<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, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-12282
CORRPRO COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1422570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of November 3, 2000, 7,721,568 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 12-16
PART II. OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K 17
2
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PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
-------
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
September 30, March 31,
2000 2000
-------------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,502 $ 1,965
Accounts receivable, net 46,332 38,561
Inventories 24,196 24,118
Other current assets 11,320 9,203
-------- --------
Total current assets 84,350 73,847
-------- --------
Property, plant and equipment, net 15,571 16,153
Other Assets:
Goodwill 38,414 40,437
Other assets 9,948 10,427
-------- --------
Total other assets 48,362 50,864
-------- --------
$148,283 $140,864
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of
long-term debt $ 2,217 $ 1,316
Accounts payable 17,569 15,157
Accrued liabilities and other 7,662 7,891
-------- --------
Total current liabilities 27,448 24,364
-------- --------
Long-term debt, net of current portion 66,629 61,070
Deferred income taxes 1,118 1,039
Commitments and contingencies -- --
Minority interest 100 156
Shareholders' Equity:
Serial preferred shares -- --
Common shares 2,284 2,276
Additional paid-in capital 51,259 51,486
Accumulated earnings 11,041 10,247
-------- --------
64,584 64,009
Accumulated other comprehensive loss (3,833) (1,699)
Common shares in treasury, at cost (7,763) (8,075)
-------- --------
Total shareholders' equity 52,988 54,235
-------- --------
$148,283 $140,864
======= =======
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,
------------- -------------
2000 1999 2000 1999
----- ----- ----- ----
<S> <C> <C> <C> <C>
Revenues $ 43,486 $ 44,623 $ 84,246 $ 85,547
Cost of sales 29,483 29,976 56,528 57,248
------ ------ ------ ------
Gross profit 14,003 14,647 27,718 28,299
Selling, general & administrative expenses 11,710 9,734 23,370 19,685
------ ------- ------ ------
Operating income 2,293 4,913 4,348 8,614
Interest expense 1,571 1,365 3,027 2,631
------ ------- ------ -------
Income from continuing operations
before income taxes 722 3,548 1,321 5,983
Provision for income taxes 288 1,419 527 2,393
------ ------ ------ ------
Income from continuing operations 434 2,129 794 3,590
Discontinued operations:
Loss from operations, net -- (301) -- (353)
Loss on disposal, net -- (4,024) -- (4,024)
------ ------ ------ ------
Net income (loss) $ 434 $ (2,196) $ 794 $ (787)
====== ====== ====== ======
Earnings per share - Basic:
Income from continuing operations $ 0.06 $ 0.28 $ 0.10 $ 0.47
Discontinued operations:
Loss from operations, net -- (0.04) -- (0.05)
Loss on disposal, net -- (0.53) -- (0.53)
------ ------ ------ ------
Net income (loss) $ 0.06 $ (0.29) $ 0.10 $ (0.10)
====== ====== ====== ======
Earnings per share - Diluted:
Income from continuing operations $ 0.06 $ 0.27 $ 0.10 $ 0.45
Discontinued operations:
Loss from operations, net -- (0.04) -- (0.04)
Loss on disposal, net -- (0.52) -- (0.51)
------ ------ ------ ------
Net income (loss) $ 0.06 $ (0.28) $ 0.10 $ (0.10)
====== ====== ====== ======
Weighted average shares -
Basic 7,706 7,618 7,692 7,661
Diluted 7,760 7,787 7,747 7,902
</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,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 794 $ (787)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) continuing operations:
Depreciation and amortization 2,903 2,558
Deferred income taxes 95 (72)
Loss on sale of assets (46) (56)
Loss on disposal of discontinued operations -- 4,024
Minority interest (48) (42)
Changes in assets and liabilities:
Accounts receivable (8,170) 149
Inventories (655) 719
Prepaid expenses and other (2,190) (3,244)
Other assets (31) (127)
Accounts payable and accrued expenses 2,470 810
------- -------
Total adjustments (5,672) 4,719
------- -------
Net cash provided by (used for) continuing operations (4,878) 3,932
Net cash provided by discontinued operations -- 900
------- -------
Net cash provided by (used for) operating activities (4,878) 4,832
------- -------
Cash flows from investing activities:
Additions to and disposals of property, plant and equipment, net (1,228) (1,419)
Acquisitions, net of cash acquired -- (5,155)
------- -------
Net cash used for investing activities (1,228) (6,574)
------- -------
Cash flows from financing activities:
Long-term debt, net 6,159 5,647
Short-term borrowings, net 438 (1,295)
