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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2001
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 1-12282
CORRPRO COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1422570
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
SECURITIES REGISTERED PURSUANT SECURITIES REGISTERED PURSUANT TO
TO SECTION 12(b) OF THE ACT: SECTION 12(g) OF THE ACT:
COMMON SHARES WITHOUT PAR VALUE NONE
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(TITLE OF CLASS) (TITLE OF CLASS)
NEW YORK STOCK EXCHANGE
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(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of Common Shares held by nonaffiliates of the
Registrant was approximately $15,656,856 at June 27, 2001. (The aggregate market
value has been computed using the closing market price of the stock as reported
by the New York Stock Exchange on June 27, 2001.) For purposes of this
calculation, the Registrant deems the Common Shares held by its Directors,
executive officers and holders of 10% or more of its Common Shares to be Common
Shares held by affiliates.
8,013,053
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(Number of Common Shares outstanding as of June 27, 2001.)
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file with the Securities and Exchange Commission a
definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange
Act of 1934 within 120 days of the close of its fiscal year ended March 31,
2001, portions of which document shall be deemed to be incorporated by reference
in Part III of this Annual Report on Form 10-K from the date such document is
filed.
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PART I
ITEM 1. BUSINESS
Corrpro Companies, Inc. was founded in 1984 and organized under the
laws of the State of Ohio. As used in this report, the terms "Corrpro" and the
"Company" mean Corrpro Companies, Inc. and its consolidated subsidiaries unless
the context indicates otherwise.
PRODUCTS AND SERVICES
Corrpro provides corrosion control related services, systems, equipment
and materials to the infrastructure, environmental and energy markets. Our
products and services include (i) corrosion control engineering services,
systems and equipment ("corrosion control"), (ii) coatings services ("coatings")
and (iii) pipeline integrity and risk assessment services.
CORROSION CONTROL. Corrpro's specialty in the corrosion control market is
cathodic protection. We offer a comprehensive range of services in this area,
which include the design, manufacture, installation, maintenance and monitoring
of cathodic protection systems. Cathodic protection is an electrochemical
process that prevents corrosion for new structures and stops the corrosion
process for existing structures. It can provide a cost-effective alternative to
the replacement of corroding structures. In order to understand how cathodic
protection works, it is helpful to first understand the corrosion process.
Steel, the most common metal protected by cathodic protection, is produced from
iron ore. To produce steel, the iron ore is subjected to a refining process that
adds energy. Once the steel is put back into the environment, it begins to
revert back to its original state (i.e., iron ore) by releasing the added energy
back into the surrounding environment. This process of dispersing energy is
called corrosion. Cathodic protection electrodes, called anodes, are placed
near, and connected to, the structure to be protected (i.e., the cathode).
Anodes are typically made from cast iron, graphite, aluminum, zinc or magnesium.
A cathodic protection system works by passing an electrical current from the
anode to the cathode. This process maintains the energy level on the cathode,
thus stopping it from corroding. Instead, the anode corrodes, sacrificing itself
to maintain the integrity of the structure. In order for the electrical current
to pass from the anode to the cathode, they both must be in a common
environment. Therefore, cathodic protection can only be used to protect
structures that are buried in soil, submerged in water or encased in concrete.
Structures commonly protected against corrosion by the cathodic protection
process include oil and gas pipelines, offshore platforms, above and underground
storage tanks, ships, electric power plants, bridges, parking garages, transit
systems and water and wastewater treatment equipment.
In addition to cathodic protection, our corrosion control services
include corrosion engineering, material selection, inspection services, advanced
corrosion research and testing and corrosion monitoring (including remote
monitoring). Remote monitoring is a technology we acquired in September 1999. In
order for cathodic protection to be most effective, the system must run
continuously. To ensure that this is happening, the cathodic protection systems
need to be monitored on a regular basis. Remote monitoring allows customers to
reduce the cost of monitoring and maintaining their cathodic protection systems
by eliminating the need to have personnel travel to various sites in order to
collect data from the cathodic protection system. Equally significant is the
continuous flow (and more frequent updates) of data that remote monitoring can
provide. This information allows problems to be identified immediately rather
than waiting for the on-site inspection interval. We also sell a variety of
materials and equipment including anodes, rectifiers and corrosion monitoring
probes used in cathodic protection and corrosion monitoring systems. Corrosion
control represented approximately 81%, 91% and 96% of our revenues in fiscal
years 2001, 2000 and 1999, respectively.
COATINGS. Corrpro offers a wide variety of coatings-related services designed to
provide our customers with longer coatings life, reduced corrosion, improved
aesthetics and lower life-cycle costs for their coated structures. Coatings
services include research, testing, evaluation and application of coatings. In
addition, we provide project management services for coatings maintenance
programs, including condition surveys, failure analysis, selection of site
surface preparation methods and selection and application of coatings. We also
provide specialized coatings application services for structures with aggressive
corrosion conditions such as the inside and outside of storage tanks and
pipelines. Coatings represented approximately 15%, 5% and 1% of our revenues in
fiscal years 2001, 2000 and 1999, respectively.
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PIPELINE INTEGRITY AND RISK ASSESSMENT SERVICES. Corrpro offers a comprehensive
line of pipeline integrity, risk assessment and inspection services, including
assessment, surveys, inspection, analysis, repairs and ongoing maintenance. By
offering a wide range of services, we are able to provide pipeline owners with
one-stop shopping for the preservation of their pipeline systems. Pipeline
integrity and risk assessment services represented approximately 4% of our
revenues in fiscal years 2001 and 2000 and 3% of our revenues in fiscal year
1999.
ACQUISITIONS AND DISPOSITIONS
We have broadened our business capabilities and expanded our geographic
presence through a series of acquisitions. We made thirteen strategic
acquisitions between fiscal 1987 and fiscal 1998. The following table details
acquisitions made subsequent to fiscal 1998.
YEAR
ACQUISITION ACQUIRED
Corrosion Interventions Ltd. FY 1999 Geographic expansion - Eastern Canada
Corrpro Australia FY 1999 Geographic expansion - Australia
Basco Group FY 1999 Corrosion services - United Kingdom
Consulex Corporation FY 1999 Product line expansion - coatings
Bass-Trigon Software LLC FY 1999 Software supplier to pipeline industry
D.C. Corrosion Corp. FY 1999 Corrosion services - Western Canada
Westcor FY 1999 Corrosion services - Australia
CSI Coatings Systems, Inc. FY 2000 Specialty coatings application services
Acquisition of remote monitoring technology FY 2000 Production line expansion - corrosion monitoring
Borza Inspections Ltd. FY 2000 Inspection services - Western Canada
Corrosion and Technical Services, WWL FY 2000 Geographic expansion - Bahrain
In March 1997, Corrpro adopted a plan to divest its anode foundry
operation in Louisiana. This disposition was completed in March 1999. In
September 1999, Corrpro divested its remaining anode foundry operations in the
United Kingdom and Asia. In fiscal 2001, we ceased certain Mexican foundry
operations and disposed of a small, non-core business unit.
SEGMENTS
We have organized our operations into four business segments: Domestic
Core Operations, Canadian Operations, International Operations and Other
Operations. In fiscal 2001, as a result of the restructuring of our internal
operations, we reconfigured our business segments by combining our operations in
Europe, Asia and Australia with that of the Middle East to form the
International Operations segment. Previously, our operations in Europe, Asia and
Australia were included in our Other Operations segment. Prior period business
segment information has been reconfigured to conform to the current
presentation. Our business segments and a description of the products and
services they provide are described below:
DOMESTIC CORE OPERATIONS. Our Domestic Core Operations segment consists of
operations that service the United States and Central and South America.
Products and services include corrosion control, coatings, pipeline integrity,
risk assessment and inspection services. This segment provides corrosion control
products and services to a wide-range of customers in a number of industries
including: energy, utilities, water and wastewater treatment, chemical and
petrochemical, pipelines, defense and municipalities. In addition, this segment
provides coatings services to customers in the entertainment, aerospace,
transportation, petrochemical and electric power industries, as well as the
United States military. Finally, the Domestic Core Operations segment includes a
production facility in the United States that assembles and distributes cathodic
protection products, such as anodes, primarily to the United States market.
Revenues relating to this segment totaled $99.8 million (or 60% of consolidated
revenues), $98.7 million (or 59% of consolidated revenues) and $110.5 million
(or 64% of consolidated revenues) during fiscal 2001, 2000 and 1999,
respectively.
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CANADIAN OPERATIONS. Our Canadian Operations segment provides corrosion control,
pipeline integrity and inspection services to customers in Canada who are
primarily in the oil and gas industry. These customers include pipeline
operators and petrochemical plants and refineries. The Canadian Operations
segment also includes production facilities that assemble products such as
anodes and rectifiers. Revenues relating to this segment totaled $24.3 million
(or 15% of consolidated revenues), $26.2 million (or 16% of consolidated
revenues) and $17.9 million (or 10% of consolidated revenues) during fiscal
2001, 2000 and 1999, respectively.
INTERNATIONAL OPERATIONS. Our International Operations segment consists of
operations in Europe, the Middle East, Australia and Asia, which provide
corrosion control products and services to customers in the petroleum, utility,
industrial, marine and offshore markets, as well as to governmental entities in
connection with their infrastructure assets. In addition to corrosion control
products and services, our operation in Australia also provides coatings and
pipeline integrity services to its customer base, which includes the oil and
gas, water treatment, mining and marine industries. Revenues relating to this
segment totaled $38.3 million (or 23% of consolidated revenues), $42.0 million
(or 25% of consolidated revenues) and $32.5 million (or 19% of consolidated
revenues) during fiscal 2001, 2000 and 1999, respectively.
OTHER OPERATIONS. Our Other Operations segment includes our corrosion monitoring
equipment business, which assembles and sells products including corrosion
monitoring probes, instrument access fittings and remote monitoring units to
customers in the oil and gas and chemical industries. In addition, this segment
also includes our risk assessment and analysis software business, which sells or
licenses products to customers primarily in the oil and gas industry. Revenues
relating to this segment totaled $9.0 million (or 5% of consolidated revenues),
$10.8 million (or 6% of consolidated revenues) and $10.4 million (or 6% of
consolidated revenues) during fiscal 2001, 2000 and 1999, respectively.
Further information about our business segments is included in Note 9,
Business Segments, to Notes to Consolidated Financial Statements included in
Item 8 of this Form 10-K.
SALES AND MARKETING
We market our products and services in the United States and Canada
primarily through our sales personnel. The technical nature of our products and
services requires a highly trained, professional sales force, and, as a result,
many of our sales personnel have engineering or technical expertise and
experience. Due to the problem solving experience of our engineering staff,
potential and existing customers regularly seek out advice from our technical
personnel, which can result in business opportunities on an ongoing basis.
Our products and services in the Middle East, Asia, Australia, Europe
and South America are marketed by our sales personnel, as well as by
independent, locally-based sales representatives. These independent sales
representatives are used to supplement the efforts of our direct sales force and
to market our products and services to other regions of the world. The
independent sales representatives earn commissions on sales that vary by product
and service type. Certain products, including rectifiers and corrosion
monitoring equipment, are marketed through networks of both domestic and
international distributors.
SOURCES AND AVAILABILITY OF RAW MATERIALS
We assemble certain components of cathodic protection systems, which
include aluminum, zinc, magnesium and other metallic anodes. We do not believe
that we are dependent upon any single outside vendor as a source of supply and
believe that sufficient alternative sources of supply for the same, similar or
alternative products are available.
PATENTS AND LICENSES
We own patents, patent applications and licenses relating to certain of
our products and processes. While our rights under the patents and licenses are
of importance to individual components of our operations, our business as a
whole is not materially dependent on any one patent or license or on the patents
and licenses as a group.
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SEASONAL TRENDS
Our business is somewhat seasonal as winter weather can adversely
impact our operations in the northern United States, Canada and the United
Kingdom. Therefore, our revenues during the fourth quarter of our fiscal year
(i.e., January through March) are typically lower than revenues during each of
the other three fiscal quarters.
CUSTOMERS
Sales are made to a broad range of customers. During the fiscal year
ended March 31, 2001, no one customer accounted for more than 10% of our sales.
We do not believe that the loss of any one customer would have a materially
adverse effect on our business.
We sell products and services to the U.S. government and agencies and
municipalities thereof, including the U.S. Navy. Sales to these customers
accounted for approximately 8% of our net sales in fiscal 2001 and 3% of our net
sales in each of fiscal 2000 and 1999. Our contracts with the U.S. government
contain standard provisions permitting the government to terminate these
contracts without cause. In the event of termination, we are entitled to receive
reimbursement on the basis of the work completed (cost plus a reasonable
profit). These contracts are also subject to renegotiation of profits. We have
no knowledge of any pending or threatened termination of any of our significant
government contracts or subcontracts. In addition, government procurement
programs are subject to budget cutbacks and policy changes that could impact the
revenue for, or alter the demand for, our products. Accordingly, our future
sales to the government are subject to these budgetary and policy changes.
BACKLOG
Our backlog of unshipped orders was approximately $59 million as of
March 31, 2001, $54 million as of March 31, 2000 and $63 million as of March 31,
1999. We estimate that a substantial portion of our backlog of orders at March
31, 2001, will be filled during fiscal 2002.
COMPETITIVE CONDITIONS
Within the corrosion control market, we face competition from a large
number of domestic and international companies, all of which we believe are
considerably smaller than Corrpro. Only a few of these competitors offer a broad
range of corrosion control engineering services, systems and products and we do
not believe that any of our competitors offer the comprehensive range of
products and services that we provide. In the services area, we compete
principally on the basis of quality, technical expertise and capabilities and
customer service, although price is a consideration, particularly when we are
providing construction and installation services. In the product area, we
typically compete on the basis of quality, service and price.
