<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 February 3, 2000, 7,687,213 Common Shares, without par value, were
outstanding.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
----------------------------------------
INDEX
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Page
----
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to the Consolidated Financial Statements 7-11
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 18
ITEM 6. Exhibits and Reports on Form 8-K 18
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PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
December 31, March 31,
1999 1999
------------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,768 $ 3,957
Accounts receivable, net 46,236 47,232
Inventories 24,724 26,182
Other current assets 8,140 7,270
Net assets held for sale -- 5,110
--------- ---------
Total current assets 81,868 89,751
--------- ---------
Property, plant and equipment, net 16,321 13,647
Other Assets:
Goodwill 41,238 34,423
Other assets 9,937 9,774
--------- ---------
Total other assets 51,175 44,197
--------- ---------
$ 149,364 $ 147,595
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 953 $ 2,235
Accounts payable 14,326 13,951
Accrued liabilities and other 9,544 10,747
--------- ---------
Total current liabilities 24,823 26,933
--------- ---------
Long-term debt, net of current portion 34,489 30,864
Senior notes 30,000 30,000
Deferred income taxes 1,523 1,545
Commitments and contingencies -- --
Minority interest 156 197
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,276 2,255
Additional paid-in capital 51,486 50,945
Accumulated earnings 13,822 12,915
--------- ---------
67,584 66,115
Accumulated other comprehensive loss (1,136) (1,413)
Common shares in treasury, at cost (8,075) (6,646)
--------- ---------
Total shareholders' equity 58,373 58,056
--------- ---------
$ 149,364 $ 147,595
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
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<TABLE>
<CAPTION>
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three For the Nine
Months Ended Months Ended
December 31, December 31,
------------- ------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 45,746 $ 47,850 $ 131,293 $ 134,144
Cost of sales 31,186 31,436 88,434 89,286
--------- --------- --------- ---------
Gross profit 14,560 16,414 42,859 44,858
Selling, general & administrative expenses 10,386 10,833 30,071 29,922
--------- --------- --------- ---------
Operating income 4,174 5,581 12,788 14,936
Interest expense 1,352 1,041 3,983 2,790
--------- --------- --------- ---------
Income from continuing operations
before income taxes 2,822 4,540 8,805 12,146
Provision for income taxes 1,128 1,816 3,521 4,858
--------- --------- --------- ---------
Income from continuing operations 1,694 2,724 5,284 7,288
Discontinued operations:
Income (loss) from operations, net -- 109 (353) 344
Loss on disposal, net -- -- (4,024) (3,998)
--------- --------- --------- ---------
Net income $ 1,694 $ 2,833 $ 907 $ 3,634
========= ========= ========= =========
Earnings per share - Basic:
Income from continuing operations $ 0.22 $ 0.35 $ 0.69 $ 0.93
Discontinued operations:
Income (loss) from operations, net -- 0.01 (0.05) 0.04
Loss on disposal, net -- -- (0.52) (0.51)
--------- --------- --------- ---------
Net income $ 0.22 $ 0.36 $ 0.12 $ 0.46
========= ========= ========= =========
Earnings per share - Diluted:
Income from continuing operations $ 0.22 $ 0.33 $ 0.67 $ 0.88
Discontinued operations:
Income (loss) from operations, net -- 0.02 (0.04) 0.04
Loss on disposal, net -- -- (0.51) (0.48)
--------- --------- --------- ---------
Net income $ 0.22 $ 0.35 $ 0.12 $ 0.44
========= ========= ========= =========
Weighted average shares -
Basic 7,643 7,812 7,655 7,879
Diluted 7,763 8,192 7,854 8,270
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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<TABLE>
<CAPTION>
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
December 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 907 $ 3,634
Adjustments to reconcile net income to net cash
provided by (used for) continuing operations:
Depreciation and amortization 3,837 3,057
Deferred income taxes (71) 17
Loss on sale of assets (64) (49)
Loss on disposal of discontinued operations 4,024 3,998
Minority interest (41) (30)
Changes in assets and liabilities:
Accounts receivable 3,500 (10,275)
Inventories 2,365 (1,152)
Prepaid expenses and other (3,577) 1,159
Other assets 2,119 678
Accounts payable and accrued expenses (3,407) (2,893)