Net proceeds from issuance of Common Shares 93 17
Repurchase of Common Shares -- (1,429)
------- -------
Net cash provided by financing activities 6,690 2,940
------- -------
Effect of changes in foreign currency exchange rates (47) (372)
Net increase in cash 537 826
Cash and cash equivalents at beginning of period 1,965 3,957
------- -------
Cash and cash equivalents at end of period $ 2,502 $ 4,783
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 934 $ 881
Interest $ 2,693 $ 2,575
</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 Loss Treasury* Total
------ ------------- ------- -------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 2000 $ ----- $ 2,276 $ 51,486 $ 10,247 $ (1,699) $ (8,075) $ 54,235
Issuance of 32
Common Shares ----- 8 (227) ---- ----- 312 93
Comprehensive income (loss):
Net income ----- ----- ----- 794 ----- ----- 794
Cumulative translation
adjustment ----- ----- ----- ----- (2,134) ----- (2,134)
-------
Total comprehensive
loss ----- ----- ----- ----- ----- ----- (1,340)
------- ------- --------- --------- --------- --------- -------
September 30, 2000 $ ----- $ 2,284 $ 51,259 $ 11,041 $ (3,833) $ (7,763) $ 52,988
======= ===== ====== ====== ======= ======= ======
</TABLE>
* Shares held in treasury totaled 849 at March 31, 2000 and 817 at September 30,
2000.
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements include the
accounts of Corrpro Companies, Inc. and subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain fiscal 2000 amounts have been reclassified to conform
with the fiscal 2001 presentation.
The information furnished in the accompanying interim consolidated
financial statements has not been audited by independent accountants, however,
in the opinion of management, the interim consolidated financial statements
include all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the six months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 2001 or any other period. The interim consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 2000.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - INVENTORY
September 30, March 31,
2000 2000
---- ----
Inventories consist of the following:
Component parts and raw material $10,448 $9,825
Work in process 1,921 2,609
Finished goods 14,889 14,316
------ ------
27,258 26,750
Inventory reserve (3,062) (2,632)
------ ------
$24,196 $24,118
====== ======
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NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
September 30, March 31,
2000 2000
---- ----
Property, plant and equipment consists of the following:
Land $ 611 $ 598
Buildings and improvements 7,440 7,523
Equipment, furniture and fixtures 20,738 20,234
------- ------
28,789 28,355
Less: Accumulated depreciation (13,218) (12,202)
------- -------
$15,571 $16,153
====== ======
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income for
the period by the weighted average number of common shares outstanding for the
period which was 7,706 and 7,618, for the three months ended September 30, 2000
and 1999, respectively and 7,692 and 7,661, for the six months ended September
30, 2000 and 1999, respectively. Diluted EPS for the period has been determined
by dividing net income by the weighted average number of shares of common shares
and potential common shares outstanding for the period which was 7,760 and
7,787, for the three months ended September 30, 2000 and 1999, respectively and
7,747 and 7,902, for the six months ended September 30, 2000 and 1999,
respectively. Stock options are the only potential common shares included in the
Company's diluted EPS calculations. Potential common shares are computed using
the treasury stock method.
NOTE 5 - STOCK PLANS
The Company granted options to purchase 420 common shares at exercise
prices ranging from $3.69 to $3.75 per share under the 1997 Long-Term Incentive
Plan and options to purchase 5 common shares under the 1997 Non-Employee
Directors' Stock Option Plan during the six months ended September 30, 2000. In
addition, 30 previously granted options were terminated during the six months
ended September 30, 2000.
NOTE 6 - SHAREHOLDERS' EQUITY
In November 1996, the Board of Directors authorized a program to
repurchase up to 750 shares of the Company's outstanding common shares. In April
1999, the Board of Directors authorized the repurchase of up to an additional
750 outstanding common shares. The Company repurchased 47 shares, at a total
cost of $373, during the three months ended September 30, 1999 and repurchased
153 shares, at a total cost of $1,429, during the six months ended September 30,
1999. There were no stock repurchases during the six months ended September 30,
2000.