RESEARCH AND DEVELOPMENT
Our engineering and product development activities are primarily
directed toward designing new products and services to meet customers' specific
requirements. Product development costs amounted to approximately $1.0 million,
$1.2 milllion and $0.6 million during fiscal years 2001, 2000 and 1999,
respectively.
GOVERNMENT REGULATIONS
We believe that our current operations and our current use of property,
plant and equipment conform in all material respects to applicable laws and
regulations. Other than as disclosed under "Legal Proceedings", we have not
experienced, nor do we anticipate, any material claim or material capital
expenditure in connection with environmental laws and other regulations.
EMPLOYEES
As of March 31, 2001, we had 1,303 employees, 528 of whom were located
outside the United States.
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FACTORS INFLUENCING FUTURE RESULTS AND ACCURACY OF FORWARD LOOKING INFORMATION
This document includes certain statements that may be deemed
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based on management's expectations and beliefs
concerning future events and discuss, among other things, anticipated future
performance and revenues, expected growth and future business plans. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" or variations of such words and similar expressions are intended to
identify such forward-looking statements. We believe that the following factors,
among others, could affect our future performance or the price and liquidity of
our Common Shares and cause our actual results to differ materially from those
results expressed or implied by forward-looking statements: our mix of products
and services; our ability to obtain extensions, amendments or waivers under our
debt agreements and the availability and terms of additional sources of
financing and capital; the timing of jobs; the availability and value of larger
jobs; qualification requirements and termination provisions relating to
government jobs; our ability to satisfy the New York Stock Exchange's continued
listing requirements; the impact of inclement weather on operations; the impact
of energy prices on the Company's and its customers' businesses; adverse
developments in pending litigation or regulatory matters; and the impact of
existing, new or changed regulatory initiatives. In addition, any
forward-looking statement speaks only as of the date on which such statement is
made and we do not undertake any obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise.
All phases of our operations are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control. Any one of
such influences, or a combination, could materially affect the accuracy of the
forward-looking statements and the assumptions on which the statements are
based. Some important factors that could cause actual results to differ
materially from the anticipated results or other expectations expressed in our
forward-looking statements include the following:
OUR PROFITABILITY CAN BE IMPACTED BY OUR MIX OF PRODUCTS AND SERVICES. Given
that our selling, general and administrative costs are largely fixed in terms of
dollars, our profitability is dependent upon the amount of gross profit
that we are able to realize. We typically generate higher gross profit margins
on pure engineering service jobs than on those jobs that include a material or
installation component. In addition, our gross profit margins also can be
negatively impacted when we utilize subcontractors. Therefore, a shift in mix
from engineering services to more construction and installation type work or an
increase in the amount of subcontracting costs could have a negative impact on
our operating results. In addition, certain of the products that we sell have
gross profit margins that are considerably lower than our overall average gross
profit margin. A shift in mix which results in a greater percentage of revenues
relating to these lower margin products would also have a negative impact on our
operating results.
OUR ABILITY TO OBTAIN EXTENSIONS, AMENDMENTS OR WAIVERS UNDER OUR DEBT
AGREEMENTS AND AVAILABILITY OF ADDITIONAL SOURCES OF FINANCING AND CAPITAL. As
of March 31, 2001, we received waivers from our lenders of certain financial
covenant violations under our Revolving Credit Facility and outstanding Senior
Notes. On July 12, 2001, we executed amendments effective as of June 29, 2001,
for our Revolving Credit Facility and Senior Notes to reset certain covenants
under these agreements. Failure to observe or perform any one or more of the
covenants contained in these debt agreements at any given time in the future
will require us to obtain a waiver, consent or amendment from our lenders, or
refinance our credit facilities. In addition, our current Revolving Credit
Facility expires on April 30, 2002. We will be required to amend this Revolving
Credit Facility to extend the expiration date or refinance this debt. We cannot
assure that we will be able to obtain future maturity extensions, waivers,
consents and amendments, or refinance our indebtedness or obtain additional
capital on reasonable terms or at all. If we cannot raise funds on acceptable
terms when needed, we may not be able to meet our obligations as they become
due, which could seriously harm our business and ultimately could impact our
ability to operate as a going concern.
THE TIMING OF JOBS CAN IMPACT OUR PROFITABILITY. There are a number of factors,
some of which are beyond our control, that can cause projects to be delayed and
thus negatively impact our profitability for the related period. These factors
include the availability of labor, equipment or materials, customer scheduling
issues, delays in obtaining required permits and weather. In addition, when we
are working as a subcontractor on a project, our portion of the project can be
delayed as a result of factors relating to other contractors.
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THE AVAILABILITY AND VALUE OF LARGER JOBS CAN IMPACT OUR PROFITABILITY. While
the majority of our jobs are relatively small, we can have a number of
individual contracts in excess of $1 million in progress at any particular time.
These larger contracts generally generate more gross profit dollars than our
typical jobs. Therefore, the absence of larger jobs, which can generally result
from a number of factors, including market conditions, can have a negative
impact on our operating results.
QUALIFICATION REQUIREMENTS AND TERMINATION PROVISIONS RELATING TO GOVERNMENT
JOBS. We derive revenues from contracts with the United States, its agencies and
other governmental entities. Governmental contracting is subject to competitive
bidding processes and there can be no assurances that we will be the successful
bidder for future contracts. Fluctuations in governmental spending also could
adversely affect our revenues and profitability. In addition, it is the policy
of the United States that certain small business and other concerns have the
maximum practicable opportunity to participate in performing contracts let by
any Federal agency. To the extent that we do not meet applicable criteria for
governmental jobs, we could be limited in our ability to participate directly in
contracts being let by the United States and other governmental entities with
similar requirements. Certain contracts with governmental entities contain
provisions permitting the governmental entities to terminate the contract for
convenience prior to completion of the contract. To the extent that any of our
contracts with a government entity are so terminated, our revenues and
profitability could be adversely impacted.
OUR COMPLIANCE WITH THE CONTINUED LISTING STANDARDS OF THE NEW YORK STOCK
EXCHANGE. Our Common Shares are currently listed and traded on the New York
Stock Exchange (the "NYSE"). In April 2001, we received a notice from the NYSE
indicating that we did not currently meet its continued listing standards. As
required by the NYSE rules, we have issued a press release disclosing the
non-compliance and submitted a business plan to the NYSE that we believe
demonstrates our meeting or exceeding all of the continued listing standards
within 18 months of our receiving notice of non-compliance from the NYSE. The
NYSE will either accept the plan or the NYSE will not accept the plan and we
will be subject to possible suspension by the NYSE and delisting by the SEC.
While we believe that we will be in compliance with all of the NYSE's continued
listing criteria under our plan as provided by the NYSE rules, there can be no
assurance that we will continue to remain in compliance in the future. If our
Common Shares are delisted from the NYSE, we would pursue an alternative
national trading venue. Nevertheless, delisting could have a material adverse
affect on the price and/or liquidity of our Common Shares and on our ability to
raise capital in the future from the sale or issuance of our securities.
OUR OPERATIONS CAN BE IMPACTED BY INCLEMENT WEATHER. A large portion of our
service work is performed in the field. Therefore, excessive amounts of rain,
snow or cold, as well as other unusual weather conditions, including hurricanes
and typhoons, can result in work stoppages. Also, working under inclement
weather conditions can reduce our efficiencies, which can have a negative impact
on our profitability.
OUR BUSINESS IS IMPACTED BY CHANGES IN ENERGY PRICES. The products and services
we provide to our customers in the energy markets are, to some extent,
deferrable in the event that these customers reduce their capital and
discretionary maintenance expenditures. The level of spending on these types of
expenditures can be influenced by oil and gas prices and industry perceptions of
future prices. Our experience indicates that our energy customers react to
declining oil and gas prices by reducing their capital and discretionary
maintenance expenditures. This reaction has in the past, and may in the future,
have a negative impact on our business. We are unable to predict future oil and
gas prices. However, we believe that a prolonged period of low energy prices
could have a negative impact on our business. Typically, there is a delay
between the time prices decline and when we start to experience a negative
impact on our results of operations. Conversely, there is also a delay between
the time energy prices increase and when we start to experience a positive
impact on our results of operations.
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ADVERSE DEVELOPMENTS IN PENDING LITIGATION OR REGULATORY MATTERS. From time to
time, we are involved in litigation and regulatory proceedings, including those
disclosed in our periodic reports filed with the Securities and Exchange
Commission (see also Item 3, "Legal Proceedings"). There are always significant
uncertainties involved in litigation and regulatory proceedings. As to current
matters in litigation, we believe that our positions and defenses are
meritorious. However, the litigation process involves unpredictability and we
cannot guarantee the result of any action. Regulatory compliance is often
complex and subject to variation and unexpected changes, including changing
interpretations and enforcement agenda affecting the regulatory community. We
may need to spend significant financial resources in connection with legal and
regulatory procedures and our management may be required to divert attention
from other portions of our business. If, as a result of any proceeding, a
judgment is rendered or a decree is entered against us, it may materially and
adversely affect our business, financial condition and results of operations.
EXISTING, NEW OR CHANGED REGULATORY INITIATIVES CAN IMPACT OUR BUSINESS. Corrpro
and its customers are subject to federal, state and local environmental and
other laws and regulations. These laws and regulations affect our operations by
imposing standards for the protection of health, welfare and the environment.
Such laws and regulations, and applicable interpretations thereof, could expose
us to liability for acts which are or were in compliance at the time such acts
were performed. We cannot predict whether future legislative or regulatory
developments may occur which would have an adverse effect on Corrpro.
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ITEM 2. PROPERTIES
As of March 31, 2001, we owned eight of our locations. In addition,
over sixty locations were leased from unrelated third parties. Certain property
locations may contain multiple operations, such as an office and warehouse
facility. Owned and leased facilities with greater than 5,000 square feet are
listed below.
Location Segment Description Owned/Leased
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Bakersfield, California Domestic Core Office and Warehouse Facility Leased
Belle Chasse, Louisiana Domestic Core Office and Warehouse Facility Leased
Brampton, Ontario Canadian Ops. Office and Warehouse Facility Leased
Brisbane, Australia International Office and Warehouse Facility Leased
Conyers, Georgia Domestic Core Office and Warehouse Facility Leased
Dammam, Saudi Arabia International Production and Warehouse Facility Leased
Dorval, Quebec Canadian Ops. Office and Warehouse Facility Leased
Eastleigh, Hants, UK International Office and Warehouse Facility Owned
Edmonton, Alberta Canadian Ops. Office, Production and Warehouse Facility Owned
Nisku, Alberta Domestic Core Office and Warehouse Facility Owned
Estevan, Saskatchewan Canadian Ops. Office and Warehouse Facility Owned
Glendale, Arizona Domestic Core Office and Warehouse Facility Leased
Houston, Texas Domestic Core Office and Warehouse Facility Leased
Jakarta, Indonesia International Office and Warehouse Facility Leased
Medina, Ohio Corporate Corporate Headquarters Owned
Medina, Ohio Domestic Core Office and Warehouse Facility Owned
Melbourne, Australia International Office and Warehouse Facility Leased
Ocean City, New Jersey Domestic Core Office Facility Leased
Perth, Australia International Office and Warehouse Facility Leased
San Leandro, California Domestic Core Office, Production and Warehouse Facility Leased
Sand Springs, Oklahoma Domestic Core Office, Production and Warehouse Facility Leased
Santa Fe Springs, California Domestic Core Office, Production and Warehouse Facility Leased
and Other
Schaumburg, Illinois Domestic Core Office and Warehouse Facility Owned
Sharjah, UAE International Office and Production Facility Leased
Singapore International Office Facility Leased
Stockton-on-Tees, UK International Office, Production and Warehouse Facility Owned
Sydney, Australia International Office and Warehouse Facility Leased
Union, New Jersey Domestic Core Office and Warehouse Facility Leased
West Chester, Pennsylvania Domestic Core Office and Warehouse Facility Leased
We consider the properties owned or leased by us to be generally
sufficient to meet our requirements for office, production and warehouse space.
We do not consider any one of our properties to be significant, since we believe
that if it becomes necessary or desirable to relocate any of our office,
production and warehouse facilities, other suitable properties could be found.
Our owned properties are subject to mortgages or other security interests under
our Revolving Credit Facility, Senior Notes and other bank credit arrangements.
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ITEM 3. LEGAL PROCEEDINGS
We are a defendant in litigation arising from 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 United States Environmental Protection Agency ("EPA") and the
American Society for Testing and Materials ("ASTM") of standards permitting
non-invasive methods for inspecting and testing underground storage tanks. Prior
to the adoption of such standards, 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 Corrpro 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 Corrpro
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. We believe that the claims are without merit and have
filed a motion to dismiss the anti-trust claim for failure to state a claim. We
deny any allegations of wrongdoing and are 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
Corrpro 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 EPA and the
other states in which we utilized such methodologies for virtually identical
purposes. We believe that MDEQ's decision was in error and on January 24, 2000,
filed a complaint and claim of appeal in the Circuit Court for the County of
Ingham, Michigan seeking declaratory relief and appealing the decision on
several grounds. In its November 14, 2000 ruling, the Ingham Circuit Court
reversed MDEQ's administrative decision that directed we take certain actions,
however, the court also found that MDEQ had not approved of the full use of the
assessment methodologies we utilized in Michigan. We believe that the circuit
court's finding that MDEQ had not approved full use of the methodologies is not
supported by the evidence contained in the administrative record. Further, we
believe that such finding is contradicted by evidence contained in the
administrative record that the circuit court failed to consider. On December 5,
2000, we filed, in the Michigan Court of Appeals, an application for leave to
appeal the circuit court's finding that MDEQ did not approve the full use of the
assessment methodologies we utilized in Michigan. By order dated February 14,
2001, the Michigan Court of Appeals denied our application for leave to appeal
the circuit court's finding. On March 7, 2001, we filed an application for leave
to appeal with the Supreme Court of the State of Michigan. The Michigan Supreme
Court has not ruled on the application for leave to appeal. We believe our
position is meritorious and we continue to take such actions that are necessary
to protect and advance our interests.