-------- --------
Total adjustments 8,685 (5,490)
-------- --------
Net cash provided by (used for) continuing operations 9,592 (1,856)
Net cash provided by (used for) discontinued operations 900 (440)
-------- --------
Net cash provided by (used for) operating activities 10,492 (2,296)
-------- --------
Cash flows from investing activities:
Additions to and disposals of property, plant and equipment (2,655) (2,533)
Acquisitions, net of cash acquired (8,391) (7,452)
-------- --------
Net cash used for investing activities (11,046) (9,985)
-------- --------
Cash flows from financing activities:
Long-term debt, net 1,968 10,559
Short-term borrowings, net (1,348) (317)
Net proceeds from issuance of Common Shares 504 53
Repurchase of Common Shares (1,429) (1,808)
-------- --------
Net cash provided by (used for) financing activities (305) 8,487
-------- --------
Effect of changes in foreign currency exchange rates (330) 96
Net decrease in cash (1,189) (3,698)
Cash and cash equivalents at beginning of period 3,957 8,687
-------- --------
Cash and cash equivalents at end of period $ 2,768 $ 4,989
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 1,269 $ 1,520
Interest $ 3,469 $ 2,411
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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<TABLE>
<CAPTION>
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Accumulated
Common Other Common
Serial Shares Additional Compre- Shares
Preferred ($0.26 Paid-In- Accumulated hensive in
Shares Stated Value) Capital Earnings 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:
Net income -- -- -- 907 -- -- 907
Cumulative translation
adjustment -- -- -- -- 277 -- 277
-------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- -- -- -- -- 1,184
Exercise of 82 stock options -- 21 541 -- -- -- 562
Repurchase of 153
Common Shares -- -- -- -- -- (1,429) (1,429)
-------- -------- -------- -------- -------- -------- --------
December 31, 1999 $ -- $ 2,276 $ 51,486 $ 13,822 $ (1,136) $ (8,075) $ 58,373
======== ======== ======== ======== ======== ======== ========
<FN>
* Shares held in treasury totaled 696 at March 31, 1999 and 849 at December 31, 1999.
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements include
the accounts of Corrpro Companies, Inc. and subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain fiscal 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 nine months ended December 31, 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
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 December 31, 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.
During fiscal 2000, the Company also completed three smaller
acquisitions. The total purchase price for all three of these acquisitions was
$3,650 in all cash transactions. The purchase agreements provide for
post-closing purchase price adjustments. These acquisitions have been accounted
for using the purchase method of accounting. Accordingly, the respective
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purchase prices have been allocated to the related net assets acquired based
upon preliminary estimates of their fair market values at the dates of
acquisition. The excess of the purchase price over the estimated fair value of
net assets acquired totaled $1,646 at December 31, 1999 and is being amortized
over 40 years on a straight-line basis. These allocations were based on
preliminary estimates and are subject to revision at a later date.
NOTE 3 - INVENTORY
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
---- ----
Inventories consist of the following:
<S> <C> <C>
Component parts and raw material $ 9,807 $12,892
Work in process 2,487 2,891
Finished goods 12,430 10,399
------- -------
$24,724 $26,182
======= =======
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
---- ----
Property, plant and equipment consists of the following:
<S> <C> <C>
Land $ 605 $ 539
Buildings and improvements 6,771 5,792
Equipment, furniture and fixtures 20,012 16,861
------ ------
27,388 23,192
Less: Accumulated depreciation (11,067) (9,545)
------- ------
$16,321 $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 7,643 and 7,812, for the three months ending December 31,
1999 and 1998, respectively and 7,655 and 7,879, for the nine months ending
December 31, 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
7,763 and 8,192, for the three months ending December 31, 1999 and 1998,
respectively and 7,854 and 8,270, for the nine months ending December 31, 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.