In June 1999, the Company adopted an Employee Stock Purchase Plan under
which employees have a systematic long-term investment opportunity to own
Company shares. During the three months ended September 30, 2000, the Company
issued 32 common shares under the Employee Stock Purchase Plan.
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NOTE 7 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive
income. Other comprehensive income is comprised of other revenues, expenses,
gains, and losses that are excluded from net income but included as a component
of total shareholders' equity. Other comprehensive income (loss) for the three
months ended September 30, 2000 and 1999 totaled ($1,107) and $400,
respectively, and for the six months ended September 30, 2000 and 1999, ($2,134)
and 65, 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 loss."
NOTE 8 - BUSINESS SEGMENTS
In fiscal 1999, the Company adopted SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information," which changes the way the
Company reports information about 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. The Company's operating segments and a description of the
products and services they provide are described below:
Domestic Core Operations. The Domestic Core Operations consist of the Company's
offices in the United States which provide products and services including
corrosion control, coatings, pipeline integrity and non-destructive testing
("NDT"). This segment provides corrosion control products and services to a
wide-range of customers in a number of industries including the following:
energy, utilities, water and wastewater treatment, chemical and petrochemical,
pipelines, defense and municipalities. In addition, this segment provides
coatings services to customers in the entertainment, aerospace, transportation,
petrochemical and electric power industries as well as NDT services to customers
in the pharmaceutical, chemical and energy industries.
Canadian Operations. The Canadian Operations provide corrosion control, pipeline
integrity and NDT product and services to customers who are primarily in the oil
and gas industries. These customers include pipeline operators, petrochemical
plants and refineries. In addition, the Canadian Operations provide specialty
coatings application services through the Company's CSI Coatings Services
subsidiary that was acquired in April 1999. The Canadian Operations also include
a production facility that assembles products such as anodes, rectifiers, coke
breeze and remote monitoring units.
Middle East Operations. The Middle East Operations provide corrosion control
products and services to customers in the petroleum and utility industries as
well as to governmental entities in connection with infrastructure assets. One
of the largest components of the Middle East Operations' revenues is related to
reinforced concrete structures.
9
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Other Operations. The Company's Other Operations consist of all of the Company's
other businesses including those in Europe, Australia and Asia as well as the
Company's corrosion monitoring equipment business. In addition, Other Operations
include a production facility in the U.S. that assembles and distributes
cathodic protection products such as anodes primarily to the Company's
businesses in the U.S. The Company's operations in Europe and Asia primarily
provide corrosion control products and services to customers in the marine,
offshore and industrial markets. In addition to corrosion control products and
services, the Company's operations in Australia are also beginning to provide
coatings, NDT and pipeline integrity services to its customer base which
includes participants in the oil and gas, water treatment, mining and marine
industries. The Company's corrosion monitoring equipment business assembles and
sells products including probes, instruments and access fittings to customers in
the oil and gas and chemical industries.
The Company's operations by segment are presented below:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Domestic Core Operations $25,292 $25,522 $51,291 $50,283
Canadian Operations 7,035 7,118 12,183 12,548
Middle East Operations 3,225 4,875 6,262 8,762
Other Operations 9,849 9,532 18,685 18,242
Eliminations (1,915) (2,424) (4,175) (4,288)
------- ------- ------ -------
$43,486 $44,623 $84,246 $85,547
====== ====== ====== ======
Operating Income:
Domestic Core Operations $3,003 $4,341 $6,711 $8,873
Canadian Operations 1,391 1,821 2,040 2,708
Middle East Operations 319 1,004 534 1,546
Other Operations 809 823 1,544 1,571
Corporate Related Costs and Other (3,229) (3,076) (6,481) (6,084)
------ ------ ------ ------
$2,293 $4,913 $4,348 $8,614
===== ===== ===== =====
</TABLE>
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NOTE 9 - DISCONTINUED OPERATIONS
The Company completed the disposition of its UK and Asia foundry
operations during September 1999. The divested UK and Asia foundry operations
are reported as discontinued operations and the consolidated financial
statements have been reclassified to report separately the net assets and
results of operations of the divested foundries.
