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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(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, 2002
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
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
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
(TITLE OF CLASS) (TITLE OF CLASS)
AMERICAN STOCK EXCHANGE
(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 [ ]
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 $7,775,555 at July 5, 2002. (The aggregate market
value has been computed using the closing market price of the stock as reported
by the American Stock Exchange on July 5, 2002.) 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.
8,350,987
(Number of Common Shares outstanding as of July 5, 2002.)
DOCUMENTS INCORPORATED BY REFERENCE
Certain documents are incorporated from prior filings (see Part IV of this
Annual Report on Form 10-K).
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INTRODUCTORY NOTE
This Amendment No. 1 to the Company's Annual Report on Form 10-K is being
filed to file Items 6, 7, 7A and 8 of its Annual Report on Form 10-K and certain
portions of other items to the Form 10-K and to report Part III information in
lieu of the incorporation of such information by reference to the Company's
definitive proxy material for its 2002 Annual Meeting of Shareholders. The
remainder of the document remains as previously filed, except where updated as
appropriate.
Due to the accounting irregularities associated with the Company's
Australian subsidiary discussed in more detail below (see "Item 1 - Business -
Recent Developments"), the Company is, by means of this filing, restating its
previously issued audited financial statements for the fiscal year ended March
31, 2001. See Note 2, Restatement of Consolidated Financial Statements, Notes to
Consolidated Financial Statements included in Item 8 of this Form 10-K.
Unaudited quarterly financial information for the first nine months through
December 31, 2001 of its fiscal year ended March 31, 2002 and all four
quarters of its fiscal year ended March 31, 2001, as shown in Note 12, Restated
Quarterly Financial Information (Unaudited), Notes to Consolidated Financial
Statements included in Item 8 of this Form 10-K, is also being restated by
means of this filing.
PART I
ITEM 1. BUSINESS
GENERAL
Corrpro Companies, Inc. was founded in 1984 and is 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.
RECENT DEVELOPMENTS
On March 20, 2002, the Company announced that it had discovered accounting
irregularities caused by apparent internal misconduct in its Australian
subsidiary. The accounting irregularities involved the overstatement of revenues
and understatement of expenses by the Australian subsidiary. The irregularities
were discovered by Corrpro management in connection with an internal review of
the subsidiary's working capital management practices and cash flow problems
inconsistent with the subsidiary's reported results. Upon discovering the
irregularities, the Company immediately began an internal investigation
conducted under the direction of the Audit Committee of its Board of Directors.
The Audit Committee subsequently retained special counsel in connection with the
investigation and retained the forensic investigation unit of the accounting
firm, Deloitte Touche Tohmatsu.
The Company also announced in March 2002 that its Australian subsidiary
was in the process of appointing an administrator and commencing voluntary
administration proceedings, a process under Australian law providing relief from
creditors of Australian companies. Following the appointment, the Company
recorded a charge to earnings in the fiscal fourth quarter ended March 31, 2002
for its loss on investment related to the subsidiary. The Company also stated
that, to the extent that the accounting irregularities materially affect
previously filed financial statements, the Company expected that it would have
to restate its audited financial statements for its fiscal year which ended
March 31, 2001 as well as unaudited financial information for the first nine
months through December 31, 2001 of its fiscal year ended March 31, 2002, as
previously released. Accordingly, the financial statements for affected periods
and accompanying auditor's report should no longer be relied upon.
On June 13, 2002, the Company announced that the Australian Securities and
Investments Commission ("ASIC") had commenced an independent investigation of
the accounting irregularities. The Company also had voluntarily disclosed this
matter to the United States Securities and Exchange Commission ("SEC"), which
commenced an informal inquiry. The ASIC investigation and the SEC inquiry, which
is now a formal inquiry, both continue to be ongoing and the Company has been
and intends to continue cooperating with both commissions. See "Item 3 - Legal
Proceedings." The Company also announced that the creditors of the Australian
subsidiary effective in May 2002 had approved an arrangement under voluntary
administration proceedings.
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The Company also has announced that, as a result of the matters discussed
above, the Company is not in compliance with the provisions, including certain
financial covenants, of its existing senior secured credit agreement and its
senior note facility. The remedies available to these lenders upon default by
the Company, including acceleration of principal, would have a material adverse
impact on the Company's liquidity, its financial position and its ability to
operate as a going concern. The Company has continued to make scheduled monthly
interest payments on such senior debt; however, it has not made scheduled
principal payments that were due since April 2002 on the senior note facility.
The Company is continuing to hold discussions with its bank group and the holder
of its senior notes concerning the Company's non-compliance, operational changes
and debt reduction. If the Company is unable to satisfactorily resolve these
lender negotiations and/or access other sources of capital on a timely basis, it
would have a material adverse effect on the Company's liquidity and financial
condition and could result in the Company's inability to operate as a going
concern. If the Company is unable to operate as a going concern, it may have no
alternative but to file bankruptcy or insolvency proceedings or pursue a sale or
sales of assets to satisfy creditors.
Subsequent to the announcement of the investigation of the accounting
irregularities at the Australian subsidiary, a purported class action lawsuit
has been filed against the Company and certain of its current and former
directors and officers. See "Item 3 - Legal Proceedings."