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NOTE 6 - STOCK PLANS
The Company granted options to purchase 43 common shares at an
exercise price ranging from $5.25 to $9.94 per share under the 1997 Long-Term
Incentive Plan of Corrpro Companies, Inc. (the "1997 Option Plan") during the
nine months ended December 31, 1999. During such period, 66 previously granted
options terminated in accordance with applicable plan provisions. There were 82
options exercised at exercise prices ranging from $1.86 to $7.75 per share
during the nine-month period ended December 31, 1999.
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 153 and 173 shares, at a
total cost of $1,429 and $1,933 during the nine months ended December 31, 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. 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 December 31, 1999 and December 31, 1998 was $212 and $688,
respectively, and for the nine months ended December 31, 1999 and December 31,
1998, $277 and ($1,657), 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
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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 remote monitoring
corrosion, and accessory products.
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, designs internal inspection programs that are used to
detect corrosion and pipe weld flaws, clean pipelines, confirm pipeline
orientation and computer hardware and software for remote monitoring corrosion.
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 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 Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Domestic Core Operations $26,914 $31,382 $ 77,197 $ 84,710
Canadian Operations 7,635 4,886 20,183 12,925
Middle East Operations 4,587 2,205 13,349 9,169
Other Operations 9,189 9,377 27,755 27,340
Eliminations (2,579) -- (7,191) --
------- ------- -------- -------
$45,746 $47,850 $131,293 $134,144
======= ======= ======== ========
</TABLE>
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<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Profit:
Domestic Core Operations $4,102 $6,777 $12,975 $16,910
Canadian Operations 1,917 1,213 4,625 3,202
Middle East Operations 732 175 2,278 1,285
Other Operations 509 448 2,081 886
Corporate Related Costs and Other (3,086) (3,032) (9,171) (7,347)
------ ------ ------- -------
$4,174 $5,581 $12,788 $14,936
====== ====== ======= =======
</TABLE>
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 $150 of such
other costs are included as accruals in the December 31, 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 $0 and $23 to the UK and Asia
foundry operations for the three months ended December 31, 1999 and 1998, and
$45 and $68 for the nine months ended December 31, 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 $0 and $5,521 for the three months ended
December 31, 1999 and 1998, respectively, and $6,416 and $17,622 for the nine
months ended December 31, 1999 and 1998, respectively. The revenues included
intercompany sales of $0 and $1,614 for the three months ended December 31, 1999
and 1998, respectively, and $2,122 and $4,372 for the nine months ended December
31, 1999 and 1998, respectively. Income (loss) from discontinued operations
totaled $0 and $109 for the three months ended December 31, 1999 and 1998,
respectively, and ($353) and $344 for the nine months ended December 31, 1999
and 1998, respectively.
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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, the impact of legal proceedings and
the impact of new or changed regulatory initiatives. 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 fiscal 2000 results include 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; CSI Coating Systems ("CSI"), effective April 1, 1999;
and three smaller acquisitions subsequent to their respective acquisition date.
The results of these acquisitions, in total, are no longer separable as they
have been integrated into the Company's operations.
The sale of the Company's UK and Asia foundry operations was
completed in September 1999. The decision to divest these operations was
consistent with the Company's strategy of focusing on the higher margin service
side of the business. For financial reporting purposes, the 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 DECEMBER 31, 1999
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998
REVENUES
Fiscal 2000 third quarter revenues totaled $45.7 million compared to
$47.9 million in the fiscal 1999 third quarter, a decrease of $2.1 million or
4.4%. The decline resulted primarily from lower revenues relating to the
underground storage tank (UST) market. UST revenues for the third quarter
totaled $0.8 million compared with $10.0 million in the prior-year period.
Fiscal 2000 third quarter revenues relating to the Domestic Core
Operations totaled $26.9 million compared to $31.4 million in the fiscal 1999
third quarter, a decrease of $4.5 million or 14.2%. The Domestic Core Operations
have been impacted by a slowdown in the UST market. The fiscal 1999 third
quarter results benefited from a December 1998 regulatory deadline relating
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to the UST market. During the fiscal 2000 third quarter, UST-related revenues
totaled approximately $0.8 million compared to approximately $10.0 million in
the prior-year period. Excluding the impact of the UST market, the Domestic Core
Operations grew approximately 18.9% 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 and electric power.