During fiscal 2001, we discovered that a former employee evaluated
certain underground storage tanks to determine if they were eligible for upgrade
using cathodic protection. The former employee used one of several approved
assessment methodologies recognized by the EPA and state implementing agencies.
However, the former employee used an incorrect assessment standard in connection
with the evaluation of these underground storage tanks, which are located on as
many as 67 sites. The tanks at these sites, which are located in five states,
were subsequently upgraded using cathodic protection which arrests corrosion.
These tanks also are subject to ongoing leak detection requirements. When we
discovered this situation, we contacted the EPA and the corresponding
environmental protection agencies of the five states involved. In October and
November 2000, we met with officials from the EPA and the corresponding
environmental protection agencies of the five states involved to discuss this
matter. It is our understanding that none of the states or the EPA intend to
take any enforcement action as a result of the use of the incorrect standard by
our former employee. We are working with the states and the EPA to develop and
implement field investigation procedures to assess the current status of the
affected sites. Based on currently available information, we do not believe that
the cost of field investigation procedures will have a material effect on the
future operations, financial position or cash flows of the Company.
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We are subject to other legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability, if any, with respect to any such matters will not materially
affect future operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of fiscal 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of
the Company and certain other information relating to their position held with
the Company and other business experience.
Executive Officer Age Recent Business Experience
----------------- --- --------------------------
Joseph W. Rog 61 Chairman of the Board of Directors since June 1993 and Chief Executive
Officer since the Company's formation in 1984. President of the Company
since June 1995 and from January 1984 to June 1993.
Michael K. Baach 46 Executive Vice President since April 1993 and Senior Vice President from
1992 until April 1993. Prior to that, Mr. Baach was Vice President of Sales
and Marketing since the Company's formation in 1984.
George A. Gehring, Jr. 57 Executive Vice President since April 1993 and Senior Vice President
from 1991 until April 1993. Prior to that, Mr. Gehring served as President
of Ocean City Research Corporation, a wholly-owned subsidiary since 1987.
David H. Kroon 51 Executive Vice President since April 1993 and Senior Vice President
from the Company's formation in 1984 to April 1993.
Barry W. Schadeck 50 Executive Vice President since June 1995 and President of Corrpro
Canada, Inc., a wholly-owned subsidiary of the Company, since its
formation in May 1994. Prior to that, Mr. Schadeck served as President
since April 1993 and Chief Financial Officer since 1979 of Commonwealth
Seager Group, a wholly-owned subsidiary since 1993.
Kurt R. Packer 39 Executive Vice President, Chief Financial Officer, Secretary and
Treasurer since April 2001. Prior to joining the Company, Mr. Packer
was Senior Vice President and Chief Financial Officer with Lightsource
Telecom LLC, a development-stage facilities based telecommunications
provider, from August 2000 through March 2001. In January 1992, Mr. Packer
joined Wayne-Dalton Corp., an international manufacturer and distributor
of garage doors, where he served as Vice President, Chief Financial
Officer, Treasurer and Secretary from October 1995 until August 2000.
From September 1984 to January 1992, Mr. Packer was employed by Arthur
Andersen LLP, where he was a manager since 1989.
Michael R. Tighe 50 Executive Vice President since July 1999. Senior Vice President from January
1994 until July 1999. Prior to that, Mr. Tighe was President and General
Manager of Elgard Corporation, an anode manufacturer.
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Ted Bojanowski 44 Senior Vice President, Marketing and Strategic Planning since December
1999. Prior to that Mr. Bojanowski spent 18 years with Coltec
Industries, an industrial manufacturing firm servicing the oil, gas and
energy markets, in sales, marketing and operational roles of increasing
responsibility. His most recent position was Senior Vice President of
Marketing and Sales for its Garlock Sealing Technologies, Inc. subsidiary.
Robert M. Mayer 38 Vice President and Corporate Controller since August 2000. Assistant
Corporate Controller from January 1998 until August 2000. Prior to that,
Mr. Mayer was with Premier Farnell PLC, an industrial distributor of
electronic components, most recently as Director of Finance. Mr. Mayer
had prior experience with Ernst & Young, where he was an Audit Manager.
John D. Moran 43 General Counsel and Assistant Secretary since December 1996, Senior
Vice President since July 2000 and Vice President from October 1998 until
July 2000. Prior to that, Mr. Moran was in-house counsel for Sealy
Corporation for ten years and served as Secretary. Mr. Moran had prior
experience with Grant Thornton.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
PRICE RANGE OF COMMON SHARES
Our Common Shares are listed on the NYSE under the symbol "CO." The
following table sets forth the high and low closing sale prices for the Common
Shares on the NYSE for the fiscal periods indicated.
FISCAL 2001 FISCAL 2000
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 4.75 $ 3.13 $ 11.38 $ 8.63
Second Quarter 4.38 3.13 9.25 5.88
Third Quarter 4.13 2.94 8.25 5.25
Fourth Quarter 3.06 1.65 6.00 4.75
In April 2001, we received a notice from the NYSE indicating that we
did not then meet its continued listing standards. A listed company that falls
below the NYSE's continued listing standards may submit a business plan to the
NYSE demonstrating how it anticipates meeting the standards within an eighteen
month period. After reviewing the plan, the NYSE will either accept the plan
(following which time the Company will be subject to quarterly monitoring for
compliance with the plan), or not (in which event the Company will be subject to
NYSE trading suspension and delisting). We submitted our plan to the NYSE in
June 2001, and we are currently awaiting a response from the NYSE regarding its
acceptance of our plan. Should our shares be delisted on the NYSE, we would seek
an alternative trading venue.
HOLDERS OF RECORD
On June 27, 2001, there were 225 holders of record of our Common
Shares.
DIVIDENDS
We have not paid any cash dividends on our Common Shares. We currently
anticipate that we will retain all future earnings for use in our business and
do not anticipate paying any cash dividends in the foreseeable future.
Provisions within our Revolving Credit Facility agreement and Senior Notes
agreement limit our ability to pay cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The financial data presented below for each of the five years ended
March 31 should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included elsewhere in
this Form 10-K.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
STATEMENT OF INCOME DATA:
Revenues $ 165,416 $ 168,442 $ 171,380 $ 146,581 $ 115,485
Operating income (1) 1,561 8,587 17,166 11,117 7,222
Interest expense 6,771 5,339 3,777 2,334 1,595
--------- --------- --------- --------- ---------
Income (loss) before income taxes (5,210) 3,248 13,389 8,783 5,627
Income tax provision (benefit) (504) 1,299 5,356 3,613 2,453
--------- --------- --------- --------- ---------
Income (loss) from continuing operations $ (4,706) $ 1,949 $ 8,033 $ 5,170 $ 3,174
========= ========= ========= ========= =========
EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS-
Basic $ (0.61) $ 0.25 $ 1.02 $ 0.63 $ 0.38
Diluted (0.61) 0.25 0.98 0.61 0.37
OTHER DATA:
EBITDA(2) $ 7,370 $ 14,677 $ 21,522 $ 14,587 $ 10,240
Working capital, excluding net assets held for sale 49,257 49,483 57,708 49,584 32,962
Total assets 138,134 139,825 146,050 134,240 106,212
Long-term debt, net of current portion 65,134 61,070 60,864 47,695 25,635
Shareholders' equity 45,323 54,235 58,056 57,961 54,676
(1) Includes unusual charges totaling $3,200 in fiscal 2001, $2,000 in fiscal
2000 and $1,700 in fiscal 1997.
(2) For purposes of the above table, "EBITDA" means earnings from continuing
operations before interest, taxes, depreciation and amortization and should not
be considered as an alternative to net income or any other generally accepted
accounting principle, as a measure of performance, as an indication of the
Company's operating performance or as a measure of liquidity. EBITDA is a widely
accepted financial indicator of a company's ability to service debt.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis contains certain statements 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
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. See "Business - Factors Influencing
Future Results and Accuracy of Forward Looking Information."
One of the primary factors affecting our fiscal 2001 results was the
continued decline in revenues domestically in the energy-related markets,
particularly the oil and gas sector. In addition, our business in the Middle
East has historically been characterized by large projects and there were fewer
such projects in that region in fiscal 2001 as compared to the prior year.
Offsetting these sluggish market sectors was the strong performance within our
fast growing coatings services business, where revenues nearly doubled in fiscal
2001 over fiscal 2000.
Fiscal 2001 results also were impacted by higher operating expense
levels, including those attributable to investments made in the Company's
infrastructure in areas such as sales, marketing and product development.
However, given the sales cycle of our industry, which can be long especially for
the larger more attractive projects, we did not expect to fully benefit from
such investments in fiscal 2001. Faced with relatively flat markets for our
cathodic protection services, we implemented a number of cost reductions in the
latter part of fiscal 2001, the effects of which will not be realized until
fiscal 2002.
In the fourth quarter of fiscal 2001, we saw signs that our overall
revenue trends were improving as we achieved revenue growth of 3.5% over the
prior-year period. We believe that the investments we have made over the last
several years in the sales and marketing and technology areas, along with our
recent cost reductions, will help to facilitate long-term revenue growth and
improve profitability.
In fiscal 2001, as a result of the restructuring of our internal
operations, we reconfigured our business segments by combining our operations in
Europe, Asia and Australia with that of the Middle East to form the
International Operations segment. Previously, our operations in Europe, Asia and
Australia were included in our Other Operations segment. Prior period business
segment information has been reconfigured to conform to current presentation.
OPERATING RESULTS OF THE COMPANY
YEAR ENDED MARCH 31, 2001 COMPARED TO YEAR ENDED MARCH 31, 2000
REVENUES
Revenues for fiscal 2001 totaled $165.4 million compared with $168.4
million for fiscal 2000, a decrease of 1.8%.
Fiscal 2001 revenues relating to our Domestic Core Operations segment
totaled $99.8 million, compared to $98.7 million in fiscal 2000, an increase of
1.1%. Revenue increases relating to our fast growing coatings services business
were offset by declines in our core cathodic protection business as a result of
the sluggish energy-related markets.
Revenues relating to our Canadian Operations segment totaled $24.3
million, compared to $26.2 million in fiscal 2000, a decrease of 7.1%. This
decrease in revenues is primarily because of the decline in the pipeline segment
of our cathodic protection business.
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Fiscal 2001 revenues relating to our International Operations segment
totaled $38.3 million, compared to $42.0 million in fiscal 2000, a decrease of
8.8%. The decrease related to the Middle East region, which had fewer active
large projects in fiscal 2001 as compared to the previous year. Business in this
region historically has been characterized by large projects and in fiscal 2000
there were several large projects in progress at the same time. The decrease in
our business in the Middle East region was partially offset by increased
revenues in both the Europe and Asia Pacific regions.
Our Other Operations segment had total revenues in fiscal 2001 of $9.0
million, compared to $10.8 million in fiscal 2000, a decrease of 16.5%. The
Other Operations segment includes our corrosion monitoring business and our risk
assessment and analysis software business. The revenue decline is primarily due
to lower revenues at our corrosion monitoring business.
GROSS PROFIT
On a consolidated basis, gross profit (defined as revenues less cost of
sales items) for fiscal 2001 totaled $50.3 million (30.4% of revenues) compared
to $52.0 million (30.9% of revenues) for fiscal 2000, a decrease in gross profit
dollars of 3.3%. Fiscal 2001 gross profit includes a $1.1 million unusual charge
which is described below. Fiscal 2000 gross profit includes a $1.5 million
unusual charge. Excluding the unusual charges, gross profit for fiscal 2001
totaled $51.4 million (31.1% of revenues) compared to $53.5 million (31.8% of
revenues) in fiscal 2000, a decrease in gross profit dollars of 3.9%. The
decrease in gross profit dollars in fiscal 2001 is the result of lower revenues
as discussed above and lower gross profit margins. The lower gross profit
margins relate primarily to our Domestic Core Operations segment. Operating
margins in that business were negatively impacted by inefficiencies associated
with the closing and consolidation of several district offices and unreimbursed
cost overruns on a large concrete coatings project.
UNUSUAL CHARGES
During fiscal 2001, we recorded unusual charges of $3.2 million, of
which $1.1 million is included in cost of sales and $2.1 million is included in
selling, general and administrative expenses, related to the cessation of
certain Mexican foundry operations, the disposition of a small non-core business
unit, the consolidation of district offices, severance pay and other costs
associated with the Company's cost reduction programs and expenses accrued in
connection with state regulatory proceedings and anti-trust litigation involving
the Company. See "Legal Proceedings" for a discussion of the regulatory and
litigation matters.
During fiscal 2000, we recorded an unusual charge of $2.0 million which
consisted of two items. The first item was a $1.5 million charge (included in
cost of sales) related to the consolidation of certain production facilities. As
part of this consolidation process, certain duplicate products were
discontinued. This $1.5 million charge represented the loss to be incurred in
connection with the disposal of the discontinued products. The remaining $0.5
million charge (included in selling, general and administrative expenses)
represented accrued costs to be incurred in connection with ongoing legal
matters. See "Legal Proceedings" for a discussion of these matters.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative ("S,G&A") expenses for fiscal 2001
totaled $48.7 million (29.4% of revenues), compared with $43.4 million (25.8% of
revenues) for fiscal 2000, an increase of 12.2%. Fiscal 2001 S,G&A expenses
include a $2.1 million unusual charge which is described above. Fiscal 2000
S,G&A expenses included a $0.5 million unusual charge. Excluding the unusual
charges, S,G&A expenses for fiscal 2001 were $46.6 million (28.2% of revenues),
compared to $42.9 million (25.5% of revenues) in fiscal 2000, an increase of
8.7%. The increase is attributable to investments made in the Company's
infrastructure in areas such as sales, marketing and product development.