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The Company is, by means of this filing, restating its previously issued
audited financial statements for the fiscal year ended March 31, 2001. See Note
2, Restatement of Consolidated Financial Statements, Notes to Consolidated
Financial Statements included in Item 8 of this Form 10-K. Unaudited quarterly
financial information for the first three quarters of the fiscal year ended
March 31, 2002 and all four quarters of its fiscal year ended March 31, 2001, as
shown in Note 12, Restated Quarterly Financial Information (Unaudited), Notes to
Consolidated Financial Statements included in Item 8 of this Form 10-K, is also
being restated by means of this filing.
The effect of the Company's revisions will be to increase the Company's
loss and basic and diluted loss per share, respectively, from $4.7 million and
$0.61 to $8.3 million and $1.07 for the fiscal year ended March 31, 2001.
Consolidated stockholders' equity as of March 31, 2001 decreased by
approximately $3.8 million from amounts previously reported.
Unless otherwise expressly stated, all financial information in this
Annual Report on Form 10-K is presented inclusive of these revisions.
OPERATIONS OF AUSTRALIAN SUBSIDIARY
The Australian companies appointed an administrator and commenced
voluntary administration proceedings at March 21, 2002, a process under
Australian law providing relief from creditors of Australian companies.
Following the appointment, the Company no longer controlled the Australian
subsidiary and recorded a charge to earnings of approximately $2.5 million in
the fiscal fourth quarter ended March 31, 2002 for its loss on investment
related to the subsidiary. The results of operations of the subsidiary are
included in the Company's Consolidated Statements of Operations through March
31, 2002. The assets and liabilities of the subsidiary are not included in the
Consolidated Balance Sheet of the Company as of March 31, 2002, as the Company
has written off its investment in the subsidiary. Thereafter, results from the
subsidiary are not includable in the Company's consolidated financial
statements. See Note 14, Corrpro Companies Australia, Notes to Consolidated
Financial Statements included in Item 8 of this Form 10-K.
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.
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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 73%, 81% and 91% of our revenues in fiscal
years 2002, 2001 and 2000, 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 22%, 15% and 5% of our revenues in
fiscal years 2002, 2001 and 2000, respectively.
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 5%, 4% and 4%
of our revenues in fiscal years 2002, 2001 and 2000, respectively.
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ACQUISITIONS AND DISPOSITIONS
We have broadened our business capabilities and expanded our geographic
presence through a series of acquisitions. We made twenty strategic acquisitions
between fiscal 1987 and fiscal 1999. The following table details acquisitions
made subsequent to fiscal 1999.
YEAR
ACQUISITION ACQUIRED
CSI Coatings Systems, Inc. FY 2000 Specialty coatings application services
Acquisition of remote monitoring technology FY 2000 Product line expansion - corrosion monitoring
Borza Inspections Ltd. FY 2000 Inspection services - Western Canada
Corrosion and Technical Services, WWL FY 2000 Geographic expansion - Bahrain
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. 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 $101.5 million (or 59% of consolidated
revenues), $99.7 million (or 61% of consolidated revenues) and $98.7 million (or
59% of consolidated revenues) during fiscal 2002, 2001 and 2000, respectively.
CANADIAN OPERATIONS. Our Canadian Operations segment provides corrosion control,
pipeline integrity and inspection services to customers in Canada which 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 $21.3 million
(or 12% of consolidated revenues), $24.3 million (or 15% of consolidated
revenues) and $26.2 million (or 16% of consolidated revenues) during fiscal
2002, 2001 and 2000, respectively.
INTERNATIONAL OPERATIONS. Our International Operations segment consists of
operations in Europe, the Middle East 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. This segment had included our Australian subsidiary
until it became subject to voluntary administration. Revenues relating to this
segment (including Australian operations prior to voluntary administration)
totaled $37.3 million (or 22% of consolidated revenues), $36.9 million (or 22%
of consolidated revenues) and $42.0 million (or 25% of consolidated revenues)
during fiscal 2002, 2001 and 2000, 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 $12.1 million (or 7% of consolidated revenues),
$9.0 million (or 6% of consolidated revenues) and $10.8 million (or 6% of
consolidated revenues) during fiscal 2002, 2001 and 2000, respectively.
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Further information about our business segments is included in Note 10,
Business Segments, 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, 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
we 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.
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.
FOREIGN OPERATIONS
The Company's foreign operations are subject to the usual risks of
operating in foreign jurisdictions. They include, but are not limited to,
exchange controls, currency restrictions and fluctuations, changes in local
economics and changes in political conditions.
CUSTOMERS
Sales are made to a broad range of customers. During the fiscal year ended
March 31, 2002, 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 11%, 8% and 3% of our net sales in fiscal 2002, 2001
and 2000, respectively. 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. 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
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or services. Accordingly, our future sales to the government are subject to
these budgetary and policy changes. We have recently not received as many
government contract awards as expected. Accordingly, revenues from our coatings
services business may experience some decrease in fiscal 2003.
BACKLOG
Our backlog of unshipped orders was approximately $56 million as of March
31, 2002, $59 million as of March 31, 2001 and $54 million as of March 31, 2000.
We estimate that a substantial portion of our backlog of orders at March 31,
2002 will be filled during fiscal 2003.
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 service 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 $0.7 million,
$1.0 million and $1.2 million during fiscal years 2002, 2001 and 2000,
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 "Item 3 - 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
impacting our operations.
