provide corrosion engineering services and equipment supply to the industrial
and marine markets. The corrosion monitoring equipment business provides
corrosion engineering services and equipment supply for monitoring internal
corrosion on gas and liquid pipelines, storage vessels, well casings and
refining and process equipment.
The Company's operations by segment are presented below:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Domestic Core Operations $25,522 $27,864 $50,283 $53,328
Canadian Operations 7,118 4,819 12,548 8,039
Middle East Operations 4,875 3,775 8,762 6,964
Other Operations 9,532 9,556 18,242 17,963
Eliminations (2,424) -- (4,288) --
------ ------ ------ ------
$44,623 $46,014 $85,547 $86,294
====== ====== ====== ======
Operating Profit:
Domestic Core Operations $ 4,341 $5,333 $ 8,873 $10,133
Canadian Operations 1,821 1,291 2,708 1,990
Middle East Operations 1,004 713 1,546 1,111
Other Operations 823 905 1,571 1,077
Corporate Related Costs and Other (3,076) (2,816) (6,084) (4,956)
------ ------ ------ ------
$ 4,913 $5,426 $ 8,614 $ 9,355
====== ===== ====== ======
</TABLE>
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<PAGE> 11
NOTE 10 - NET ASSETS HELD FOR SALE
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. Prior period consolidated financial statements have been
reclassified to conform with the current period presentation.
As a result of these divestitures, the Company recorded a loss on disposal
of $4,210 ($4,024 net of related tax benefit). The loss included $3,000
related to the write-off of goodwill, and $1,210 of other costs including
severance payments and transaction related expenses. Approximately $577 of such
other costs are included as accruals in the September 30, 1999 balance sheet.
Net assets held for sale relating to the UK and Asia foundry operations at March
31, 1999, before adjustment for the loss on disposal, consisted of inventory of
$1,336, net property and equipment of $774 and $3,000 of goodwill.
The Company allocated interest of $23 to the UK and Asia foundry operations for
both the three months ended September 30, 1999 and 1998, and $45 for both the
six months ended September 30, 1999 and 1998, based on the proceeds realized
from the divestiture.
Revenues from the UK and Asia foundry operations, which are excluded from
consolidated revenues, totaled $3,027 and $6,318 for the three months ended
September 30, 1999 and 1998, respectively, and $6,416 and $12,101 for the six
months ended September 30, 1999 and 1998, respectively. The revenues included
intercompany sales of $960 and $1,423 for the three months ended September 30,
1999 and 1998, respectively, and $2,122 and $2,758 for the six months ended
September 30, 1999 and 1998, respectively. Income (loss) from discontinued
operations totaled ($301) and $163 for the three months ended September 30, 1999
and 1998, respectively, and ($353) and $235 for the six months ended September
30, 1999 and 1998, respectively.
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ OF OPERATIONS
This document contains certain statements, including those relating to
expectations regarding its earnings and growth plans that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors which might affect such forward-looking
statements include the Company's mix of products and services, timing of jobs,
the availability and value of larger jobs, the impact of weather on the
Company's operations, the Company's ability to successfully integrate acquired
businesses in a timely manner, the Company's ability to successfully execute its
sales and marketing initiatives, the actual impact of the passing of the
underground storage tank upgrade deadline on the Company's business, the impact
of energy prices on the Company's business and the impact of Year 2000.
Additional factors that may affect the Company's business and performance are
set forth in the Company's filings with the Securities and Exchange Commission.
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 UK and Asia foundry operations
are now reported as discontinued operations and the consolidated financial
statements have been reclassified to report separately the UK and Asia foundry
operations' net assets and results of operations.
A. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
- --------
Revenues for the fiscal 2000 second quarter totaled $44.6 million, a 3.0%
decline from the $46.0 million recorded in the fiscal 1999 second quarter. The
fiscal 2000 second quarter revenues include the results of the following
acquisitions subsequent to the effective dates of the transactions: Basco,
effective August 1, 1998; D.C. Corrosion, effective March 1, 1999; and CSI
Coating Systems ("CSI"), effective April 1, 1999. The results of these
acquisitions, in total, are no longer separable as they have been integrated
into the Company's operations.
Fiscal 2000 second quarter revenues relating to the Domestic Core
Operations totaled $25.5 million compared to $27.9 million in the fiscal 1999
second quarter, a decrease of $2.3 million or 8.4%. The Domestic Core Operations
have been impacted by a slowdown in the underground storage tank ("UST") market.