For the three months ended September 30, 2000 and 1999, the Company
allocated interest of $0 and $23, respectively and for the six months ended
September 30, 2000 and 1999, the Company allocated interest of $0 and $45
respectively, 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 $3,027 for the three months ended September 30, 2000
and 1999, respectively, and $0 and $6,416 for the six months ended September 30,
2000 and 1999, respectively. The revenues included intercompany sales of $0 and
$960 for the three months ended September 30, 2000 and 1999, respectively, and
$0 and $2,122 for the six months ended September 30, 2000 and 1999,
respectively. Loss from discontinued operations totaled $0 and $301 for the
three months ended September 30, 2000 and 1999, respectively, and $0 and $353
for the six months ended September 30, 2000 and 1999, respectively.
NOTE 10 - SUBSEQUENT EVENT
During October 2000, the Company amended its revolving credit facility
agreement as well as its Senior Note agreement to, among other things, adjust
certain of the financial ratios that the Company is required to maintain under
these agreements. As a result, interest on Eurocurrency loans under the
revolving credit facility will based on the Eurocurrency rate plus 1.20% to
2.50%. In addition, the leverage fee on the Senior Notes will range from 1.00%
to 1.65% per annum for any quarter during which the Debt Coverage Ratio, as
defined in the Senior Note agreement, equals or exceeds 2.75 to 1.00.
The Company was in compliance with all debt covenants at September 30,
2000 after giving effect to the October 2000 amendments.
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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
the expected impact of cost reduction measures, 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, termination provisions relating to
government jobs, the impact of weather on the Company's operations, the
Company's ability to successfully integrate and develop acquired businesses in a
timely manner, the Company's ability to successfully execute its sales and
marketing initiatives, the Company's ability to successfully implement its cost
reduction measures, the impact of energy prices on the Company's and its
customers' businesses, and the impact of existing, new or changed regulatory
initiatives. Additional factors that may affect the Company's business and
performance are set forth in the Company's fiscal year 2000 Form 10-K filed with
the Securities and Exchange Commission.
The fiscal 2001 results include three small acquisitions that were
completed during fiscal 2000 subsequent to the effective dates of the
transactions. The results of these acquisitions are no longer separable as they
have been integrated into the Company's operations.
The sale of the Company's UK and Asia foundry operations was completed
in September 1999. The decision to divest these operations was consistent with
the Company's strategy of focusing on the higher margin service side of the
business. For financial reporting purposes, the fiscal year 2000 UK and Asia
foundry operations 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, 2000 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
--------
Revenues for the fiscal 2001 second quarter totaled $43.5 million
compared to $44.6 million in the fiscal 2000 second quarter, a decrease of $1.1
million or 2.5%.
Fiscal 2001 second quarter revenues relating to the Domestic Core
Operations totaled $25.3 million compared to $25.5 million in the fiscal 2000
second quarter, a decrease of $0.2 million or 0.9%. Increases in revenues
relating to our domestic coatings service business were offset by lower cathodic
protection revenues. The lower cathodic protection revenues are primarily
attributable to the energy sector of our business.
The Canadian Operations' revenues for the fiscal 2001 second quarter
totaled $7.0 million compared to $7.1 million in the fiscal 2000 second quarter,
a decrease of $0.1 million or 1.2%. Revenues relating to the Canadian coating
application business increased but were offset by a decline in the cathodic
protection business which primarily related to the pipeline market.
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Fiscal 2001 second quarter revenues relating to the Middle East
Operations totaled $3.2 million compared to $4.9 million in the fiscal 2000
second quarter, a decrease of $1.7 million or 33.8%. The decrease is due to the
fact that there were fewer large projects going on in this region. Our business
in this region has historically been characterized by large projects and the
Middle East Operations had a record year in fiscal 2000 as several large
projects were in progress at the same time.
Revenues relating to the Other Operations and Eliminations totaled $7.9
million in the fiscal 2001 second quarter compared to $7.1 million in the fiscal
2000 second quarter, an increase of $0.8 million or 11.6%. Other Operations
experienced revenue growth in Europe and Asia which was offset, in part, by
revenue declines in Australia and at our corrosion monitoring business.