EMPLOYEES
As of March 31, 2002, we had 1,283 employees, 513 of whom were located
outside the United States and 91 of whom were employed by our Australian
subsidiary.
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: the ultimate outcome
of the Audit Committee's investigation of accounting irregularities; the
ultimate outcome of the SEC's inquiry and the Australian Securities and
Investment Commission's investigation of accounting irregularities; the impact
of any litigation or regulatory process related to the financial statement
restatement process including the class action litigation already filed; the
Company's ability to extend, amend or refinance its existing debt, including the
availability to the Company of external sources of financing and capital (the
failure to receive such financing would have a material adverse effect on the
Company's results of operations and financial condition and ability to operate
as a going concern) and the terms and timing thereof; the Company's mix of
products and services; the timing of jobs; the availability and value of larger
jobs; qualification requirements and termination provisions relating to
government jobs; the impact of inclement weather on the
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Company's operations; the impact of energy prices on the Company's and its
customers' businesses; adverse developments in pending litigation or regulatory
matters; the impact of existing, new or changed regulatory initiatives; the
Company's ability to satisfy the listing and trading requirements of the AMEX
(which, if not satisfied, could result in the suspension of trading or
delisting of the Company's shares from the exchange) or any other national
exchange on which its shares are or will be listed or otherwise provide a
trading venue for its shares; and the impact of changing global, political and
economic conditions. 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 ABILITY TO OBTAIN EXTENSIONS, AMENDMENTS AND WAIVERS UNDER OUR DEBT
AGREEMENTS AND AVAILABILITY OF ADDITIONAL SOURCES OF FINANCING AND CAPITAL. We
had earlier announced that, as a result of matters related to the accounting
irregularities discussed above, we are not in compliance with the provisions,
including certain financial covenants, of our existing senior secured credit
agreement and senior note facility. This noncompliance of our senior secured
credit agreement restricts the Company from borrowing any additional funds under
our senior secured credit agreement. The remedies available to these lenders
upon default by us, including acceleration of principal, would have a material
adverse impact on our liquidity, our financial position or our ability to
operate as a going concern. We have continued to make scheduled interest
payments on such senior debt; however, we have not made scheduled monthly
principal payments that were due since April 2002 on the senior note facility.
We are continuing to hold discussions with our bank group and the holder of our
senior notes concerning our non-compliance and our plans for operational changes
and debt reduction. If we are unable to satisfactorily resolve these lender
negotiations and/or access other sources of capital on a timely basis (as to
which we can provide no assurance), it would have a material adverse effect on
our liquidity and financial condition since we have substantially negative
working capital and could result in our inability to operate as a going concern.
If we are unable to operate as a going concern, we may file, or be forced to
file, bankruptcy or insolvency proceedings or pursue a sale or sales of assets
to satisfy creditors.
OUR REPUTATION AND FINANCIAL CONDITION COULD BE AFFECTED BY THE SECURITIES
LITIGATION AND RELATED INVESTIGATIONS AND/OR A RESTATEMENT OF FINANCIAL
STATEMENTS. On March 20, 2002, we first announced that we had become aware of
accounting irregularities caused by apparent internal misconduct in our
Australian subsidiary and that, to the extent that the accounting irregularities
materially affect previously filed financial statements, we expected that we
would have to restate our audited financial statements for our fiscal year which
ended March 31, 2001 as well as unaudited financial information for the first
nine months through December 31, 2001 of our fiscal year ended March 31, 2002,
as previously released. In addition, we recorded a charge to earnings for our
loss on investment related to the subsidiary. This charge was taken in the
Company's fiscal fourth quarter ended March 31, 2002. Subsequent to this
announcement, a purported class action lawsuit has been filed against us and
certain of our current and former directors and officers, asserting claims under
the federal securities laws. In addition to significant expenditures we may have
to make to defend ourselves in these actions and the related significant
financial penalties that might be imposed on us if the plaintiffs prevail in
these actions, the publicity surrounding the litigation and the SEC inquiry of
these matters could affect our reputation with our customers and suppliers and
have an impact on our financial condition and results of operations.
ADVERSE DEVELOPMENTS IN PENDING LITIGATION OR REGULATORY MATTERS. From time to
time, we are involved in litigation and regulatory proceedings, including those
disclosed in "Item 3 - Legal Proceedings" of this annual report and in our other
periodic reports filed with the Securities and Exchange Commission. There are
always significant uncertainties involved in litigation and regulatory
proceedings. As to current matters in litigation, we believe that our positions
and defenses are meritorious. However, the litigation process involves
unpredictability and we cannot guarantee the result of any action. Regulatory
compliance is often complex and subject to variation and unexpected changes,
including changing interpretations and enforcement agendas affecting the
regulatory community. We may need to expend significant financial resources in
connection with legal and regulatory procedures and our management may be
required to divert attention from other portions of our business. If, as a
result of any proceeding, a judgment is rendered, decree is entered or
administrative action is taken against us or our customers, it may materially
and adversely affect our business, financial condition and results of
operations.
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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.
THE TIMING OF JOBS CAN IMPACT OUR PROFITABILITY. There are a number of factors,
some of which are beyond our control, that can cause projects to be delayed and
thus negatively impact our profitability for the related period. These factors
include the availability of labor, equipment or materials, customer scheduling
issues, delays in obtaining required permits and weather. In addition, when we
are working as a subcontractor on a project, our portion of the project can be
delayed as a result of factors relating to other contractors.