Fiscal 2000 third quarter revenues relating to the Canadian
Operations totaled $7.6 million compared to $4.9 million in the fiscal 1999
third quarter, an increase of 56.3%. A large portion of the increase relates to
the acquisition of D.C. Corrosion and CSI. Canada also continues to experience
some weakness in the energy segment of its business.
Fiscal 2000 third quarter revenues relating to the Middle East
Operations totaled $4.6 million compared to $2.2 million in the fiscal 1999
third quarter, an increase of 108.0%. The Middle East has benefited from several
capital projects, including work being done on a large power plant currently
being built in Saudi Arabia.
Fiscal 2000 third quarter revenues relating to the Other Operations
totaled $9.2 million compared to $9.4 million in the fiscal 1999 third quarter,
a decrease of 2.0%. 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 were 31.8% compared with 34.3% in the
prior-year period. The prior year margins benefited from the significant amount
of high margin UST work that was completed during the period. The lower margin
percentages also relate to the Middle East operations, which had several large
projects in progress, that contributed to that segments 108% increase in
revenues but resulted in lower gross profit margins. Typically, such projects
have a large construction component that results in lower margins than pure
engineering type work.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses totaled $10.4 million compared to $10.8 million,
a decrease of 4.1%. The decrease relates, in part, to the Company's efforts to
reduce overhead costs.
OPERATING INCOME
Operating income totaled $4.2 million, or 9.1% of revenues, down
25.2% from $5.6 million last year.
INTEREST EXPENSE
Interest expense totaled $1.4 million compared to $1.0 million. This
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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INCOME TAX PROVISION
The Company recorded a provision for income taxes of $1.1 million
for the fiscal 2000 third quarter compared to a provision of $1.8 million for
the fiscal 1999 third quarter. The effective tax rate was 40.0% for both the
fiscal 2000 and fiscal 1999 third quarters.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations totaled $1.7 million compared to
$2.7 million in the prior-year period, a decrease of 37.8%. Earnings per share
on a diluted basis totaled $0.22 compared to $0.33 in the prior-year period, a
decrease of 33.3%.
DISCONTINUED OPERATIONS
For the prior year third quarter, the divested foundry operations
had operating income of $0.1 million.
NET INCOME
For the fiscal 2000 third quarter the Company had net income of $1.7
million compared to net income of $2.8 million in the prior-year period.
B. RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED
TO NINE MONTHS ENDED DECEMBER 31, 1998
REVENUES
Revenues totaled $131.3 million, down 2.1% from $134.1 million. The
decline results from lower revenues relating to the UST market.
Fiscal 2000 nine month period revenues relating to the Domestic Core
Operations totaled $77.2 million compared to $84.7 million in the fiscal 1999
nine month period, a decrease of $7.5 million or 8.9%. The Domestic Core
Operations have been impacted by a slowdown in the UST market. The fiscal 1999
nine month period results benefited from a December 1998 regulatory deadline
relating to the UST market. During the fiscal 2000 nine month period,
UST-related revenues totaled approximately $4.3 million compared to
approximately $20.8 million in the prior-year period. Excluding the impact of
the UST market, the Domestic Core Operations grew approximately 12.3% 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 nine month period revenues relating to the Canadian
Operations totaled $20.2 million compared to $12.9 million in the fiscal 1999
nine month period, an increase of 56.2%. A large portion of the increase relates
to the acquisition of D.C. Corrosion and CSI. Canada also continues to
experience some weakness in the energy segment of its business.
14
<PAGE> 15
Fiscal 2000 nine month period revenues relating to the Middle East
Operations totaled $13.3 million compared to $9.2 million in the fiscal 1999
nine month period, a increase of 45.6%. The Middle East has benefited from
several capital projects, including work being done on a large power plant
currently being built in Saudi Arabia.