GROSS PROFIT
------------
Gross profit margins were 32.2% for the fiscal 2001 second quarter
compared to 32.8% for the fiscal 2000 second quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Operating expenses totaled $11.7 million for the fiscal 2001 second
quarter compared to $9.7 million in the fiscal 2000 second quarter, an increase
of 20.3%. Investments in sales and marketing as well as in new technology
contributed to this increase. We are currently implementing a number of cost
reduction measures designed to bring operating expenses more in line with
current revenue levels. The cost reduction measures are expected to be in the
range of $4 million to $5 million on an annual basis. In addition, we expect to
reduce cash expense by approximately $1 million annually by funding certain
employee benefit amounts using the Company's common shares. While a portion of
these reductions will be realized during the third and fourth quarters of fiscal
2001, we do not expect to realize the full benefit until the beginning of fiscal
2002.
OPERATING INCOME
----------------
Operating income totaled $2.3 million for the fiscal 2001 second
quarter compared $4.9 million for the fiscal 2000 second quarter, a decrease of
$2.6 million or 53.3%. The decrease is largely the result of the higher
operating expense levels.
INTEREST EXPENSE
----------------
Interest expense totaled $1.6 million in the second quarter of fiscal
2001 compared to $1.4 million in the second quarter of fiscal 2000. This
increase relates primarily to higher interest rates in the second quarter of
fiscal 2001 as compared to the prior-year period.
INCOME TAX PROVISION
--------------------
The Company recorded a provision for income taxes of $0.3 million for
the fiscal 2001 second quarter compared to a provision of $1.4 million for the
fiscal 2000 second quarter. The effective tax rate was 40.0% for both the fiscal
2001 and fiscal 2000 second quarters.
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INCOME FROM CONTINUING OPERATIONS
---------------------------------
Income from continuing operations totaled $0.4 million in the fiscal
2001 second quarter compared to $2.1 million in the fiscal 2000 second quarter,
a decrease of 79.6%. Earnings per share on a diluted basis totaled $0.06
compared to $0.27 in the prior-year period.
B. RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
--------
Revenues for the six months ended September 30, 2000 totaled $84.2
million compared to prior-year revenues of $85.5 million, a decrease of $1.3
million or 1.5%.
For the six months ended September 30, 2000, revenues relating to the
Domestic Core Operations totaled $51.3 million compared to prior-year results of
$50.3 million, an increase of $1.0 million or 2.0%. The increase is primarily
related to our domestic coatings services business.
The Canadian Operations' revenues for the six months ended September
30, 2000 totaled $12.2 million compared to prior-year results of $12.5 million,
a decrease of $0.4 million or 2.9%. The Canadian Operations cathodic protection
business remained flat while its coatings application business was down.
For the six months ended September 30, 2000, revenues relating to the
Middle East Operations totaled $6.3 million compared to prior-year results of
$8.8 million, a decrease of $2.5 million or 28.5%. The decrease is due to the
fact that there were fewer large projects going on in this region. The business
in this region has historically been characterized by large projects and the
Middle East Operations had a record year in fiscal 2000 as several large
projects were in progress at the same time.
Revenues relating to the Other Operations and Eliminations, for the six
months ended September 30, 2000, totaled $14.5 million compared to prior-year
results of $14.0 million, an increase of $0.6 million or 4.0%. Other Operations
experienced revenue growth in Europe and Asia which was offset, in part, by
revenue declines in Australia and at our corrosion monitoring business.
GROSS PROFIT
------------
Consolidated gross profit margins were 32.9% for the six months ended
September 30, 2000 compared to 33.1% for the prior-year period.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Operating expenses totaled $23.4 million for the six months ended
September 30, 2000 compared to $19.7 million, an increase of $3.7 million or
18.7%. Investments in sales and marketing as well as in new technology
contributed to this increase. We are currently implementing a number of cost
reduction measures designed to bring operating expenses more in line with
current revenue levels. The cost reduction measures are expected to be in the
range of $4 million to $5 million on an annual basis. In addition, we expect to
reduce cash expense by approximately $1 million annually by funding certain
employee benefit amounts using the Company's common shares. While a portion of
these reductions will be realized during the third and fourth quarters of fiscal
2001, we do not expect to realize the full benefit until the beginning of fiscal
2002.
OPERATING INCOME
----------------
Operating income totaled $4.3 million for the six months ended
September 30, 2000 compared to $8.6 million in the prior-year period, a decrease
of $4.3 million or 49.5%. The decrease in operating income is primarily
attributable to the increase in operating expenses.