THE AVAILABILITY AND VALUE OF LARGER JOBS CAN IMPACT OUR PROFITABILITY. While
the majority of our jobs are relatively small, we can have a number of
individual contracts in excess of $1 million in progress at any particular time.
These larger contracts typically generate more gross profit dollars than our
average size jobs. Therefore, the absence of larger jobs, which can result from
a number of factors, including market conditions, can have a negative impact on
our operating results.
QUALIFICATION REQUIREMENTS AND TERMINATION PROVISIONS RELATING TO GOVERNMENT
JOBS. We derive revenues from contracts with the United States, its agencies and
other governmental entities. Government contracting is subject to competitive
bidding processes and there can be no assurance that we will be the successful
bidder for future contracts. Fluctuations in government spending also could
adversely affect our revenues and profitability. In addition, it is the policy
of the United States that certain small businesses and other concerns have the
maximum practicable opportunity to participate in performing contracts let by
any federal agency. To the extent that we do not meet applicable criteria for
government jobs, we could be limited in our ability to participate directly in
contracts being let by the United States and other governmental entities with
similar requirements. Certain contracts with governmental entities contain
provisions permitting the governmental entities to terminate the contract for
convenience prior to completion of the contract. To the extent that any of our
contracts with a government entity are so terminated, our revenues and
profitability could be adversely impacted.
OUR COMPLIANCE WITH THE LISTING STANDARDS AND REPORTING REQUIREMENTS OF THE
STOCK EXCHANGE ON WHICH OUR COMMON SHARES TRADE. We are required by the stock
exchange on which we list our Common Shares for trading to maintain certain
listing standards and meet certain reporting requirements in order to continue
trading and to remain listed on that exchange. If we fail to meet the required
listing standards and reporting requirements and cannot within a limited time
frame thereafter demonstrate compliance, our Common Shares may not be allowed
to trade on the stock exchange, although we would pursue an alternative
national trading venue. If this occurs, it may make it more difficult for us to
raise funds through the sale of our securities. In addition, it may make it
more difficult for an investor to dispose of, or to obtain accurate quotations
of, our Common Shares and negatively impact the market price. Our shares
recently have been suspended from trading on the American Stock Exchange
because, among other reasons, the late filing of this Form 10-K/A. We expect
our shares to resume trading on the American Stock Exchange shortly after
filing this Form 10-K/A, although there can be no assurance of such resumption
of trading.
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.
9
THE IMPACT OF CHANGING GLOBAL, POLITICAL AND ECONOMIC CONDITIONS. Changing
political and economic conditions on a regional or worldwide basis can adversely
impact our business. Deteriorating political and general economic conditions may
result in customers delaying or canceling contracts and orders for our products
and services, difficulties and inefficiencies in the performance of our services
including work stoppages, and difficulties in collecting payment from our
customers. As a result, such conditions can negatively impact our results of
operations and our cash flows.
EXISTING, NEW OR CHANGED REGULATORY INITIATIVES CAN IMPACT OUR BUSINESS. Corrpro
and its customers are subject to federal, state and local environmental and
other laws and regulations. These laws and regulations affect our operations by
imposing standards for the protection of health, welfare and the environment.
Such laws and regulations, and applicable interpretations thereof, could expose
us to liability for acts which are or were in compliance at the time such acts
were performed. We cannot predict whether future legislative or regulatory
developments may occur which would have an adverse effect on Corrpro.
These risks must be considered by any investor or potential investor in
the Company.
10
ITEM 2. PROPERTIES
As of March 31, 2002, 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
-------- ------- ----------- ------------
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(1) 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
Durley, Southampton, UK International Office and Warehouse Facility Leased
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(1) International Office and Warehouse Facility Leased
Ocean City, New Jersey Domestic Core Office Facility Leased
Perth, Australia(1) 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(1) International Office and Warehouse Facility Leased
West Chester, Pennsylvania Domestic Core Office and Warehouse Facility Leased
(1) These properties are part of the Australian subsidiary that commenced
voluntary administration proceedings on March 21, 2002.
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 senior secured credit agreement and senior note facility and other bank
credit arrangements.
11
ITEM 3. LEGAL PROCEEDINGS
As previously reported, in January 2000, the Michigan Department of
Environmental Quality ("MDEQ") issued an administrative decision which
effectively limited the scope of MDEQ's 1995 approval of certain assessment
methodologies utilized by Corrpro in determining whether certain underground
storage tanks meet Michigan's regulatory requirements for upgrade by means of
cathodic protection. The MDEQ decision also would have required us to conduct
further assessments and provide certain information. The assessment
methodologies at issue have been and remain recognized by the Environmental
Protection Agency ("EPA") and the other states in which we utilized such
methodologies for virtually identical purposes. We believed that MDEQ's decision
was in error and on January 24, 2000, filed a complaint and claim of appeal in
the Circuit Court for the County of Ingham, Michigan seeking declaratory relief
and appealing the decision on several grounds. In its November 14, 2000 ruling,
the Ingham Circuit Court reversed MDEQ's decision that directed we take certain
actions and provide certain information, however, the court also found that MDEQ
had not approved the full use of the assessment methodologies we utilized in
Michigan.