However, given the sales cycle of our industry, which can be long especially for
the larger more attractive projects, we did not expect to fully benefit from
such investments in fiscal 2001. Faced with relatively flat markets for our
cathodic protection services, we implemented a number of cost reduction measures
in the latter part of fiscal 2001 designed to bring operating expenses more in
line with current revenue levels, the effects of which will not be realized
until fiscal 2002.
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OPERATING INCOME
Operating income for fiscal 2001 totaled $1.6 million, compared with
$8.6 million during fiscal 2000, a decrease of 81.8%. The decrease in operating
income is attributable to lower revenues, lower gross profit margins, unusual
charges and higher S,G&A expenses.
INTEREST EXPENSE
Interest expense for fiscal 2001 totaled $6.8 million, compared to $5.3
million for fiscal 2000. The increase is related to increased weighted average
borrowings as well as higher interest rates in fiscal 2001. See Note 3,
Long-Term Debt, to Notes to Consolidated Financial Statements included in
Item 8.
INCOME TAX PROVISION
We recorded an income tax benefit of $0.5 million for fiscal 2001,
compared to a provision for income tax expense of $1.3 million for fiscal 2000.
Our effective rate is based on the statutory rates in effect in the countries in
which we operate. The fiscal 2001 net consolidated effective tax rate was
negatively impacted during the year primarily due to losses generated by some of
our international subsidiaries for which no income tax benefit could be
recorded. See Note 5, Income Taxes, to Notes to Consolidated Financial
Statements included in Item 8 for reconciliation of our effective tax rates.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the foregoing, loss from continuing operations before
extraordinary charge for fiscal 2001 totaled $4.7 million, compared with income
from continuing operations before extraordinary charge of $1.9 million in fiscal
2000, a decrease of $6.7 million. Diluted earnings/loss per share decreased to
a loss of $0.61 in fiscal 2001 compared with income of $0.25 in fiscal 2000.
YEAR ENDED MARCH 31, 2000 COMPARED TO YEAR ENDED MARCH 31, 1999
REVENUES
Revenues for fiscal 2000 totaled $168.4 million, compared with $171.4
million for fiscal 1999, a decrease of 1.7%. The fiscal 2000 revenues included
full year results of Corrpro Australia, Basco Group, D.C. Corrosion and three
smaller acquisitions, as well as the results of CSI Coatings Systems and the
three other fiscal 2000 acquisitions, all subsequent to their respective
acquisition dates. The results of these acquisitions, in total, are no longer
separable as they have been integrated into the Company's operations. During
fiscal 1999, we benefited from the December 1998 regulatory deadline which
mandated that all Underground Storage Tanks ("UST") meeting certain specified
criteria must have corrosion protection systems in place by December 22, 1998 or
else be replaced or closed. As a result of the passing of the December 1998
deadline, our UST revenues declined significantly from $27.2 million in fiscal
1999 to $4.5 million in fiscal 2000. Excluding the impact of the UST market,
revenues increased 13.7% in fiscal 2000.
Fiscal 2000 revenues related to our Domestic Core Operations segment
totaled $98.7 million, compared to $110.5 million in fiscal 1999, a decrease of
10.7%. All of our UST revenues related to the Domestic Core Operations segment.
Excluding the impact of the UST market, the Domestic Core Operations segment
grew approximately 13% between years. This growth related to the general
engineering business as well as growth in target areas, such as coatings, above
ground storage tanks and electric power.
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Revenues related to the Canadian Operations segment totaled $26.2
million, compared to $17.9 million in fiscal 1999, an increase of 46.0%. A large
portion of this increase related to the acquisition of D.C. Corrosion and the
addition of two offices.
Fiscal 2000 revenues related to the International Operations segment
totaled $42.0 million, compared to $32.5 million in fiscal 1999, an increase of
29.0%. The Middle East benefited in fiscal 2000 from several capital projects,
including the construction of a new airport in Dubai, UAE. This project was
completed in fiscal 2000. Another project that was ongoing was the construction
of a large power plant in Saudi Arabia. Australia and Asia also experienced
increased revenues in fiscal 2000 which were partially offset by declining
revenue levels in Europe.
The Other Operations segment had total revenues in fiscal 2000 of $10.8
million, compared to $10.4 million in fiscal 1999, an increase of 4.2%. The
Other Operations segment saw a decline in the market for our corrosion
monitoring equipment business, which had not yet benefited from the recent
higher energy prices.
GROSS PROFIT
On a consolidated basis, gross profit (defined as revenues less cost of
sales items) for fiscal 2000 totaled $52.0 million (30.9% of revenues), compared
to $57.1 million (33.3% of revenues) for fiscal 1999, a decrease in gross profit
dollars of 8.9%. Excluding the $1.5 million unusual charge described below,
gross profit for fiscal 2000 totaled $53.5 million (31.8% of revenue), a
decrease in gross profit dollars of 6.3%. The decrease in gross profit dollars
in fiscal 2000 was the result of lower revenues as discussed above and lower
gross profit margins. The fiscal 1999 gross profit margins benefited from the
significant amount of high margin UST work that was completed during the year.
The lower margin percentages in fiscal 2000 also related to the Middle East
operations. The Middle East operations performed work on several large projects
in fiscal 2000 that contributed to a 46.1% increase in revenues for this area
but resulted in lower gross profit margins. These projects had a large
construction component which typically results in lower margins than pure
engineering work. Also impacting fiscal 2000 gross profit margins was $0.6
million of unreimbursed cost overruns on two large jobs completed during the
fourth quarter.
UNUSUAL CHARGES
During fiscal 2000, we recorded unusual charges of $2.0 million related
to two items. The first was a $1.5 million charge (included in cost of sales)
related to the consolidation of certain production facilities. As part of this
consolidation process, certain duplicate products were discontinued. This $1.5
million charge represented the loss to be incurred in connection with the
disposal of the discontinued products. The remaining $0.5 million charge
(included in S,G&A) represented accrued costs to be incurred in connection with
ongoing legal matters. See "Legal Proceedings" for a discussion of these
matters.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
S,G&A expenses for fiscal 2000 totaled $43.4 million (25.8% of
revenues), compared with $39.9 million (23.3% of revenues) for fiscal 1999, an
increase of 8.8%. Excluding the $0.5 million unusual charge described above,
S,G&A expenses for fiscal 2000 totaled $42.9 million (25.5% of revenue), an
increase of $3.0 million, or 7.5% over fiscal 1999. Almost the entire increase
in S,G&A expenses occurred during the fourth quarter of fiscal 2000. During the
fourth quarter of fiscal 2000, we incurred approximately $0.8 million of
unusually high levels of certain expenses including legal related costs,
employee medical benefits and relocation costs. In addition, we continued to
invest in the sales and marketing and technology areas of our business. These
investments also contributed to the higher S,G&A levels.
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OPERATING INCOME
Operating income for fiscal 2000 totaled $8.6 million compared with
$17.2 million during fiscal 1999, a decrease of 50.0%. The decrease in operating
income was attributable to lower revenues, lower gross profit margins and higher
operating expenses. Fiscal 2000 results also included the $2.0 million of
unusual charges discussed above. Excluding the unusual charges, operating income
decreased approximately 38.3%.
INTEREST EXPENSE
Interest expense for fiscal 2000 totaled $5.3 million, compared to $3.8
million for fiscal 1999. The increase related to increased weighted average
borrowings as well as higher interest rates in fiscal 2000. Weighted average
borrowings increased primarily because we used debt to finance the eleven
acquisitions we completed during fiscal years 1999 and 2000. In addition, the
weighted average interest rate on our variable rate debt increased from fiscal
1999 to 2000 due to increases in the general interest rate environment.
Approximately 50% of our debt in fiscal 2000 had a variable interest rate.
INCOME TAX PROVISION
We recorded a provision for income taxes of $1.3 million for fiscal
2000, compared to $5.4 million for fiscal 1999. The effective tax rate for both
fiscal 2000 and 1999 was 40.0%. See Note 5, Income Taxes, to Notes to
Consolidated Financial Statements included in Item 8 for reconciliation of our
effective tax rates.
INCOME FROM CONTINUING OPERATIONS
As a result of the foregoing, income from continuing operations before
extraordinary charge for fiscal 2000 totaled $1.9 million, compared with $8.0
million in fiscal 1999, a decrease of 75.7%. Diluted earnings per share
decreased 74.5% to $0.25 in fiscal 2000, compared with $0.98 in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, we had working capital of $49.3 million, compared to
$49.5 million at March 31, 2000, a decrease of $0.2 million.
During fiscal 2001, cash used for operating activities totaled $3.2
million. This usage resulted primarily from a combination of the operating loss
incurred in 2001 and a $5.8 million increase in accounts receivable, partially
offset by depreciation and amortization of $5.8 million. Cash used for investing
activities totaled $1.3 million during fiscal 2001, which included $2.3 million
for capital expenditures offset by $1.0 million of proceeds from the disposal of
capital assets. Cash provided by financing activities totaled $6.5 million
during fiscal 2001, which included net borrowings of $6.4 million.
We currently have a Revolving Credit Facility, as amended as of June
29, 2001, in the amount of $45.0 million, subject to a borrowing base formula
which limits the amount we can borrow under the facility to the lessor of $40.0
million, or borrowing base amounts as defined. This Revolving Credit Facility
expires on April 30, 2002. In addition to the Revolving Credit Facility, we have
various smaller lines of credit with foreign banks which totaled approximately
$5.3 million as of March 31, 2001. Total availability under the Revolving Credit
Facility and foreign credit facilities at March 31, 2001, was approximately $9.0
million after giving consideration to the borrowing base limitations under the
Revolving Credit Facility. We were in compliance with, or had obtained waivers
for, all debt covenants at March 31, 2001. See Note 3, Long-Term Debt, to Notes
to Consolidated Financial Statements included in Item 8 for further discussion
of our credit facilities.
Due to the fact that our Revolving Credit Facility expires on April
30, 2002, it will be necessary for the Company to amend this Revolving Credit
Facility to extend the expiration date. If we are unable to extend the
expiration date, it will be necessary for the Company to refinance or repay
this debt. We cannot be assured that we will be able to accomplish such a
transaction. Failure to do so could have a material adverse effect on our
operations.
During fiscal 2001, the Company incurred significant costs in
connection with several matters including the matters discussed under "Legal
Proceedings." At March 31, 2001, we established a reserve for costs associated
with several matters. We expect to pay these amounts over the next several
fiscal years. However, the actual amount of costs to be paid relating to these
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and other matters may exceed our estimates and the timing of such payments may
be sooner than we anticipate.
We used proceeds from our domestic and foreign credit facilities along
with cash on hand to fund our fiscal 2000 and fiscal 1999 acquisitions and the
fiscal 2001 net loss. We believe that cash generated by operations and amounts
available under our Revolving Credit Facility and foreign lines of credit will
be sufficient to satisfy our liquidity requirements through at least fiscal
2002. However, there can be no assurance that the Company's credit facilities
will continue to be available to the Company or that replacement financing on
acceptable terms will be available, which would have a material adverse effect
on the Company's financial condition. See "Business -- Factors Influencing
Future Results and Accuracy of Forward Looking Information."
CHANGES IN ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. This
Statement is effective for all quarters of fiscal years beginning after June 15,
2000. Therefore, we are required to implement SFAS 133 in the first quarter of
fiscal 2002. Implementation of SFAS 133 will not affect our financial position
or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSURES
In the normal course of business, our operations are exposed to
continuing fluctuations in foreign currency values and interest rates that can
affect the cost of operating and financing. Accordingly, we address a portion of
these risks through a program of risk management.
INTEREST RATE RISK
Our primary interest rate risk exposure results from our Revolving
Credit Facility, Senior Notes and various smaller lines of credit that we
maintain with foreign banks. If interest rates were to increase 200 basis points
(2%) from March 31, 2001 rates, and assuming no changes in debt from the March
31, 2001 levels, the additional annual expense would be approximately $1.4
million on a pre-tax basis.
FOREIGN OPERATIONS AND FOREIGN CURRENCY EXCHANGE RISK
Our foreign subsidiaries generally conduct business in local
currencies. During fiscal 2001, the Company recorded an unfavorable foreign
currency translation adjustment of $4.8 million related to net assets located
outside the United States. This foreign currency translation adjustment resulted
primarily from the strengthening of the United States dollar in relation to the
Canadian dollar, Australian dollar and British pound. Our foreign operations are
also subject to other customary risks of operating in a global environment, such
as unstable political situations, the effect of local laws and taxes, tariff
increases and regulations and requirements for export licenses, the potential
imposition of trade or foreign exchange restrictions and transportation delays.
21
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Corrpro Companies, Inc.