The fiscal 1999 second quarter results benefited from a December 1998 regulatory
deadline relating to the UST market. During the fiscal 2000 second quarter,
UST-related revenues totaled approximately $1.0 million compared to
approximately $6.0 million in the prior-year period. Excluding the impact of the
UST market, the Domestic Core Operations grew approximately 9.1% between years.
This growth related to the Domestic Core Operations' general engineering
business as well as growth in target areas, such as
12
<PAGE> 13
above ground storage tanks and electric power.
Fiscal 2000 second quarter revenues relating to the Canadian Operations
totaled $7.1 million compared to $4.8 million in the fiscal 1999 second quarter,
an increase of 47.7%. A large portion of the increase relates to the acquisition
of D.C. Corrosion and CSI. In addition, the Canadian Operations have started to
benefit from higher energy prices. In the prior-year period, the Canadian
Operations' were impacted by low energy prices which caused certain capital
projects to be put on hold.
Fiscal 2000 second quarter revenues relating to the Middle East
Operations totaled $4.9 million compared to $3.8 million in the fiscal 1999
second quarter, an increase of 29.1%. The Middle East has benefited from several
capital projects, including work being done on a power plant currently being
built in Saudi Arabia.
Fiscal 2000 second quarter revenues relating to the Other Operations
total $9.5 million compared to $9.6 million in the fiscal 1999 second quarter, a
decrease of less than 1%. Increases related to the Company's operations in
Australia have been offset by a decline in the market for corrosion monitoring
equipment which has not yet benefited from the recent higher energy prices.
GROSS PROFIT
- ------------
Gross profit margins for the fiscal 2000 second quarter totaled 32.8%
compared with 33.3% in the fiscal 1999 second quarter. The decrease relates
primarily to a change in service mix at the Middle East Operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses for the fiscal
2000 second quarter totaled $9.7 million compared to $9.9 million in the
prior-year period, a decrease of 1.9%. The decrease reflects the Company's
efforts to reduce overhead costs.
OPERATING INCOME
- ----------------
Operating income for the fiscal 2000 second quarter totaled $4.9
million compared to $5.4 million for the fiscal 1999 second quarter, a decrease
of 9.5%.
INTEREST EXPENSE
- ----------------
Interest expense totaled $1.4 million for the fiscal 2000 second quarter
compared to $0.9 million for the fiscal 1999 second quarter, an increase of $0.5
million or 53.5%. The increase relates primarily to the Company's use of debt to
finance the acquisitions that were completed over the past year.
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<PAGE> 14
INCOME TAX PROVISION
- --------------------
The Company recorded a provision for income taxes of $1.4 million for the
fiscal 2000 second quarter compared to a provision of $1.8 million for the
fiscal 1999 second quarter. The effective tax rate was 40.0% for both the fiscal
2000 and fiscal 1999 second quarters.
INCOME FROM CONTINUING OPERATIONS
- ---------------------------------
Income from continuing operations for the fiscal 2000 second quarter
totaled $2.1 million compared to $2.7 million in the prior-year period, a
decrease of 21.8%.
DISCONTINUED OPERATIONS
- -----------------------
In the fiscal 2000 second quarter the Company completed the disposition of
its low-margin foundry operations in the UK and Asia. As a result of these
divestitures, the Company recorded a $4.2 million charge ($4.0 net of tax
benefit), which included $3.0 million related to the write-off of goodwill, and
$1.2 million of other costs including severance payments and transaction related
expenses. Approximately $0.6 million of such other costs are included as
accruals in the September 30, 1999 balance sheet.
For the fiscal 2000 second quarter, the divested foundry operations had an
operating loss of $0.3 million compared to operating income of $0.2 million in
the prior-year period.
During the fiscal 1999 second quarter, the Company recorded a $4.0
million charge, net of tax benefit, which represented an addition to the
estimated loss on disposal of the Company's foundry operation in Louisiana. The
disposition of the Company's foundry operation in Louisiana was completed in
March 1999.
NET INCOME
- ----------
The Company had a net loss of $2.2 million for the fiscal 2000 second
quarter compared to a net loss of $1.1 million in the prior-year period.
B. RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
- --------
Revenues for the fiscal 2000 six month period totaled $85.5 million, a
less than 1.0% decline compared to $86.3 million recorded in the fiscal 1999 six
month period. The fiscal 2000 six month period revenues include the results of
the following acquisitions subsequent to the effective dates of the
transactions: Corrpro Australia, effective July 1, 1998; Basco, effective August
1, 1998; D.C. Corrosion, effective March 1, 1999; and CSI Coating Systems
("CSI"),
14
<PAGE> 15
effective April 1, 1999. The results of these acquisitions, in total, are no
longer separable as they have been integrated into the Company's operations.
Fiscal 2000 six month period revenues relating to the Domestic Core
Operations totaled $50.3 million compared to $53.3 million in the fiscal 1999
six month period, a decrease of $3.0 million or 5.7%. The Domestic Core
Operations have been impacted by a slowdown in the UST market. The fiscal 1999
six month period results benefited from a December 1998 regulatory deadline
relating to the UST market. During the fiscal 2000 six month period, UST-related
revenues totaled approximately $3.5 million compared to approximately $10.8
million in the prior-year period. Excluding the impact of the UST market, the
Domestic Core Operations grew approximately 9.9% between years. This growth
related to the Domestic Core Operations' general engineering business as well as
growth in target areas, such as above ground storage tanks, coatings engineering
and electric power.
Fiscal 2000 six month period revenues relating to the Canadian Operations
totaled $12.5 million compared to $8.0 million in the fiscal 1999 six month
period, an increase of 56.1%. A large portion of the increase relates to the
acquisition of D.C. Corrosion and CSI. In addition, the Canadian Operations have
started to benefit from higher energy prices. In the prior-year period, the
Canadian Operations' were impacted by low energy prices which caused certain
capital projects to be put on hold.
Fiscal 2000 six month period revenues relating to the Middle East
Operations totaled $8.8 million compared to $7.0 million in the fiscal 1999 six
month period, a increase of 25.8%. The Middle East has benefited from several
capital projects, including work being done on a power plant currently being
built in Saudi Arabia.
Fiscal 2000 six month period revenues relating to the Other Operations
total $18.2 million compared to $18.0 million in the fiscal 1999 six month
period, an increase of 1.6%. Increases related to the Company's operations in
Australia have been offset by a decline in the market for corrosion monitoring
equipment which has not yet benefited from the recent higher energy prices.
GROSS PROFIT
- ------------
Gross profit margins for the fiscal 2000 six month period totaled 33.1%
compared with 33.0% in the fiscal 1999 six month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses for the fiscal
2000 six month period totaled $19.7 million compared to $19.1 million in the
prior-year period, an increase of 3.1%.
OPERATING INCOME
- ----------------
Operating income for the fiscal 2000 six month period totaled $8.6
million compared to $9.4 million for the fiscal 1999 six month period, a
decrease of 7.9%.
15
<PAGE> 16
INTEREST EXPENSE
- ----------------
Interest expense totaled $2.6 million for the fiscal 2000 six month
period compared to $1.7 million for the fiscal 1999 six month period, an
increase of $0.9 million or 50.4%. The increase relates primarily to the
Company's use of debt to finance the acquisitions that were completed over the
past year.
INCOME TAX PROVISION
- --------------------
The Company recorded a provision for income taxes of $2.4 million for
the fiscal 2000 six month period compared to a provision of $3.0 million for the
fiscal 1999 six month period. The effective tax rate was 40.0% for both the
fiscal 2000 and fiscal 1999 six month periods.
INCOME FROM CONTINUING OPERATIONS
- ---------------------------------
Income from continuing operations for the fiscal 2000 six month period
totaled $3.6 million compared to $4.6 million in the prior-year period, a
decrease of 21.3%.
DISCONTINUED OPERATIONS
- -----------------------
In the fiscal 2000 six month period the Company completed the disposition
of its low-margin foundry operations in the UK and Asia. As a result of these
divestitures, the Company recorded a $4.2 million charge ($4.0 net of tax
benefit) which included $3.0 million related to the write-off of goodwill and
$1.2 million of other costs including severance payments and transaction related
expenses. Approximately $0.6 million of such other costs are included as
accruals in the September 30, 1999 balance sheet.
For the fiscal 2000 six month period, the divested foundry operations had
an operating loss of $0.4 million compared to operating income of $0.2 million
in the prior-year period.