We believed that the circuit court's finding that MDEQ had not approved
full use of the methodologies was not supported by the evidence, and was
contradicted by evidence contained in the administrative record. On December 5,
2000, we filed, in the Michigan Court of Appeals, an application for leave to
appeal the circuit court's finding that MDEQ did not approve the full use of the
assessment methodologies we utilized in Michigan. By order dated February 14,
2001, the Michigan Court of Appeals denied our application for leave to appeal
the circuit court's finding. On March 7, 2001, we filed an application for leave
to appeal with the Supreme Court of the State of Michigan. On August 28, 2001,
the Michigan Supreme Court denied our application for leave to appeal.
As a result of these proceedings, the MDEQ's administrative decision
finding that certain of our assessment methodologies were not approved in full
was upheld, but the MDEQ was found not to have jurisdiction to enforce its
decision against us. In July 2002, the MDEQ sent certain underground storage
tank owners and operators who may have relied on our method of assessment a
notice informing them that certain of such owners and operators' tanks were
improperly upgraded, that such owners and operators are to provide to MDEQ upon
request evidence that they have conducted state required tank tightness testing,
and certain of such tanks must be internally inspected. MDEQ also advised that
internally inspected tanks that do not satisfy applicable criteria should be
taken out-of-service and removed from the ground. There can be no assurance that
the MDEQ will not take further action against underground storage tank owners or
operators.
On July 25, 2002, a summons and complaint was issued from the Circuit
Court for the County of Ingham, Michigan. The action was commenced by Blogett
Oil Company, Inc. and other owners and operators of underground storage tanks
systems on behalf of themselves and others similarly situated. The complaint
relates to the MDEQ regulatory proceeding described immediately above and names
both the Company and MDEQ. The plaintiffs seek an unspecified amount of damages
in excess of $25,000 from Corrpro. The plaintiffs also seek injunctive relief
prohibiting the MDEQ from declaring that underground storage tanks upgraded by
the Company do not meet the current requirement for corrosion protection set
forth by law. The Company is unable at this time to make a determination as to
whether an adverse outcome is likely and whether an adverse outcome would have a
materially adverse affect on its operations or financial condition.
During fiscal 2001, the Company discovered that a former employee used an
incorrect assessment standard in connection with the evaluation of whether
certain underground storage tanks located at as many as 67 sites were eligible
for upgrade using cathodic protection. Such evaluations were done using one of
the approved assessment methodologies. The tanks at these sites, which are
located in five states, were subsequently upgraded using cathodic protection
which arrests corrosion. These tanks are also subject to ongoing leak detection
requirements. Based on the Company's review of available information and
governmental records, the Company believes that there have not been any releases
from the affected tanks as a result of the actions of the former employee. The
Company has contacted, and in October and November 2000 met with, officials from
the EPA and officials 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 nor the EPA intend to take any enforcement
action as a result of the use of the inaccurate standard by the former employee.
The Company is currently 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 for this matter will
have a material effect on the future operations, financial position or cash
flows of the Company.
12
The Company is a defendant in a purported class action suit filed on June
24, 2002, in the United States District Court, Northern District of Ohio,
Eastern Division by Russell J. Stambaugh. The complaint also names certain
former and current officers and a director of the Company. The complaint was
purportedly filed on behalf of all persons who purchased Corrpro Common Shares
during the period April 1, 2000 through March 20, 2002 and alleges violations of
the federal securities laws resulting in artificially inflated prices of the
Company's Common Shares during the class period. The complaint relates to the
Company's announcement that it had discovered accounting irregularities caused
by apparent internal misconduct in its Australian subsidiary. The plaintiff
seeks a declaration of the action as a proper class action and certifying
plaintiff as class representative. The plaintiff also seeks unspecified
compensatory damages, fees and expenses. The Company is unable at this time to
make a determination as to whether an adverse outcome is likely and whether an
adverse outcome would have a materially adverse affect on its operations or
financial condition.
Company management discovered accounting irregularities at the Australian
subsidiary in early calendar 2002 and upon discovery immediately began an
internal investigation, which has been conducted under the direction of the
Audit Committee of its Board of Directors. The Australian Securities and
Investments Commission has commenced an independent investigation of the
accounting irregularities. Corrpro voluntarily disclosed this matter to the SEC,
which has commenced a formal inquiry. Corrpro is cooperating with both
commissions.
The Company is subject to other legal proceedings and claims which arise
in the ordinary course of business.
13
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 2002.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of the
Company as of March 31, 2002 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 62 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 47 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. 58 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 of the Company,
since 1987.
David H. Kroon 52 Executive Vice President since April 1993 and Senior Vice
President from the Company's formation in 1984 to April
1993.
Barry W. Schadeck 51 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 of the Company, since 1993.
Michael R. Tighe 51 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.
Ted Bojanowski 45 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 Coltec's
Garlock Sealing Technologies, Inc. subsidiary.
Robert M. Sloan 46 Senior Vice President and Chief Financial Officer since
March 2002. Prior to that, Mr. Sloan served six years as
Vice President for Blue Coral Slick 50, a manufacturer and
marketer of automotive appearance and additive products and
a subsidiary of Pennzoil-Quaker State Corporation. Mr.
Sloan also served for three years as Vice President of
Finance for a subsidiary of Park Corporation and 11 years
with Arthur Andersen.