We have audited the accompanying consolidated balance sheets of Corrpro
Companies, Inc. and subsidiaries (the Company) as of March 31, 2001 and 2000,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended March 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Corrpro Companies, Inc. and subsidiaries as of March 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Cleveland, Ohio
May 14, 2001, except for Note 3 as to which the date is July 13, 2001
22
23
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND 2000
(In Thousands)
ASSETS
2001 2000
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 3,900 $ 1,965
Accounts receivable, less allowance for doubtful accounts
of $2,434 and $1,963 at March 31, 2001 and 2000, respectively 43,222 38,561
Inventories 22,298 24,118
Prepaid expenses and other 4,734 6,646
Deferred income taxes 2,688 2,557
--------- ---------
Total current assets 76,842 73,847
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 593 598
Buildings and improvements 6,615 7,523
Equipment, furniture and fixtures 19,667 20,234
--------- ---------
26,875 28,355
Less accumulated depreciation (13,630) (12,202)
--------- ---------
Property, plant and equipment, net 13,245 16,153
--------- ---------
OTHER ASSETS:
Goodwill, net 37,139 40,437
Deferred income taxes 6,056 3,716
Other assets 4,852 5,672
--------- ---------
Total other assets 48,047 49,825
--------- ---------
$ 138,134 $ 139,825
========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
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24
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND 2000
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
2001 2000
---- ----
CURRENT LIABILITIES:
Short-term borrowings $ 939 $ 795
Current portion of long-term debt 2,216 521
Accounts payable 14,007 15,157
Accrued liabilities and other 10,423 7,891
--------- ---------
Total current liabilities 27,585 24,364
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION 65,134 61,070
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST 92 156
SHAREHOLDERS' EQUITY:
Serial Preferred Shares, voting, no par value;
1,000 shares authorized and unissued -- --
Common Shares, voting, no par value, at stated value;
40,000 shares authorized; 8,538 and
8,536 shares issued in 2001 and 2000; 7,897 and
7,687 shares outstanding in 2001 and 2000 2,276 2,276
Additional paid-in capital 49,979 51,486
Accumulated earnings 5,541 10,247
--------- ---------
57,796 64,009
Accumulated other comprehensive loss (6,449) (1,699)
Common Shares in treasury, at cost; 641
and 849 shares held in 2001 and 2000 (6,024) (8,075)
--------- ---------
Total shareholders' equity 45,323 54,235
--------- ---------
$ 138,134 $ 139,825
========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Data)
2001 2000 1999
---- ---- ----
Revenues $ 165,416 $ 168,442 $ 171,380
Operating costs and expenses:
Cost of sales 115,154 116,454 114,314
Selling, general and administrative expenses 48,701 43,401 39,900
--------- --------- ---------
Operating income 1,561 8,587 17,166
Interest expense 6,771 5,339 3,777
--------- --------- ---------
Income (loss) from continuing operations before
income taxes and extraordinary charge (5,210) 3,248 13,389
Provision for income taxes (504) 1,299 5,356
--------- --------- ---------
Income (loss) from continuing operations before
extraordinary charge (4,706) 1,949 8,033
Discontinued operations:
Income (loss) from operations, net of income taxes -- (353) 462
Loss on disposal, net of income taxes -- (4,264) (3,998)
--------- --------- ---------
Income (loss) before extraordinary charge (4,706) (2,668) 4,497
Extraordinary charge, net of income taxes -- -- (246)
--------- --------- ---------
Net income (loss) $ (4,706) $ (2,668) $ 4,251
========= ========= =========
Earnings (loss) per share - Basic:
Income (loss) from continuing operations before
extraordinary charge $ (0.61) $ 0.25 $ 1.02
Discontinued operations:
Income (loss) from operations, net of income taxes -- (0.05) 0.06
Loss on disposal, net of income taxes -- (0.55) (0.51)
Extraordinary charge, net of income taxes -- -- (0.03)
--------- --------- ---------
Net income (loss) $ (0.61) $ (0.35) $ 0.54
========= ========= =========
Weighted average shares outstanding - Basic 7,736 7,663 7,851
========= ========= =========
Earnings (loss) per share - Diluted:
Income (loss) from continuing operations before
extraordinary charge $ (0.61) $ 0.25 $ 0.98
Discontinued operations:
Income (loss) from operations, net of income taxes -- (0.05) 0.06
Loss on disposal, net of income taxes -- (0.54) (0.49)
Extraordinary charge, net of income taxes -- -- (0.03)
--------- --------- ---------
Net income (loss) $ (0.61) $ (0.34) $ 0.52
========= ========= =========
Weighted average shares outstanding - Diluted 7,736 7,824 8,224
========= ========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
25
26
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(In Thousands)
ACCUMULATED
OTHER
COMPRE- COMMON
SERIAL ADDITIONAL ACCUM- HENSIVE SHARES
PREFERRED COMMON PAID-IN ULATED INCOME IN
SHARES SHARES CAPITAL EARNINGS (LOSS) TREASURY TOTAL
---------- ------ ---------- -------- ---------- -------- -----
March 31, 1998 $ -- $ 2,245 $ 50,708 $ 8,664 $ 482 $ (4,138) $ 57,961
Comprehensive Income:
Net income -- -- -- 4,251 -- -- 4,251
Cumulative translation adjustment -- -- -- -- (1,895) -- (1,895)
--------
Total Comprehensive Income -- -- -- -- -- -- 2,356
Exercise of 39 stock options -- 10 237 -- -- -- 247
Repurchase of 249 Common Shares -- -- -- -- -- (2,833) (2,833)
Issuance of 26 shares -- -- -- -- -- 325 325
---------- -------- -------- -------- -------- -------- --------
March 31, 1999 -- 2,255 50,945 12,915 (1,413) (6,646) 58,056
Comprehensive Loss:
Net loss -- -- -- (2,668) -- -- (2,668)
Cumulative translation adjustment -- -- -- -- (286) -- (286)
--------
Total Comprehensive Loss -- -- -- -- -- -- (2,954)
Exercise of 82 stock options -- 21 541 -- -- -- 562
Repurchase of 153 Common Shares -- -- -- -- -- (1,429) (1,429)
---------- -------- -------- -------- -------- -------- --------
March 31, 2000 -- 2,276 51,486 10,247 (1,699) (8,075) 54,235
Comprehensive Loss:
Net loss -- -- -- (4,706) -- -- (4,706)
Cumulative translation adjustment -- -- -- -- (4,750) -- (4,750)
--------
Total Comprehensive Loss -- -- -- -- -- -- (9,456)
Exercise of 2 stock options -- -- 4 -- -- -- 4
Issuance of 208 Treasury shares -- -- (1,511) -- -- 2,051 540
---------- -------- -------- -------- -------- -------- --------
March 31, 2001 $ -- $ 2,276 $ 49,979 $ 5,541 $ (6,449) $ (6,024) $ 45,323
========== ======== ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(In Thousands)
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (4,706) $ (2,668) $ 4,251
Adjustments to reconcile net income (loss)
to net cash provided (used) by continuing operations:
Depreciation and amortization 5,809 6,090 4,356
Asset impairment 659 -- --
401K matching contributions in Treasury shares 361 -- --
Deferred income taxes (2,423) (758) (776)
Loss on sale of assets (100) (8) --
Income/loss from discontinued operations -- 353 (462)
Loss on disposal of discontinued operations -- 4,264 3,998
Minority interest (53) (39) (265)
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (5,792) 10,948 (4,819)
Inventories 590 2,840 (1,911)
Prepaid expenses and other 1,498 (1,771) 2,727
Other assets (1,864) (2,459) (1,228)
Accounts payable and accrued expenses 2,813 (3,259) (6,151)
-------- -------- --------
Total adjustments 1,498 16,201 (4,531)
-------- -------- --------
Net cash provided (used) by continuing operations (3,208) 13,533 (280)
Net cash provided by discontinued operations -- 147 2,529
-------- -------- --------
Net cash provided (used) by operations (3,208) 13,680 2,249
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (2,282) (3,800) (3,742)
Proceeds from disposal of property, plant and equipment 999 346 323
Acquisitions, net of cash acquired -- (8,542) (11,989)
Other assets -- -- (3,998)
-------- -------- --------
Net cash used by investing activities (1,283) (11,996) (19,406)
-------- -------- --------
Cash flows from financing activities:
Long-term debt, net 6,924 (1,190) 14,391
Repayment of other debt (564) (1,240) 1,359
Refinance of domestic credit facility -- -- (30,030)
Initial borrowings under new domestic credit facility -- -- 29,000
Net proceeds from issuance of Common Shares 183 504 106
Repurchase of Common Shares, net -- (1,429) (2,508)
-------- -------- --------
Net cash provided (used) by financing activities 6,543 (3,355) 12,318
-------- -------- --------
Effect of changes in foreign currency exchange rates (117) (321) 109
-------- -------- --------
Net increase (decrease) in cash 1,935 (1,992) (4,730)
Cash and cash equivalents at beginning of year 1,965 3,957 8,687
-------- -------- --------
Cash and cash equivalents at end of year $ 3,900 $ 1,965 $ 3,957
======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
27
28
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(In Thousands, Except Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation and basis of presentation
The consolidated financial statements include the accounts of Corrpro
Companies, Inc. and its subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain fiscal 2000 and 1999 amounts have been reclassified to conform with the
fiscal 2001 presentation.
The Company's operations provide corrosion control engineering and
monitoring services, systems and equipment to the infrastructure, environmental
and energy markets throughout the world, including Asia, Australia, Europe, the
Middle East, North America and South America.
Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments
with an original maturity of three months or less.
Accounts receivable
Accounts receivable are presented net of allowances for doubtful
accounts of $2,434 and $1,963 at March 31, 2001 and 2000. Bad debt expense
totaled $696, $546 and $529 in fiscal 2001, 2000 and 1999, respectively.
The Company performs ongoing credit evaluations of its customers'
financial condition. Corrosion control services and products are provided to a
large number of customers with no substantial concentration in a particular
industry or with an individual customer.
Inventories
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out method. Inventories are stated net of
reserves for excess, slow moving and potentially obsolete materials. Inventories
consist of the following at March 31, 2001 and 2000:
2001 2000
---- ----
Component parts and raw materials $ 9,450 $ 9,825
Work in process 2,140 2,609
Finished goods 11,717 14,316
-------- --------
23,307 26,750
Inventory reserve (1,009) (2,632)
-------- --------
$ 22,298 $ 24,118
======== ========
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29
Property, plant and equipment
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. The cost and accumulated depreciation for property, plant and
equipment sold, retired or otherwise disposed of are removed from the accounts,
and resulting gains or losses are reflected in income.
Substantially all of the Company's operations compute depreciation on
the straight-line method. Depreciation for the Company's Canadian Operations
segment is computed on the declining balance method. Estimated useful lives
range from 25 to 40 years for buildings and from 4 to 10 years for equipment,
furniture and fixtures. Leasehold improvements are depreciated over the term of
the lease. For income tax reporting purposes, depreciation is computed
principally using accelerated methods.
Depreciation expense totaled $3,356, $3,124 and $2,317 in fiscal 2001,
2000 and 1999, respectively.
Goodwill, patents and other intangibles
Goodwill is being amortized on a straight-line basis over periods
ranging from 20 to 40 years. It is the Company's policy to evaluate continually
the period of amortization and recoverability of goodwill based on an
evaluation of certain factors. Such factors include the occurrence of a
significant adverse event or change in the environment in which the business
operates or if the expected future net cash flows, undiscounted and without
interest, would become less than the carrying amount of the asset. An
impairment loss would be recorded in the period such determination is made
based on the fair value of the related businesses. Goodwill amortization
totaled $1,668, $1,587 and $1,196 in fiscal 2001, 2000 and 1999, respectively.
Accumulated amortization was $7,899 and $6,231 at March 31, 2001 and 2000,
respectively.
Included in other assets are amortizable assets consisting primarily of
patents, trademarks and covenants not to compete. Such assets, with a cost of
$3,262 and $3,170 at March 31, 2001 and 2000, respectively, are amortized on the
straight-line method over their estimated useful lives ranging from 4 to 20
years. Amortization expense for such assets totaled $254, $244 and $255 in
fiscal 2001, 2000 and 1999, respectively.
The Company uses an undiscounted cash flow method to periodically
review the net realizable value of goodwill and other intangible assets and
believes that such assets are realizable.
Fair value of financial instruments
The recorded value of cash and cash equivalents, receivables, payables,
accrued liabilities and short-term borrowings approximates fair value because of
the short maturity of these instruments. The recorded value of the Company's
long-term debt is considered to approximate fair value based on the borrowing
rates currently available to the Company for loans with similar terms and
maturities.
Revenue recognition
The Company records income from construction and engineering contracts
under the percentage-of-completion method. Under this method, revenues are
recognized in proportion to the ratio of costs incurred to currently estimated
total contract costs. Estimated earnings and costs on contracts are subject to
revision throughout the terms of the contracts, and any required adjustments are
recorded in the periods in which revisions are made. Accounts receivable
includes $869 and $1,133 at March 31, 2001 and 2000, respectively, of amounts
billed but not paid by customers under retainage provisions of contracts.
Prepaid expenses and other includes $2,806 and $4,357 at March 31, 2001 and
2000, respectively, of amounts related to costs and estimated earnings in excess
of billings on uncompleted contracts. The Company recognizes revenue from
product sales upon transfer of ownership.
29
30
Product development expenses
Expenditures for product development totaled approximately $1,006,
$1,169 and $563 in fiscal 2001, 2000 and 1999, respectively.
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
carry-forwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Unusual charges
During fiscal 2001, the Company recorded charges of $3,200, of which
$1,137 is included in cost of sales and $2,063 is included in selling, general
and administrative expenses related to the cessation of certain Mexican foundry
operations, the disposition of a small non-core business unit, the consolidation
of district offices, severance pay and other costs associated with the Company's
cost reduction programs and expenses accrued in connection with state regulatory
proceedings and anti-trust litigation involving the Company.
During fiscal 2000, the Company recorded an unusual charge of $2,000
which consisted of two items. The first item was a $1,500 charge to cost of
sales relating to the consolidation of certain production facilities. As part of
this consolidation process, certain duplicate products were discontinued. The
$1,500 charge represents the loss to be incurred in connection with the disposal
of the discontinued products. The remaining $500 charge to selling, general and
administrative expense represents accrued costs to be incurred in connection
with ongoing legal matters.
Extraordinary charge
During fiscal 1999, the Company recorded a $246 extraordinary charge,
net of tax benefit of $164, as a result of accelerated amortization of deferred
financing costs associated with a bank credit facility that was refinanced in
March 1999.
Earnings per share
Basic Earning Per Share ("EPS") is computed by dividing net income for
the period by the weighted average number of common shares outstanding for the
period. Diluted EPS is computed by dividing net income by the weighted average
number of common shares and potential shares outstanding for the period. Stock
options are the only potential common shares and are considered in the Company's
diluted EPS calculation. Potential common shares are computed using the treasury
stock method. The effect of the incremental shares from stock options of 47 in
fiscal 2001 have been excluded from dilutive weighted average shares, as the net
loss for the year would cause the incremental shares to be antidilutive.