During the fiscal 1999 six month period, the Company recorded a $4.0
million charge, net of tax benefit, which represented an addition to the
estimated loss on disposal of the Company's foundry operation in Louisiana. The
disposition of the Company's foundry operation in Louisiana was completed in
March 1999.
NET INCOME
- ----------
The Company had a net loss of $0.8 million for the fiscal 2000 six month
period compared to net income of $0.8 million in the prior-year period.
16
<PAGE> 17
B. LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital (excluding net
assets held for sale) of $59.9 million compared to $57.7 million at March 31,
1999, an increase of $2.2 million or 3.8%. The increase is primarily the result
of seasonally higher levels of business activity. During the first six months
period of fiscal 2000, cash provided by operating activities was $4.8 million
compared to a use of cash of $4.8 million in the prior year six month period.
Cash used for investing activities totaled $6.6 million during fiscal
2000, which included $5.2 million related to the acquisition and $1.4 million
for capital expenditures. Cash generated by financing activities totaled $2.9
million during fiscal 2000, which included net borrowings of $4.4 million as
well as $1.4 million of cash used to repurchase common shares.
On March 30, 1999, the Company entered into a new three-year, $80 million
unsecured domestic revolving credit facility. The credit facility consists of an
$80 million revolver, which expires on April 30, 2002. Initial borrowings under
the credit facility were used to repay existing domestic bank indebtedness of
approximately $30.0 million.
In addition to the domestic bank credit facility, the Company has various
smaller lines of credit with foreign banks, which totaled approximately $5.4
million. Total availability under the domestic and foreign credit facilities at
September 30, 1999 was approximately $49.6 million. The Company used proceeds
from its domestic and foreign credit facilities along with cash on hand to fund
the fiscal 2000 acquisition. The Company was in compliance with all of its debt
covenants at September 30, 1999.
The Company believes that cash generated by operations and amounts
available under its domestic bank credit facility and foreign lines of credit
will be sufficient to finance the Company's working capital requirements and
capital expenditures through the next twelve months.
C. EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSLATION
The Company does not believe that inflation has had a significant effect
on the Company's results of operations for the periods presented.
The Company has not been significantly affected by currency fluctuations
or foreign exchange restrictions. Management believes that these risks resulting
from the Company's foreign sales are manageable.
17
<PAGE> 18
D. YEAR 2000
The Company has developed plans to address possible exposures related to
the Year 2000 issue. The plans have included assessment of the effect of Year
2000 issues on the services and products the Company provides, the processing
capabilities of the Company's computers and other internal information systems,
non-informational systems which effect the Company's operational capabilities,
and the key sources of supply of products and services to the Company. In
addition, the Company has addressed the status of its significant customers'
Year 2000 compliance.
STATE OF READINESS
- ------------------
The Company has substantially completed its review of products and
services which could experience Year 2000 issues. The Company's business of
providing corrosion control engineering and other services does not inherently
involve software-resident Year 2000 issues for Corrpro's customers. The
substantial majority of company products are not date sensitive. With the
exception of several software components for which upgrades are available,
Corrpro believes that, during their estimated useful lives, unmodified products
containing software should not experience Year 2000 issues when used as
intended.
In January 1999, the Company completed the implementation of a new
software upgrade which is utilized by the majority of its U.S. operations. In
addition to addressing the Year 2000 issue, the new software provides additional
capabilities and functionality. Assessments of the Year 2000 compliance of
software utilized by the Company's other operations has been substantially
completed and upgrades are substantially implemented, as required.
The Company has substantially completed the assessment of its
non-informational systems for Year 2000 compliance. In addition, the Company has
communicated with its key suppliers, vendors and significant customers and
requested information regarding the status of their own Year 2000 compliance.
Based on responses to date, the Company has not been notified of any
circumstances of its suppliers, vendors and significant customers reasonably
likely to have a material adverse impact on the Company's operations.
COSTS
- -----
The cost of implementing the new software upgrade for the Company's U.S.
operations, including the cost of Year 2000 compliance which is not separately
determinable, totaled approximately $1.5 million which was incurred in fiscal
1999. Such costs have not had a material adverse impact on the Company's
financial position, results of operations or cash flows. The majority of these
costs were incurred under capital projects that will result in additional
capabilities and functionality while also addressing the Year 2000 issues. Costs
associated with other aspects of the Company's Year 2000 assessment and
implementation have not been material. The Company may incur other future Year
2000 costs which are not expected to be material.