Fiscal 2000 nine month period revenues relating to the Other
Operations totaled $27.8 million compared to $27.3 million in the fiscal 1999
nine month period, an increase of 1.5%. 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 were 32.6% compared with 33.4% in the
prior-year period. The prior year margins benefited from the significant amount
of high margin UST work that was completed during the nine month period. The
lower margin percentages also relate to the Middle East operations, which had
several large projects in progress that contributed to that segments increase in
revenues but resulted in lower gross profit margins. Typically, such projects
have a large construction component that results in lower margins than pure
engineering type work.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses totaled $30.1 million compared to $29.9 million,
an increase of less than 1%.
OPERATING INCOME
Operating income totaled $12.8 million, or 9.7% of revenues, down
14.4% from $14.9 million.
INTEREST EXPENSE
Interest expense totaled $4.0 million compared to $2.8 million. This
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 $3.5 million
for the fiscal 2000 nine month period compared to a provision of $4.9 million
for the fiscal 1999 nine month period. The effective tax rate was 40.0% for both
the fiscal 2000 and fiscal 1999 nine month periods.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations totaled $5.3 million compared to
$7.3 million in the prior-year period, a decrease of 27.5%. Earnings per share
on a diluted basis totaled $0.67 compared to $0.88 in the prior-year period, a
decrease of 23.9%.
15
<PAGE> 16
DISCONTINUED OPERATIONS
In the fiscal 2000 nine 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 million
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 $0.2 million of such other costs are
included as accruals in the December 31, 1999 balance sheet.
For the fiscal 2000 nine month period, the divested foundry
operations had an operating loss of $0.4 million compared to operating income of
$0.3 million in the prior-year period.
During the fiscal 1999 nine 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 net income of $0.9 million for the fiscal 2000 nine
month period compared to net income of $3.6 million in the prior-year period.
B. LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of $57.0
million compared to $57.7 million at March 31, 1999 (excluding net assets held
for sale), a decrease of $0.7 million or 1.1%. During the first nine months of
fiscal 2000, cash provided by operating activities totaled $10.5 million
compared to a use of cash of $2.3 million in the prior year nine month period.
Cash used for investing activities totaled $11.0 million during
fiscal 2000, which included $8.4 million related to acquisitions and $2.6
million for net capital expenditures. Cash used for financing activities totaled
$0.3 million during fiscal 2000, which included net borrowings of $0.6 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. Borrowings
under the revolving credit agreement totaled $32.0 million at December 31, 1999.
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 December 31, 1999 was approximately $53.0 million. The Company
used proceeds from its domestic and foreign credit facilities along with cash on
hand to fund the fiscal 2000 acquisitions. The Company was in compliance with
all of its debt covenants at December 31, 1999.
16
<PAGE> 17
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.
D. YEAR 2000
The Company had developed plans to address possible exposures
related to the Year 2000 issue. The plans 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 addressed the status of its significant
customers' Year 2000 compliance.
COSTS
The cost of implementing a 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.
As of the date of this report, the Company has no knowledge of any
material issues relating to Year 2000 related malfunctions that could have a
material adverse effect on the Company's financial condition or results of
operations. The Company continues to monitor the status of its business
operations and information systems for Year 2000 related issues.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, the Company is a defendant in a suit filed
in the United States District Court, Northern District of Ohio, Eastern Division
by Armor Shield, Inc. and Doublewall Retrofit Systems, Inc. There have been no
material developments in that action during the fiscal quarter ended December
31, 1999. The Company believes that the claims made in the suit 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 vigorously defending the
claims.
In January 2000, the Michigan Department of Environmental Quality
("MDEQ") issued an administrative decision which could have the effect of
modifying MDEQ's 1995 approval of certain assessment methodologies utilized by
the Company in determining whether certain underground storage tanks meet
Michigan's regulatory requirements for upgrade by means of cathodic protection.
These assessment methodologies have been and remain recognized by the United
States Environmental Protection Agency and the other states in which the
Company utilized such methodologies for virtually identical purposes. The
Company believes that MDEQ's decision is in error and has appealed the decision
on several grounds. In addition, MDEQ has agreed not to enforce the
administrative decision pending the outcome of the appeal.
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.
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
18
<PAGE> 19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRPRO COMPANIES, INC.
(Registrant)
Date: February 10, 2000 /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)
19
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