30
31
Comprehensive income
Comprehensive income includes net income and other revenues, expenses,
gains and losses that are excluded from net income but included as a component
of total shareholders' equity. Other comprehensive loss was $4,750, $286 and
$1,895 for the years ended March 31, 2001, 2000 and 1999, respectively. These
amounts are comprised of the effect 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 Sheet and Statement of Shareholders'
Equity as "Accumulated other comprehensive income (loss)."
Foreign currency translation
The functional currency of each foreign subsidiary is the respective
local currency. Assets and liabilities are translated at the year end exchange
rates and revenues and expenses are translated at average exchange rates for the
period. Resulting translation adjustments are recorded as a component of
shareholders' equity in other comprehensive income.
Financial statement estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts and
related disclosures. Actual results could differ from these estimates.
Stock-based compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and will continue to account for
stock-based compensation using Accounting Principles Board Opinion (APB) No. 25
"Accounting for Stock Issued to Employees."
2. ACQUISITIONS:
The results of the various acquisitions have been included in the
Company's results since the effective dates of the respective acquisitions. Pro
forma results have not been presented as the effect of the individual
acquisitions on the Company's financial statements were not material. No
acquisitions were made by the Company in fiscal 2001. The following is a
discussion of acquisition activity for fiscal 2000 and 1999:
Fiscal 2000
Effective April 1, 1999, the Company acquired certain assets and
assumed certain liabilities of CSI Coatings Systems, Inc. ("CSI"). The purchase
price was $5,060 in cash plus the assumption of $893 of long-term debt. 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 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 and is being amortized over 20 years on a straight-line
basis.
During fiscal 2000, the Company also completed three smaller
acquisitions. The total purchase price for all three of these acquisitions was
$3,800 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
purchase prices have been allocated to the related net assets acquired based
upon 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
$1,726 and is being amortized over 20 years on a straight-line basis.
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32
Fiscal 1999
Effective July 1, 1998, the Company acquired certain assets and assumed
certain liabilities of the group of companies referred to as Wilson Walton
Australia (now Corrpro Australia). The purchase price was $4,166 in an all cash
transaction and included a post-closing purchase price adjustment of $317. The
acquisition of Corrpro Australia has been accounted for using the purchase
method of accounting. Accordingly, the purchase price has been allocated to the
net assets acquired based upon their fair market values at the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired totaled $4,480 and is being amortized over 40 years on a straight-line
basis.
Effective August 1, 1998, the Company acquired all the outstanding
shares of capital stock of the Basco group of companies ("Basco"). The purchase
price was $3,331 in an all cash transaction. The acquisition of Basco has been
accounted for using the purchase method of accounting. Accordingly, the purchase
price has been allocated to the net assets acquired based upon their fair market
values at the date of acquisition. The excess of the purchase price over the
fair value of net assets acquired totaled $1,855 and is being amortized over 40
years on a straight-line basis.
Effective March 1, 1999, the Company acquired certain assets and
assumed certain liabilities of D.C. Corrosion Corporation. The purchase price
was $2,356 in an all cash transaction. The acquisition of D.C. Corrosion has
been accounted for using the purchase method of accounting. Accordingly, the
purchase price has been allocated to the net assets acquired based upon their
fair market values at the date of acquisition. The excess of the purchase price
over the fair value of net assets acquired totaled $1,582 and is being amortized
over 40 years on a straight-line basis.
During fiscal 1999, the Company also completed four smaller
acquisitions. The total purchase price for all four of these acquisitions was
$3,056, which consisted of $2,856 of cash and $200 of Company stock. 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 purchase prices have been allocated to the related
net assets acquired based on their fair market values at the dates of
acquisition. The excess of the purchase price over the fair value of net assets
acquired totaled $2,574 and is being amortized over 40 years on a straight-line
basis.
3. LONG-TERM DEBT:
Long-term debt at March 31, 2001 and 2000 consisted of the following:
2001 2000
------- -------
Senior Notes, due 2008 $30,000 $30,000
Revolving Credit Facility 35,435 28,707
Other 1,915 2,884
------- -------
67,350 61,591
Less: current portion 2,216 521
------- -------
$65,134 $61,070
======= =======
In March 1999, the Company entered into an $80 million revolving credit
facility that expires on April 30, 2002 (the "Revolving Credit Facility").
Initial borrowings were used to repay existing domestic bank indebtedness.
Through a series of subsequent amendments, including an amendment executed by
the Company on July 12, 2001 and effective as of June 29, 2001, ("June 2001
Amendment"), the size of the Revolving Credit Facility was reduced to $45
million and borrowings under the facility were limited to $40 million.
Borrowings under the Revolving Credit Facility are further limited to borrowing
base amounts as defined. The June 2001 Amendment provides for interest on
borrowings at prime plus 2.50%. In addition, the June 2001 Amendment requires
the Company to pay a facility fee of 0.75% on the commitment amount. Borrowings
under the Revolving Credit Facility are secured by the Company's domestic
accounts receivable, inventories, certain intangibles, machinery and equipment
and owned real estate as well as certain assets in Canada. The Company has also
pledged slightly less than two-thirds of the capital stock of two of its foreign
subsidiaries. The Revolving Credit Facility, as amended, requires the Company to
maintain certain financial ratios and places limitations on the Company's
ability to pay cash dividends, incur additional indebtedness and make
investments, including acquisitions. The June 2001 Amendment also provides that
any payments made under the Senior Notes (see below) will result in a
proportionate reduction in the borrowing base under the Revolving Credit
Agreement.
Due to the fact that the Company's Revolving Credit Facility expires on
April 30, 2002, it will be necessary for the Company to amend this Revolving
Credit Facility to extend the expiration date. If the Company is unable to
extend the expiration date, it will be necessary for the Company to refinance or
repay this debt. The Company cannot be assured that it will be able to
accomplish such a transaction. Failure to do so could have a material adverse
effect on the Company's operations.
32
33
At March 31, 2001, the Company was in violation of several financial
covenants for which it obtained waivers through June 29, 2001. The Company was
in compliance with the financial covenants under the Revolving Credit Facility,
as amended by the June 2001 Amendment.
The weighted average interest rate on borrowings under the Revolving
Credit Facility was 9.6% during fiscal 2001.
In January 1998, the Company issued, through private placement, $30
million of Senior Notes due 2008 (the "Senior Notes"). The Senior Notes, as
amended, bear interest at 10.6% effective April 15, 2001. In addition, the
agreement relating to the Senior Notes, as amended, provides for an additional
fee at 0.75% per annum on the outstanding principal amount of the Senior Notes
for any quarter during which the ratio of debt to EBITDA equals or exceeds 4.00
to 1.00. The Senior Notes require monthly principal payments commencing in
February 2002 and are secured equally and ratably with debt under the Revolving
Credit Facility. The Company is required to maintain certain financial ratios
under the Senior Notes. As of March 31, 2001, the Company was in violation of
several of these financial covenants for which it obtained waivers through June
29, 2001. The Company is currently in compliance with the financial covenants
under the amended agreement relating to the Senior Notes, executed by the
Company on July 12, 2001 and effective June 29, 2001.
The weighted average interest rate on borrowings under the Senior Notes
was 9.1% during fiscal 2001.
Other long-term debt bear interest at various rates, which ranged from
6.2% to 7.0% at March 31, 2001 and 7.0% to 11.5% at March 31, 2000. The
obligations mature at various intervals between 2002 and 2007.
The Company's long-term debt matures as follows: $2,216 in 2002,
$41,842 in 2003, $4,923 in 2004, $4,923 in 2005, $4,923 in 2006 and $8,523 after
2006.
The Company also maintains available lines of credit from various
foreign banks approximating $5,349 at March 31, 2001, which are secured by the
assets of certain foreign subsidiaries. Short-term borrowings amounted to $939
and $795 at March 31, 2001 and 2000, respectively, under these lines of credit.
The interest rates on such borrowings at March 31, 2001 ranged from 7.0% to
11.0%.
Based on the terms of the June 2001 Amendment and giving consideration
to the borrowing base limitations, total availability under the Revolving Credit
Facility and foreign credit facilities at March 31, 2001, was approximately $9.0
million.
Cash paid for interest totaled $5,687, $4,786 and $4,138 for fiscal
years 2001, 2000 and 1999, respectively.
4. LEASES:
The Company leases certain office and warehouse space and equipment
under operating leases which expire at various dates through 2012. Future
minimum rental payments under long-term lease agreements are as follows: $2,624
in 2002, $1,526 in 2003, $1,122 in 2004, $724 in 2005, $408 in 2006 and $556
after 2006 with a cumulative total of $6,960. In addition, the Company rents
other property on a month-to-month basis.
Total rental expense was $4,164, $3,600 and $3,437 for fiscal 2001,
2000 and 1999, respectively.
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5. INCOME TAXES:
Components of income (loss) from continuing operations before income
taxes and extraordinary charge follow:
2001 2000 1999
---- ---- ----
United States $(5,133) $ 473 $11,406
Foreign (77) 2,775 1,983
------- ------- -------
$(5,210) $ 3,248 $13,389
======= ======= =======
Components of the provision for income taxes by jurisdiction follow:
Current -- Federal $ 441 $(2,674) $ 2,018
-- State and local 11 (102) 179
-- Foreign 1,515 2,178 1,774
------- ------- -------
1,967 (598) 3,971
------- ------- -------
Deferred -- Federal (2,517) 1,612 1,057
-- State and local (469) 154 119
-- Foreign 515 131 209
------- ------- -------
(2,471) 1,897 1,385
------- ------- -------
$ (504) $ 1,299 $ 5,356
======= ======= =======
Differences between the statutory United States federal income tax
rate (34%) and the effective income tax rate are as follows:
2001 2000 1999
---- ---- ----
Federal income tax provision (benefit)
at statutory rate $(1,771) $ 1,104 $ 4,814
State income taxes, net (303) 34 197
Foreign tax rate differential 1,035 66 (11)
Meals and entertainment 198 219 134
Other 337 (124) 222
------- ------- -------
Effective income tax $ (504) $ 1,299 $ 5,356
======= ======= =======
Temporary differences and carryforwards which give rise to deferred
tax assets and liabilities were comprised of the following at March 31, 2001 and
2000:
2001 2000
---- ----
DEFERRED TAX ASSETS
Bad debts $ 458 $ 451
Other reserves 1,329 1,233
Uniform cost capitalization 217 212
Accrued expenses 512 296
Pension and other benefit reserves 383 280
Minimum tax credit 557 557
Federal net operating loss carryforward 5,597 3,414
State net operating loss carryforwards 714 307
Other 626 644
------- -------
Total deferred tax assets 10,393 7,394
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DEFERRED TAX LIABILITIES
2001 2000
------- -------
Fixed assets (917) (935)
Other (732) (186)
------- -------
Total deferred tax liabilities (1,649) (1,121)
------- -------
Total net deferred taxes $ 8,744 $ 6,273
======= =======
Accrued liabilities included $536 and $1,040 at March 31, 2001 and
2000, respectively, related to accrued income taxes.
No provision for United States income tax on approximately $2,360 of
undistributed earnings of foreign subsidiaries at March 31, 2001 has been made
because the earnings are indefinitely reinvested in the subsidiaries.
Determination of the amount of the unrecognized deferred tax liability for
temporary differences related to investments in foreign subsidiaries is not
practicable.
The Company had state net operating loss carryforwards of approximately
$13,500 at March 31, 2001. At March 31, 2001, the Company had federal net
operating loss carryforwards of $16,200, which expire through 2021. The Company
also has federal credit carryforwards of $557 at March 31, 2001 relating to
non-expiring alternative minimum tax credits. The remaining federal credit
carryforwards and the state carryforwards expire in various future periods.
Cash paid for income taxes totaled $1,897, $2,471 and $3,044 for fiscal
2001, 2000 and 1999, respectively.
6. EMPLOYEE BENEFIT PLANS:
One of the Company's foreign subsidiaries has a contributory defined
benefit pension plan. Employees of such foreign subsidiary no longer accrue
benefits under the plan, however, the Company continues to be obligated to
fund prior period benefits. The Company funds the plan in accordance with
recommendations from independent actuaries. Pension benefits generally depend on
length of service and job grade.
The following table sets forth the change in benefit obligation, change
in plan assets, funded status, Consolidated Balance Sheets presentation, net
periodic pension benefit cost and the relevant assumptions for the Company's
defined benefit pension plan at March 31:
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36
2001 2000
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 4,176 $ 3,751
Service cost 0 216
Interest cost 211 245
Assumption change (221) 0
Plan participants' contributions 0 53
Benefits paid (84) (35)
Exchange rate effect (431) (54)
------- -------
Benefit obligation at end of year $ 3,651 $ 4,176
Change in plan assets
Fair value of plan assets at beginning of year $ 3,506 $ 3,087
Employer contributions 126 263
Plan participants' contributions 0 53
Benefits paid (84) (35)
Investment return (254) 479
Exchange rate effect (362) (341)
------- -------
Fair value of plan assets at end of year $ 2,932 $ 3,506
Funded status
Funded status $ (718) $ (670)
Unrecognized prior service cost 508 248
------- -------
Accrued pension amount $ (210) $ (422)
Amounts recognized in Consolidated Balance Sheets
Accrued benefit liability $ (210) $ (422)
2001 2000 1999
---- ---- ----
Net periodic pension benefit cost
Service cost $ 0 $ 216 $ 274
Interest cost 211 245 234
Actual return on assets (256) (485) (218)
Net amortization and deferral 0 245 10
------- ------- -------
Net periodic pension cost $ (45) $ 221 $ 300
Weighted-average assumptions as of March 31
Discount rate 6.5% 6.5% 6.5%
Long-term rate of return on plan assets 8.5% 8.5% 8.5%
Rate of increase in compensation level N/A 4.5% 4.5%
The Company also maintains the Corrpro Companies, Inc. 401(k) Savings
Plan for all eligible employees in the United States under Section 401(k) of the
Internal Revenue Code. The Company may, at its discretion, make contributions to
the plan. In addition, the Company matches a portion of employees'
contributions. Effective October 1, 2000, the Company began matching employee
contributions with treasury shares. For fiscal year 2001, the Company issued 148
treasury shares for the Company's matching portion. Total matching contributions
in cash and treasury shares totaled $973, $924 and $401 in fiscal 2001, 2000 and
1999, respectively.