18
<PAGE> 19
RISKS
- -----
If needed modifications or conversion of information and non-information
systems are not made on a timely basis, including third party systems, or
contingency plans not successfully implemented, the Company could experience
loss of revenue from customers whose operations are disrupted, unavailability of
materials, supplies, and services from its vendors whose operations are
disrupted, and difficulty in supplying its own products and services on a timely
basis. On a consolidated basis, no one customer accounts for greater than 10% of
the Company's revenue, and no one vendor supplies more than 10% of the Company's
purchases. On a regional or local basis, however, the disruption of customer and
vendor operations could more significantly adversely affect such regional or
local operations. In addition, if multiple customers or vendors experienced
disruption in their operations, the effect on the Company's consolidated results
could be materially impacted. The Company cannot quantify how significant the
impact of such disruption could be.
CONTINGENCY PLANS
- -----------------
To mitigate the impact of potential Year 2000 issues, the Company has
enhanced its disaster recovery plans and developed contingency plans to address
key business functions, including relations with third parties. These plans
include identifying alternate suppliers and vendors, developing alternative
communication plans, backing up critical information and using manual
processing.
19
<PAGE> 20
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- ------
Although in the Company's opinion the following claim is without merit and
will have no material effect on the Company, disclosure is being made in order
to comply with applicable requirements of the Securities and Exchange
Commission. The Company is a defendant in a complaint filed on November 12,
1998, as subsequently amended, in United States District Court, Northern
District of Ohio, Eastern Division. The lawsuit arises out of the adoption by
the Environmental Protection Agency ("EPA") and the American Society for Testing
and Materials ("ASTM") of regulations permitting non-invasive methods for
inspecting and testing underground storage tanks. Prior to the adoption of such
regulations, underground storage tanks were inspected by visual manned
inspections. After convening a task force to study the issue, the EPA and ASTM
recognized several other methods of tank assessment, including statistical and
analytical methods used by the Company and other corrosion control service
providers. The plaintiffs in the lawsuit, Armor Shield, Inc. and Doublewall
Retrofit Systems, Inc., have claimed that the methods used by the Company are
not as protective of human health and the environment as internal manned tank
inspection, that ASTM procedures were manipulated and that EPA approval was
obtained fraudulently. The plaintiffs, which provide internal manned inspection
and lining services and equipment, have claimed violations of federal and state
anti-trust laws, unreasonable restraint of trade, false advertising and unfair
competition, which allegedly caused injury to their businesses and property in
excess of $30 million. They are seeking damages and injunctive relief. The
complaint also names, among others, an executive officer of the Company and a
director of the Company. The Company believes that the claims are without merit
and has filed a motion to dismiss the anti-trust claims for failure to state a
claim and on the basis that there has been no injury to competition. The Company
denies any allegations of wrongdoing and is preparing to vigorously defend the
claims.
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, the financial position or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------
A vote by ballot was taken by the Company's shareholders at the Annual
Meeting of Shareholders of the Company held on July 22, 1999 for the election of
four directors of the Company for terms expiring in 2001 and adoption of an
employee stock purchase plan. The aggregate number of Common Shares a person or
by proxy (a) voted for, and proxies withheld for, each nominee and (b) voted for
or against the proposal, and abstentions and broker non-votes as to each
proposal were as follows:
<TABLE>
<CAPTION>
Director Nominees For Withheld
----------------- --- --------
<S> <C> <C>
Robert E. Hodge 6,387,613 494,719
David H. Kroon 6,401,883 480,449
C. Richard Lynham 6,387,363 494,969
Joseph W. Rog 6,413,833 468,499
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Abstentions
-----------
And Broker
----------
Proposals For Against Non-Votes
--------- --- ------- ---------
<S> <C> <C> <C>
Adoption of an
employee stock
purchase plan 6,456,809 360,922 64,601
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------
A. No exhibits required
B. There were no reports on Form 8-K filed during the quarter
21
<PAGE> 22
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: Nov. 15, 1999 /s/ Joseph W. Rog
--------------------------------
Joseph W. Rog
Chairman of the Board, President
and Chief Executive Officer
/s/ Neal R. Restivo
--------------------------------
Neal R. Restivo
Executive Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
22
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<NAME> CORRPRO COMPANIES, INC.
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