INTEREST EXPENSE
----------------
Interest expense totaled $3.0 million for the six months ended
September 30, 2000 compared to $2.6 million in the prior-year period. This
increase relates primarily to higher interest rates in fiscal 2001 as compared
to the prior-year period.
INCOME TAX PROVISION
--------------------
The Company recorded a provision for income taxes of $0.5 million for
the six months ended September 30, 2000 compared to a provision of $2.4 million
for the prior-year period. The effective tax rate was 40.0% for both the fiscal
2001 and fiscal 2000 six month periods.
INCOME FROM CONTINUING OPERATIONS
---------------------------------
Income from continuing operations totaled $0.8 million for the six
months ended September 30, 2000 compared to $3.6 million in the prior-year
period. Earnings per share on a diluted basis totaled $0.10 compared to $0.45 in
the prior-year period.
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B. LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had working capital of $56.9 million
compared to $49.5 million at March 31, 2000, an increase of $7.4 million or
15.0%. Consistent with prior years, working capital increased during the first
six months of the fiscal year as we moved into the seasonally busiest time of
the year. During the first six months of fiscal 2001, cash used for continuing
operating activities totaled $4.9 million as a result of the increased working
capital levels. Cash used for investing activities totaled $1.2 million during
fiscal 2001, which represented net capital expenditures. Cash provided by
financing activities totaled $6.7 million during fiscal 2001, which primarily
represented net borrowings.
The Company has a $50 million revolving credit facility that expires on
April 30, 2002. Initial borrowings were used to repay existing domestic bank
indebtedness. Borrowings under the facility are limited to borrowing base
amounts as defined in the credit agreement and are secured by the Company's
domestic accounts receivable, inventories, certain intangibles, machinery and
equipment and owned real estate, as well as certain assets in Canada. The
Company has also pledged slightly less than two-thirds of the capital stock of
two of its foreign subsidiaries. The facility requires the Company to maintain
certain financial ratios and places certain limitations on the Company's ability
to pay cash dividends, incur additional indebtedness and to make investments
including acquisitions.
During October 2000, we amended our revolving credit facility agreement
as well as our Senior Note agreement to, among other things, provide us with
additional flexibility in the financial covenants. As a result of these
amendments, we estimate that the interest rates on the related debt will, in
total, increase between 35 and 40 basis points. As of September 30, 2000, the
Company was in compliance with all debt covenants after giving effect to the
October 2000 amendments.
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, 2000 was approximately $12.9 million after giving
consideration to the borrowing base limitations contained in the domestic credit
facility.
The Company believes that cash generated by operations and amounts
available under its domestic bank credit facility and foreign lines of credit
will be sufficient to finance the Company's working capital requirements and
capital expenditures through the next twelve months.
C. EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSLATION
The Company does not believe that inflation has had a significant
effect on the Company's results of operations for the periods presented.
The Company 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.
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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 six months of fiscal 2001. The
Company believes that the claims made in the suit are without merit, denies any
allegations of wrongdoing and is vigorously defending the claims.
As previously reported, the Company filed a complaint in the Circuit
Court for the County of Ingham, Michigan and appealed a January 2000 Michigan
Department of Environmental Quality ("MDEQ") administrative decision which could
have the effect of modifying MDEQ's 1995 approval of certain assessment
methodologies utilized by the Company in determining whether certain underground
storage tanks met Michigan's regulatory requirements for upgrade by means of
cathodic protection. These assessment methodologies have been and remain
recognized by the United States Environmental Protection Agency and the other
states in which the Company utilized such methodologies for virtually identical
purposes. The Company believes that MDEQ's decision is in error and on January
24, 2000 filed a complaint and claim of appeal in the Circuit Court for the
County of Ingham, Michigan seeking declaratory relief and appealing the decision
on several grounds. A hearing on the appeal was held on November 1, 2000.
Decision on the appeal has not been rendered.
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 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 August 24, 2000 for the election
of three directors of the Company for terms expiring in 2002. The aggregate
number of votes cast for or withheld for each nominee were as follows:
DIRECTOR NOMINEES FOR WITHHELD
----------------- --- --------
Warren F. Rogers 6,171,758 680,798
Barry W. Schadeck 6,304,669 547,887
Michael K. Baach 6,073,742 778,814
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
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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, 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)
18