The Company has entered into an agreement with one of its executives
which provides, among other things, that such employee shall be eligible to
receive retirement income, with a lifetime survivor benefit, in an amount equal
to 50% of base salary. The Company is providing for this deferred compensation
benefit over the term of the agreement.
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7. SHAREHOLDERS' EQUITY:
Stock Repurchase Program
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. No shares were repurchased in fiscal 2001 under
this program. During fiscal 2000 and 1999, respectively, the Company repurchased
approximately 153 and 249 shares, at a total cost of $1,429 and $2,833 under
this program. The Company's Revolving Credit Facility, as amended, provides for
limitations on the Company's ability to repurchase its outstanding common
shares.
Shareholder Rights Plan
On July 23, 1997, the Company adopted a Shareholder Rights Plan and
declared a dividend of one Right on each outstanding common share of the
Company. Each Right would entitle shareholders to buy, upon certain triggering
events, one one-hundredth of a newly created Series A Junior Participating
Preferred Share at an exercise price of $75 (subject to certain adjustments).
The record date for the distribution was August 7, 1997.
Subject to certain exceptions, Rights will become exercisable only
after a person or group acquires 20% or more of the Company's common shares or
announces a tender offer for 20% or more of the Company's common shares. The
Company's Board of Directors can redeem the Rights at $0.01 per Right at any
time before a person acquires 20% or more of the Company's common shares. If a
person or group acquires 20% or more of the Company's common shares, each Right
will entitle holders, other than the acquiring party, to purchase common shares
of the Company having a market value of twice the exercise price of the Right.
If, after the Rights have become exercisable, the Company merges or otherwise
combines with another entity, each Right then outstanding will entitle its
holder to purchase a number of the acquiring party's common shares having a
market value of twice the exercise price of the Right. The Plan also contains
other customary provisions and is similar to plans adopted by many other
companies. The Rights will expire in July 2007.
8. STOCK PLANS:
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 common shares are available for purchase under the plan.
The Company has options outstanding under various option plans
including the 1997 Long-Term Incentive Plan (the "1997 Option Plan") and the
1997 Non-Employee Directors' Stock Option Plan (the "1997 Directors Plan"). The
Company's 1994 Corrpro Stock Option Plan (the "1994 Plan") and the 1994 Corrpro
Outside Directors' Stock Option Plan (the "Directors Plan") were terminated upon
adoption of the 1997 Option Plan and the 1997 Directors Plan. In addition, prior
to its initial public offering in September 1993, the Company issued stock
options under various arrangements.
The 1997 Option Plan was adopted on April 28, 1997, subject to
shareholder approval, which was obtained on July 23, 1997. The 1997 Option Plan,
as amended, provides for the granting of up to 469 non-qualified stock options,
stock appreciation rights, restricted stock awards or stock bonus awards to
officers, key employees and consultants of the Company. In addition, the 1997
Option Plan provides that shares exercised, forfeited or otherwise terminated
under previously granted stock awards, other than awards under the 1994
Directors Plan, will also be available for grant under the new plan. The option
price per share will generally be the fair market value of the Company's common
shares on the date of grant and the term of the options will not exceed 10
years. The 1997 Option Plan will terminate on April 28, 2007. On April 30, 1998,
the Company adopted an amendment to the 1997 Option Plan increasing the number
of shares available for issuance by 300.
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38
The 1997 Directors Plan was also adopted on April 28, 1997. The 1997
Directors Plan provides for the granting of up to 63 non-qualified stock options
to current and future non-employee directors of the Company. Under this plan,
each non-employee director will annually be granted options to purchase 3 common
shares. The option price per share will be the fair market value of the
Company's common shares on the date of grant and the term of the options will be
10 years. The 1997 Directors Plan will terminate on April 28, 2007.
In fiscal 2001, the Company adopted a plan whereby holders of stock
options covered under the 1997 Option Plan could surrender options previously
granted with the understanding that a like number of options would be granted no
sooner than six months after surrender. Accordingly, options for 654 shares with
exercise prices ranging from $5.25 to $14.96 were surrendered during December
2000.
Stock option activity for the Company during fiscal 2001, 2000 and 1999
was as follows:
NUMBER OF SHARES 2001 2000 1999
---------------- ---- ---- ----
Options outstanding, beginning of year 1,107 1,229 1,165
Granted 425 45 116
Exercised (2) (82) (39)
Expired, canceled or surrendered (773) (85) (13)
------ ------ ------
Outstanding, end of year 757 1,107 1,229
------ ------ ------
Exercisable, end of year 444 907 870
Available for grant, end of year 891 568 375
Price range of options:
Granted $ 3.69 to $ 5.25 to $10.13 to
$ 4.00 $ 9.94 $12.80
Exercised $ 1.86 $ 1.86 to $ 1.86 to
$ 7.75 $ 6.93
Options outstanding, end of year $ 1.86 to $ 1.86 to $ 1.86 to
$13.78 $17.33 $17.33
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and will continue to account for
stock-based compensation using APB No. 25 "Accounting for Stock Issued to
Employees." Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's income
from continuing operations and income from continuing operations per share would
have been reduced to the pro forma amounts indicated below:
2001 2000 1999
---- ---- ----
Income (loss) from continuing operations:
As reported $ (4,706) $ 1,949 $ 8,033
Pro forma (5,113) 1,506 7,573
Income (loss) from continuing operations per share - Basic:
As reported $ (0.61) $ 0.25 $ 1.02
Pro forma (0.66) 0.20 0.96
Income (loss) from continuing operations per share - Diluted:
As reported $ (0.61) $ 0.25 $ 0.98
Pro forma (0.66) 0.19 0.92
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All options were granted at an exercise price equal to the market price
of the Company's common stock at the date of the grant. The weighted-average
market price at the date of grant for options granted during fiscal 2001, 2000
and 1999 was $3.75, $5.63 and $12.29 per option, respectively. The fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model. The significant assumptions used were risk-free interest
rates ranging from 4.2% to 7.0%, expected volatility of 46.5% for 2001, 49.0%
for 2000 and 27.2% for 1999, an expected life of 10 years and no expected
dividends.
The pro forma effects on net income for 2001, 2000 and 1999 are not
representative of the pro forma effects on net income in future years as the
compensation cost for each year's grant is recognized over its vesting period
and compensation costs for options granted prior to April 1, 1995 are not
considered.
9. 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. In fiscal 2001, as a
result of the Company restructuring its internal operations, the Company
reconfigured its business segments by combining its operations in Europe, Asia
and Australia with that of the Middle East to form the International Operations
segment. Previously, its operations in Europe, Asia and Australia were included
in its Other Operations segment. Prior period business segment information has
been reconfigured to conform with the current period presentation. The Company's
business segments and a description of the products and services they provide
are described below:
Domestic Core Operations. The Domestic Core Operations segment consists of the
Company's operations in the United States and Central and South America, which
provide products and services including corrosion control, coatings, pipeline
integrity, risk assessment and inspection services. This segment provides
corrosion control products and services to a wide-range of customers in a number
of industries including: energy, utilities, water and wastewater treatment,
chemical and petrochemical, pipelines, defense and municipalities. In addition,
this segment provides coatings services to customers in the entertainment,
aerospace, transportation, petrochemical and electric power industries, as well
as inspection services to customers in the pharmaceutical, chemical and energy
industries. Finally, this segment includes a production facility in the United
States that assembles and distributes cathodic protection products, such as
anodes, primarily to the United States market.
Canadian Operations. The Canadian Operations segment provides corrosion control,
pipeline integrity and inspection services to customers in Canada who are
primarily in the oil and gas industry. These customers include pipeline
operators, petrochemical plants and refineries. The Canadian Operations segment
also includes production facilities that assemble products such as anodes and
rectifiers.
International Operations. The International Operations segment consists of the
Company's operations in Europe, the Middle East, Australia and Asia, which
provide corrosion control products and services to customers in the petroleum,
utility, industrial, marine and offshore markets, as well as to governmental
entities in connection with their infrastructure assets. In addition to
corrosion control products and services, the Company's operation in Australia
also provides coatings and pipeline integrity services to a customer base, which
includes oil and gas, water treatment, mining and marine markets.
Other Operations. The Other Operations segment includes the Company's corrosion
monitoring equipment business, which assembles and sells products including
probes, instruments and access fittings to customers in the oil and gas and
chemical industries. In addition, this segment also includes the Company's risk
assessment and analysis software business, which sells or licenses products to
customers primarily in the oil and gas industry.
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Financial information relating to the Company's operations by segment are
presented below:
2001 2000 1999
---- ---- ----
Revenue:
Domestic Core Operations $ 99,788 $ 98,727 $ 110,522
Canadian Operations 24,328 26,189 17,940
International Operations 38,252 41,965 32,525
Other Operations 9,042 10,834 10,393
Eliminations (5,994) (9,273) --
--------- --------- ---------
$ 165,416 $ 168,442 $ 171,380
========= ========= =========
Operating Profit:
Domestic Core Operations $ 12,333 $ 15,389 $ 20,470
Canadian Operations 4,193 5,072 3,428
International Operations 1,322 3,862 2,811
Other Operations 1,409 698 (132)
Corporate Related Costs, Unusual Items and Other (17,696) (16,434) (9,411)
--------- --------- ---------
$ 1,561 $ 8,587 $ 17,166
========= ========= =========
Total Assets:
Domestic Core Operations $ 77,462 $ 73,411 $ 72,499
Canadian Operations 21,916 23,581 15,309
International Operations 19,617 22,628 26,995
Other Operations 12,375 11,337 13,346
Corporate Related Assets and Other 6,764 8,868 17,901
--------- --------- ---------
$ 138,134 $ 139,825 $ 146,050
========= ========= =========
Capital Expenditures, Net of Proceeds From Retirements:
Domestic Core Operations $ 1,322 $ 2,220 $ 1,134
Canadian Operations (91) 851 963
International Operations 247 (139) 498
Other Operations (40) 122 266
Corporate Related Capital Expenditures (155) 400 558
--------- --------- ---------
$ 1,283 $ 3,454 $ 3,419
========= ========= =========
Depreciation and Amortization:
Domestic Core Operations $ 1,727 $ 1,439 $ 1,225
Canadian Operations 729 730 522
International Operations 1,102 1,226 877
Other Operations 617 567 599
Corporate Related Depreciation and Amortization 1,634 2,128 1,133
--------- --------- ---------
$ 5,809 $ 6,090 $ 4,356
========= ========= =========
10. NET ASSETS HELD FOR SALE:
In fiscal 2000, the Company completed the disposition of its UK and
Asia foundry operations. The divested UK and Asia foundry operations are
reported as discontinued operations and the consolidated financial statements
have been reclassified to report separately the 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 $4,610 ($4,264 net of related tax benefit) in fiscal 2000. The loss
included $3,000 related to the write-off of goodwill and $1,610 of other costs
including severance payments and transaction related expenses. The Company
allocated interest of $45 and $90 in 2000 and 1999,
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respectively, based on the proceeds realized from the divestiture. Revenues from
the UK and Asia foundry operations, which are excluded from consolidated
revenues, totaled $6,416 and $22,870 in 2000 and 1999, respectively. The
revenues included intercompany sales of $2,122 and $5,560 in 2000 and 1999,
respectively. Income (loss) from discontinued operations totaled ($353) and $462
in 2000 and 1999, respectively.
During March 1997, the Company adopted a formal plan to put its
Corrtherm operation up for sale and as such, reported it as a discontinued
operation in the consolidated financial statements. As a result of the adoption
of the divestiture plan, the Company recorded a $6,000 charge ($3,960 net of the
related tax benefit) in March 1997. The charge included the estimated loss on
disposal and provisions for other estimated costs to be incurred in connection
with the disposal. During September 1998, the Company recorded an additional
charge of $6,057 ($3,998 net of the related tax benefit), which represented an
addition to the estimated loss on disposal. In March 1999, the Company completed
the disposition of its Corrtherm operation for consideration approximately equal
to its then current carrying value.
The Company allocated interest of $637 for fiscal year 1999 to
Corrtherm based on the estimated proceeds to be realized from the divestiture.
Revenues from Corrtherm, which are excluded from consolidated revenues,
totaled $5,793 in fiscal 1999 which included intercompany sales of $2,446.
11. LEGAL MATTERS:
The Company is a defendant in litigation arising from 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 United States Environmental Protection Agency ("EPA") and the
American Society for Testing and Materials ("ASTM") of standards permitting
non-invasive methods for inspecting and testing underground storage tanks. Prior
to the adoption of such standards, 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 Corrpro 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 claim
for failure to state a claim. 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 EPA 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. In its November 14, 2000 ruling, the Ingham Circuit
Court reversed MDEQ's administrative decision that directed the Company take
certain actions, however, the court also found that MDEQ had not approved of the
full use of the assessment methodologies the Company utilized in Michigan. The
Company believes that the circuit court's finding that MDEQ had not approved
full use of the methodologies is not supported by the evidence contained in the
administrative record. Further, the Company believes that such finding is
contradicted by evidence contained in the administrative record that the circuit
court failed to consider. On December 5, 2000, the Company filed in the Michigan
Court of Appeals, an application for leave to appeal the circuit court's finding
that MDEQ did not approve
41
42
the full use of the assessment methodologies the Company utilized in Michigan.
By order dated February 14, 2001, the Michigan Court of Appeals denied the
Company's application for leave to appeal the circuit court's finding. On March
7, 2001, the Company filed an application for leave to appeal with the Supreme
Court of the State of Michigan. The Michigan Supreme Court has not ruled on the
application for leave to appeal. The Company believes its position is
meritorious and it will continue to take such actions that are necessary to
protect and advance its interests.