14
Robert M. Mayer 39 Vice President and Corporate Controller since August 2000
and Assistant Treasurer since January 2002. 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 44 General Counsel since December 1996, Secretary since
January 2002, Senior Vice President since July 2000,
Assistant Secretary from December 1996 to January 2002 and
Vice President from October 1998 until July 2000. Prior to
that, Mr. Moran was in-house counsel for Sealy Corporation,
a bedding manufacturer, for 10 years and served as
Secretary. Mr. Moran also has prior experience with Grant
Thornton.
15
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 American Stock Exchange ("AMEX") under
the symbol "CO." Prior to February 13, 2002, our Common Shares were listed on
the New York Stock Exchange ("NYSE") under the symbol "CO."
The following table sets forth the high and low sale prices for the Common
Shares on the AMEX and NYSE for the fiscal periods indicated.
FISCAL 2002 FISCAL 2001
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 3.95 $ 1.20 $ 4.88 $ 3.06
Second Quarter 2.90 1.80 4.38 3.13
Third Quarter 2.80 1.50 4.13 2.81
Fourth Quarter 3.15 1.01 3.13 1.57
HOLDERS OF RECORD
On July 5, 2002, there were 222 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 senior secured credit agreement and senior notes facility
limit our ability to pay cash dividends.
16
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information with respect to all of
the Company's equity compensation plans in effect as of March 31, 2002.
EQUITY COMPENSATION PLAN INFORMATION TABLE
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE EXERCISE PRICE OF REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, ISSUANCE UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS (1)
------------- ------------------- ------------------- ----------------------
Equity compensation plans approved by
shareholders 1,303,381 $ 3.7013 344,858
Equity compensation plans not approved by
shareholders (2) -- -- --
--------- --------- ---------
Total 1,303,381 $ 3.7013 344,858
========= ========= =========
(1) Includes 34,375 Common Shares available for issuance under the
Non-Employee Directors' Stock Option Plan.
(2) Does not include the Company's 2001 Non-Employee Directors' Stock
Appreciation Rights Plan which has not been approved by its shareholders.
Under this plan, non-employee directors received a one-time grant of
vested stock appreciation rights as part of their compensation for serving
as directors. The stock appreciation rights entitle each eligible director
to be paid in cash, subject to the applicable terms and conditions of the
grant, on or after May 17, 2006, the amount of appreciation in the fair
market value of 10,000 Common Shares between May 17, 2001 and May 17,
2006. Currently, three such non-employee directors hold such stock
appreciation rights. Moreover, this does not include shares authorized
for payment of bonuses totaling 25,000 of which 22,500 are still
available. Also, this does not include the Company's Employee Stock
Purchase Plan, which has been suspended, with authorized shares totaling
375,000 of which 300,068 shares are still available.
17
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. As described in "Item 1 - Business - Recent Developments and -
Restatement of Consolidated Financial Statements", the Company has restated its
previously issued financial statements for the fiscal year ended March 31, 2001.
See Note 2, Restatement of Consolidated Financial Statements, Notes to
Consolidated Financial Statements for further information regarding the
restatement.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AS RESTATED
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues $ 172,190 $ 163,937 $ 168,442 $ 171,380 $ 146,581
Operating income (loss) (1)(2) 394 (1,957) 8,587 17,166 11,117
Interest expense 7,352 6,754 5,339 3,777 2,334
--------- --------- --------- --------- ---------
Income (loss) before income taxes (6,958) (8,711) 3,248 13,389 8,783
Income tax provision (benefit)(3) 11,259 (430) 1,299 5,356 3,613
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (18,217) (8,281) 1,949 8,033 5,170
--------- --------- --------- --------- ---------
Net income (loss) $ (18,217) $ (8,281) $ (2,668) $ 4,251 $ 6,891
========= ========= ========= ========= =========
EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS-
Basic $ (2.24) $ (1.07) $ 0.25 $ 1.02 $ 0.63
Diluted (2.24) (1.07) 0.25 0.98 0.61
NET INCOME (LOSS)-
Basic $ (2.24) $ (1.07) $ (0.35) $ 0.54 $ 0.85
Diluted (2.24) (1.07) (0.34) 0.52 0.81
OTHER DATA:
EBITDA(4) $ 5,571 $ 3,468 $ 14,677 $ 21,522 $ 14,587
Net cash provided (used) by operating activities 7,120 (3,118) 13,680 2,249 6,720
Net cash provided (used) by investing activities 191 (1,283) (11,996) (19,406) (17,884)
Net cash provided (used) by financing activities (5,575) 6,543 (3,355) 12,318 17,428
Working capital, excluding net assets held for sale (21,726) 44,603 49,483 57,708 49,584
Total assets 109,453 135,551 139,825 146,050 134,240
Long-term debt, net of current portion 1,018 65,134 61,070 60,864 47,695
Shareholders' equity 23,857 41,518 54,235 58,056 57,961
(1) Includes unusual charges totaling $2,868 in fiscal 2001 and $2,000 in fiscal
2000. See Note 1, Summary of Significant Accounting Policies, Notes to
Consolidated Financial Statements for further information.
(2) Includes loss on investment in subsidiary of $2,480 in fiscal 2002, related
to the write-off of our investment in our Australian subsidiary. See Note 1,
Summary of Significant Accounting Policies, Notes to Consolidated Financial
Statements for further information.
(3) Includes a valuation allowance of $10,261 in fiscal 2002, related to our
deferred tax asset. See Note 1, Summary of Significant Accounting Policies,
Notes to Consolidated Financial Statements for further information.
(4) For purposes of the above table, "EBITDA" means earnings from continuing
operations before interest, taxes, depreciation and amortization excluding
deferred financing costs and should not be considered as an alternative to net
income (loss) 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.
18
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 that 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."
RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined that its audited financial statements for the
fiscal year ended March 31, 2001 and its unaudited financial statements for the
first nine months through December 31, 2001 of its fiscal year ended March 31,
2002 and all four quarters of its fiscal year ended March 31, 2001, were
inaccurate and required restatement. These inaccuracies and required
restatements are discussed in "Item 1 - Business - Recent Developments and -
Restatement of Consolidated Financial Statements." This Management's Discussion
and Analysis of Financial Condition and Results of Operations for the fiscal
years ended March 31, 2002 and March 31, 2001 reflects the restatement of the
Company's previously reported financial statements for the fiscal year ended
March 31, 2001.
FISCAL 2002 PERFORMANCE OVERVIEW
One of the primary factors affecting our fiscal 2002 results was our
continued growth in the coatings service business while our revenues
domestically in the energy-related markets, particularly the oil and gas sector,
declined from the prior-year. In addition, our corrosion monitoring equipment
business and our risk assessment and analysis software business showed slight
growth in fiscal 2002 as compared to the prior-year. Offsetting these
improvements were sluggish results within our cathodic protection business
which saw a decrease in revenue levels over the prior-year. However, we have
recently not received as many government contract awards as expected. Revenues
from these contracts totaled approximately $10.0 million during fiscal 2002.
Fiscal 2002 results were impacted by a $2.5 million loss on the investment
in our Australian operations which was recorded in the fourth quarter. Moreover,
fiscal 2002 results also included a charge for a deferred tax asset valuation
allowance of $10.3 million which was recorded in the fourth quarter. Despite the
impact of the problems associated with our Australian operations, fiscal 2002
had some positive highlights. First, we were pleased that our revenues continued
to demonstrate improvement throughout the entire fiscal year and we continued to
see a favorable impact from the actions taken to control expenses. Excluding the
results of our Australian operations, our gross profit margins were below
expectations primarily due to a business mix with a larger component of lower
margin construction-type jobs. Our continuing efforts to control operating
expenses resulted in a reduction in selling, general and administrative expenses
as a percentage of sales year-over-year, excluding our Australian operations.
Our emphasis on asset management resulted in a reduction in consolidated debt
for the year of $5.6 million, representing an 8.2% decrease over our prior
fiscal year debt level.
SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies, including the assumptions
and judgments underlying them, are more fully described in "Note 1 - Summary of
Significant Accounting Policies" to the accompanying consolidated financial
statements of this Form 10-K. Some of the Company's accounting policies require
the application of significant judgment by management in the preparation of the
Company's financial statements. In applying these policies, the Company's
management uses its best judgment to determine the underlying assumptions that
are used in calculating the estimates that affect the reported values on its
financial statements. Management bases its estimates and assumptions on
historical experience and other factors that the Company considers relevant.
Corrpro's significant accounting policies include the following:
19
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. The Company recognizes
revenue from product sales upon transfer of ownership.
Accounts receivable
The Company records estimated allowances for uncollectible accounts
receivable based upon the number of days the accounts are past due, the current
business environment, and specific information such as bankruptcy or liquidity
issues of customers. Historically, losses for uncollectible accounts receivable
have been within management's estimates. However, if actual losses exceed
management's expectations, additional allowances may be required. 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.
Management continually reviews inventories for excess and obsolete goods
based upon a combination of historical and forecasted usage. Additionally,
discrete provisions are made when facts and circumstances indicate that
particular inventories will not be utilized. If future market conditions are
different than those estimated, a change to inventory valuation reserves may be
required and would be reflected in the period the conditions change.
Asset Impairment
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of any long-lived or
intangible asset may warrant revision or that the remaining balance of the asset
may not be recoverable. If factors indicate that the long-lived assets should be
evaluated for possible impairment, the Company uses an estimate of the related
asset's net undiscounted cash flows from operations over the remaining life to
determine recoverability; the measurement of the impairment would be based on
the amount by which the carrying value of the asset exceeds its fair value.
In July 2001, Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141"), and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), were
issued by the Financial Accounting Standards Board. SFAS 141 eliminates the
pooling-of-interests method for business combinations and requires the use of
the purchase method. SFAS 142 changes the accounting for goodwill and indefinite
life intangibles from an amortization approach to a non-amortization approach,
and requires periodic tests for impairment of these assets. Upon the Company's
adoption of SFAS 142 on April 1, 2002, the provisions of SFAS 142 require the
discontinuance of amortization of goodwill and indefinite life intangibles that
had been recorded in connection with previous business combinations. The
adoption of SFAS 142 is expected to add approximately $1.7 million to net income
before taxes for the year ending March 31, 2003 as compared to the year ended
March 31, 2002. The Company has not yet completed its impairment testing under
SFAS 142 and, because of the extensive effort needed to comply with adopting the
new rules, it is not practical to reasonably estimate the full impact of
adopting these statements on the Company's financial statements as of the date
of this report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
Income taxes
The Company uses the liability method whereby income taxes are recognized
during the fiscal year in which transactions enter into the determination of
financial statement income. Deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between
financial statement and tax basis of assets and liabilities. The Company
20
recorded a valuation allowance for its net deferred tax assets and net operating
loss carryforwards of $10.3 million in the fourth quarter of fiscal 2002. The
Company intends to maintain a full valuation allowance for its net deferred tax
assets and net operating loss carryforwards until sufficient positive evidence
exists to support the reversal of the remaining reserve. Until such time, except
for foreign tax provisions, the Company expects to have no reported tax
provision, net of valuation allowance adjustments. In the event the Company was
to determine, based on the existence of sufficient positive evidence, that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the valuation allowance would increase
income in the period such determination was made. See Note 6 of Notes to
Consolidated Financial Statements of the Company for additional information
regarding income taxes.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 2002 COMPARED TO YEAR ENDED MARCH 31, 2001 (AS RESTATED)
REVENUES
Revenues for fiscal 2002 totaled $172.2 million, compared with $163.9
million for fiscal 2001, an increase of 5.0%.