During fiscal 2001, the Company discovered that a former employee
evaluated certain underground storage tanks to determine if they were eligible
for upgrade using cathodic protection. The former employee used one of several
approved assessment methodologies recognized by the EPA and state implementing
agencies. However, the former employee used an incorrect assessment standard in
connection with the evaluation of these underground storage tanks, which are
located on as many as 67 sites. The tanks at these sites, which are located in
five states, were subsequently upgraded using cathodic protection which arrests
corrosion. These tanks also are subject to ongoing leak detection requirements.
When the Company discovered this situation, it contacted the EPA and the
corresponding environment protection agencies of the five states involved. In
October and November 2000, the Company met with officials from the EPA and from
the corresponding environmental protection agencies of the five states involved
to discuss this matter. It is the Company's understanding that none of the
states or the EPA intend to take any enforcement action as a result of the use
of the incorrect standard by the former employee. The Company is working with
the states and the EPA to develop and implement field investigation procedures
to assess the current status of the affected sites. Based on currently available
information, the Company does not believe that the cost of field investigation
procedures will have a material effect on the future operations, financial
position or cash flows of the Company.
The Company is subject to other legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability, if any, with respect to any such matters will not
materially affect future operations.
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SUPPLEMENTAL FINANCIAL INFORMATION
Quarterly Results of Operations (Unaudited):
The following is a summary of the unaudited quarterly results of operations for
the fiscal years ended March 31, 2001 and 2000.
Three Months Ended 06/30/00 09/30/00 12/31/00 03/31/01 Total
------------------------------------------------------------------------------------------------------------------
(In Thousands, Except per Share Data)
Revenues $ 40,760 $ 43,486 $ 42,709 $ 38,461 $ 165,416
Operating income 2,055 2,293 2,721 (5,508) 1,561
Income (loss) from continuing operations 360 434 583 (6,083) (4,706)
Net income (loss) 360 434 583 (6,083) (4,706)
Earnings per share - Basic:
Income (loss) from continuing operations $ 0.05 $ 0.06 $ 0.08 $ (0.78) $ (0.61)
Net income (loss) 0.05 0.06 0.08 (0.78) (0.61)
Weighted average number of shares - Basic 7,687 7,706 7,731 7,822 7,736
Earnings per share - Diluted:
Income (loss) from continuing operations $ 0.05 $ 0.06 $ 0.07 $ (0.78) $ (0.61)
Net income (loss) 0.05 0.06 0.07 (0.78) (0.61)
Weighted average number of shares - Diluted
7,748 7,760 7,783 7,822 7,736
Three Months Ended 06/30/99 09/30/99 12/31/99 03/31/00 Total
------------------------------------------------------------------------------------------------------------------
(In Thousands, Except per Share Data)
Revenues $ 40,924 $ 44,623 $ 45,746 $ 37,149 $ 168,442
Operating income 3,701 4,913 4,174 (4,201) 8,587
Income (loss) from continuing operations 1,461 2,129 1,694 (3,335) 1,949
Net income (loss) 1,409 (2,196) 1,694 (3,575) (2,668)
Earnings per share - Basic:
Income (loss) from continuing operations $ 0.19 $ 0.28 $ 0.22 $ (0.43) $ 0.25
Net income (loss) 0.18 (0.29) 0.22 (0.47) (0.35)
Weighted average number of shares - Basic 7,706 7,618 7,643 7,687 7,663
Earnings per share - Diluted:
Income (loss) from continuing operations $ 0.18 $ 0.27 $ 0.22 $ (0.43) $ 0.25
Net income (loss) 0.18 (0.28) 0.22 (0.47) (0.34)
Weighted average number of shares - Diluted 8,007 7,787 7,763 7,687 7,824
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
registrant's definitive proxy statement to be used in connection with the Annual
Meeting of Shareholders to be held on August 16, 2001 ( the "2001 Proxy
Statement") is incorporated herein by reference. Information regarding executive
officers of the registrant is set forth in Part I, Item 4A of this form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to "Election of Directors," "Executive Compensation and Other
Information" and "Compensation Committee Interlocks and Insider Participation"
in the 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to "Corrpro Share Ownership" in the 2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to "Compensation Committee Interlocks and Insider Participation" in
the 2001 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS ARE INCLUDED
IN PART II, ITEM 8:
Report of Independent Accountants
Consolidated Balance Sheets at March 31, 2001 and 2000
Consolidated Statements of Income for the years ended March 31,
2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended
March 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES:
Independent Auditors' Report on Financial Statement Schedule
Schedule I -- Valuation and Qualifying Accounts
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(a)(3) INDEX TO EXHIBITS:
EXHIBIT
NO. EXHIBIT
------- -------
3.1 Amended and Restated Articles of Incorporation of the Company. (1)
3.2 Amended and Restated Code of Regulations of the Company. (2)
4.1 Specimen certificate for the Common Shares. (3)
4.2 Amended and Restated Credit Agreement dated as of June 9, 2000 among
Corrpro Companies, Inc., CSI Coating Systems, Inc. and the Lenders
Party thereto. Other long-term debt agreements of the Company, except
for Note Purchase Agreement, are not filed pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K. The Company will furnish copies of
any such agreements to the Securities and Exchange Commission upon its
request. (4)
4.3 First Amendment to Credit Agreement dated October 19, 2000 relating to
the Amended and Restated Credit Agreement dated as of June 9, 2000
among Corrpro Companies, Inc., CSI Coating Systems, Inc. and the
Lenders Party thereto.
4.4 Letter Agreement dated October 19, 2000 relating to the Amended and
Restated Credit Agreement dated as of June 9, 2000 among Corrpro
Companies, Inc., CSI Coating Systems, Inc. and the Lenders Party
thereto.
4.5 Second Amendment to Credit Agreement dated as of June 29, 2001 relating
to the Amended and Restated Credit Agreement dated as of June 9, 2000
among Corrpro Companies, Inc., CSI Coating Systems, Inc. and the
Lenders Party thereto.
4.6 Note Purchase Agreement dated as of January 21, 1998 by and among the
Company and the Purchaser herein. (5)
4.7 Rights Agreement dated as of July 23, 1997 between the Company and
Fifth Third Bank, successor Rights Agent. (6)
4.8 Amendment dated June 9, 2000 to Note Purchase Agreement dated January
21, 1998. (4)
4.9 Amendment dated October 18, 2000 to Note Purchase Agreement dated
January 21, 1998.
4.10 Letter Agreement dated October 18, 2000 by and between The Prudential
Insurance Company of America and the Company relating to the Note
Purchase Agreement dated as of January 21, 1998.
4.11 Amendment dated as of June 29, 2001 by and between The Prudential
Insurance Company of America and the Company relating to the Note
Purchase Agreement dated as of January 21, 1998.
4.12 1997 Long-Term Incentive Plan of Corrpro Companies, Inc. (7)
4.13 Amendment to 1997 Long-Term Incentive Plan of Corrpro Companies, Inc.
(8)
4.14 1997 Non-Employee Directors' Stock Option Plan. (7)
4.15 Corrpro Companies, Inc. Employee Stock Purchase Plan. (9)
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4.16 December 2000 Stock Option Agreement Surrender form.
10.1 Form of Indemnification Agreement for Officers and Directors of the
Company. (10)
10.2 Consulting Agreement dated April 1, 1997 by and between Commonwealth
Seager Holdings Ltd. and Corrtech Consulting Group. (11)
10.3 Employment Agreement effective November 2, 2000 by and between the
Company and Joseph W. Rog.
10.4 Form of Executive Officer Employment Agreement by and between the
Company and certain executive officers and schedule thereto. (10)
10.5 Stock Option Agreement dated as of June 15, 1992 and November 15, 1992
by and between the Company and C. Richard Lynham, Michael K. Baach,
George A. Gehring, Jr., David H. Kroon, and Joseph W. Rog. (3)
10.6 Company Incentive Option Plan as amended. (3)
10.7 Company Deferred Compensation Plan.
10.8 Consulting Agreement dated January 26, 2001, by and between the Company
and Neal R. Restivo.
10.9 Form of Change in Control Agreement entered into between the Company
and certain of its executive officers and schedule thereto. (10)
21.1 Subsidiaries of the Company. (4)
23.1 Consent of KPMG LLP.
---------------------
(1) A copy of this exhibit filed as Exhibit 3.1 to the Company's Form 10-Q
for the quarterly period ended December 31, 1998 is incorporated herein
by reference.
(2) A copy of this exhibit filed as Exhibit 4.2 of the Company's
Registration Statement on Form S-8 (Registration No. 33-74814) is
incorporated herein by reference.
(3) Copies of the exhibits to which this footnote applies were filed,
respectively, as Exhibits 4.1 (Stock certificate specimen), 10.13,
10.19, 10.20, 10.22, and 10.23 (Stock Option Agreements), and 10.25
(Incentive Option Plan) of the Company's Registration Statement
on Form S-1 (Registration No. 33-64482) and are hereby incorporated by
reference.
(4) Copies of the exhibits to which this footnote applies were filed,
respectively, as Exhibits 4.3 (Amended and Restated Credit Agreement),
4.6 (Note Purchase Agreement Amendment), and 21.1 (Subsidiaries) to
the Company's report on Form 10-K for the period ended March 31, 2000
and are hereby incorporated by reference.
(5) A copy of this exhibit filed as Exhibit 4.2 to the Company's report on
Form 10-Q for the quarterly period ended December 31, 1997 is
incorporated herein by reference.
(6) A copy of this exhibit filed as Exhibit 1.1 to the Company's Form 8-A
filed August 7, 1997 is incorporated herein by reference.
(7) Copies of the exhibits to which this footnote applies were filed,
respectively, as Exhibits 4.4 (1997 Long-Term Incentive Plan) and 4.5
(1997 Non-Employee Directors' Stock Option Plan) of the Company's
Registration Statement on Form S-8 filed October 24, 1997 (SEC File
No. 333-38767), and are hereby incorporated by reference.
(8) A copy of this exhibit filed as Exhibit 4.5 of the Company's
Registration Statement on Form S-8 filed January 19, 2000 (SEC File No.
333-94989) is incorporated herein by reference.
(9) A copy of this exhibit contained in Corrpro's Definitive Proxy
Statement on Schedule 14A filed with the Securities and Exchange
Commission on June 16, 1999 is incorporated herein by reference.
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47
(10) Copies of the exhibits to which this footnote applies were filed,
respectively, as Exhibits 10.2 (Change in Control Agreement) and 10.3
(Idemnification Agreement) of the Company's report on Form 10-Q for
the quarterly period ended December 31, 2000, and are hereby
incorporated by reference.
(11) A copy of this Exhibit filed as Exhibit 10.2 to the Company's report on
Form 10-K for the period ended March 31, 1998 is hereby incorporated by
reference.
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed during the three months
ended March 31, 2001.
(c) EXHIBITS
See "Index to Exhibits" at Item 14(a) above.
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48
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of Corrpro Companies, Inc.
Under date of May 14, 2001, except for Note 3 as to which the date is
July 13, 2001, we reported on the consolidated balance sheets of Corrpro
Companies, Inc. and Subsidiaries (the Company) as of March 31, 2001 and 2000,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended March 31, 2001,
which are included in this Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedule (Schedule I --Valuation and Qualifying Accounts)
also included in this Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
------------
KPMG LLP
Cleveland, Ohio
May 14, 2001, except for Note 3 as to which the date is July 13, 2001
48
49
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE I --VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(In Thousands)
BALANCE AT BALANCE AT
BEGINNING CHARGED TO CHARGES TO END
CLASSIFICATION OF YEAR EXPENSE(b) OTHER DEDUCTIONS(c) OF YEAR
------------------------------------- ---------- ---------- ---------- ------------- ----------
Allowance for doubtful accounts (a):
Year ended March 31, 2001 $1,963 $ 696 -- $ 225 $2,434
Year ended March 31, 2000 2,503 546 -- 1,086 1,963
Year ended March 31, 1999 2,151 529 -- 177 2,503
(a) Allowance for doubtful accounts is shown as a reduction of accounts
receivable in the Company's Consolidated Financial Statements.
(b) Charges to expense for the provision for doubtful accounts.
(c) Trade receivables written-off, net of recoveries of prior writeoffs.
BALANCE AT BALANCE AT
BEGINNING CHARGED TO CHARGES TO END
CLASSIFICATION OF YEAR EXPENSE(e) OTHER DEDUCTIONS(f) OF YEAR
-------------------------------- ---------- ---------- ---------- ------------- ----------
Reserve for Inventory Obsolescence (d):
Year ended March 31, 2001 $2,632 $ 105 -- $1,728 $1,009
Year ended March 31, 2000 1,099 1,626 -- 93 2,632
Year ended March 31, 1999 615 504 -- 20 1,099
(d) Reserve for inventory obsolescence is shown as a reduction of
inventories in the Company's Consolidated Financial Statements.
(e) Charges to expense for the provision for inventory obsolescence.
(f) Disposal of obsolete inventory net of proceeds.
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50
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
and 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.
July 13, 2001 By: /s/ Joseph W. Rog
--------------------------------------
Joseph W. Rog
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
July 13, 2001 /s/ Joseph W. Rog
-----------------------------------------
Joseph W. Rog
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
July 13, 2001 /s/ Kurt R. Packer
-----------------------------------------
Kurt R. Packer
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
July 13, 2001 /s/ Michael K. Baach
-----------------------------------------
Michael K. Baach, Director
July 13, 2001 /s/ David H. Kroon
-----------------------------------------
David H. Kroon, Director
July 13, 2001 /s/ C. Richard Lynham
-----------------------------------------
C. Richard Lynham, Director
July 13, 2001 /s/ Neal R. Restivo
-----------------------------------------
Neal R. Restivo, Director
July 13, 2001 /s/ Warren F. Rogers
-----------------------------------------
Warren F. Rogers, Director