Fiscal 2002 revenues relating to our Domestic Core Operations segment
totaled $101.5 million, compared to $99.7 million in fiscal 2001, an increase of
1.9%. Revenues continued to increase for our coatings services business which
was partially offset by declines in our core cathodic protection business as a
result of the sluggish energy-related markets. However, we have recently not
received as many government contract awards as expected. Revenues from these
contracts totaled approximately $10.0 million during fiscal 2002.
Revenues relating to our Canadian Operations segment totaled $21.3
million, compared to $24.3 million in fiscal 2001, a decrease of 12.5%. This
decrease was primarily due to lower levels of construction and material
revenues.
Fiscal 2002 revenues relating to our International Operations segment
totaled $37.3 million, compared to $36.9 million in fiscal 2001, an increase of
1.2%. The European, Middle East and Asia Pacific operations all saw increased
revenue levels in fiscal 2002, which were partially offset by a decline in
revenues from our Australian operations.
Our Other Operations segment had total revenues in fiscal 2002 of $12.1
million, compared to $9.0 million in fiscal 2001, an increase of 33.3%. This
increase was due to strong revenue volume in our corrosion monitoring equipment
business, as well as continued growth in our risk assessment and analysis
software business.
GROSS PROFIT
On a consolidated basis, gross profit (defined as revenues less cost of
sales items) for fiscal 2002 totaled $50.2 million (29.1% of revenues) compared
to $47.2 million (28.8% of revenues) for fiscal 2001, an increase in gross
profit dollars of 6.3%. Fiscal 2001 gross profit included a $1.0 million unusual
charge which is described below. Excluding the impact of the unusual charges to
fiscal 2001, gross profit margins decreased slightly year-over-year. This
decrease was due to lower margin type jobs in fiscal 2002.
UNUSUAL CHARGES
During fiscal 2001, we recorded unusual charges of $2.9 million, of which
$1.0 million was included in cost of sales and $1.9 million was 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 "Item 3 - Legal Proceedings" for a discussion of the ongoing
regulatory and litigation matters.
21
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("S,G&A") expenses for fiscal 2002
totaled $47.3 million (27.5% of revenues), compared with $49.2 million (30.0% of
revenues) for fiscal 2001, a decrease of 3.8%. Fiscal 2001 S,G&A expenses
included a $1.9 million unusual charge which is described above. The decrease,
as a percentage of revenues, is the result of a number of cost reduction
programs we implemented in the latter part of fiscal 2001 and our continuing
efforts to reduce our S,G&A expenses.
LOSS ON INVESTMENT IN SUBSIDIARY
During fiscal 2002, we recorded a loss on investment in subsidiary of $2.5
million, related to the loss on our investment in our Australian subsidiary. As
discussed in Note 2, Restatement of Consolidated Financial Statements, in March
2002, the Company's Australian subsidiary commenced voluntary administration
proceedings, a process under Australian law providing relief from creditors of
Australian companies. See Note 14 of Notes to Consolidated Financial Statements
of the Company for additional information regarding the Company's Australian
subsidiary for a discussion relating to this matter.
OPERATING INCOME (LOSS)
Operating income for fiscal 2002 totaled $0.4 million, compared to an
operating loss of $2.0 million during fiscal 2001, an increase of $2.4 million.
Excluding the impact of the fiscal 2001 unusual charge, the decrease in
operating income is attributable to the $2.5 million loss on investment in
subsidiary.
INTEREST EXPENSE
Interest expense for fiscal 2002 totaled $7.4 million, compared to $6.8
million for fiscal 2001. The increase was related primarily to higher interest
rates in fiscal 2002. See Note 4, Long-Term Debt, Notes to Consolidated
Financial Statements.
INCOME TAX PROVISION
We recorded an income tax provision of $11.3 million for fiscal 2002,
compared to a provision for income tax benefit of $0.4 million for fiscal 2001.
Within the fiscal 2002 tax provision is an increase in valuation allowance for
our deferred tax asset of $10.3 million. Our effective rate is based on the
statutory rates in effect in the countries in which we operate. See Note 6,
Income Taxes, Notes to Consolidated Financial Statements included in Item 8 for
a reconciliation of our effective tax rates.
NET LOSS
As a result of the foregoing, net loss for fiscal 2002 totaled $18.2
million, compared with a net loss of $8.3 million in fiscal 2001, an increase of
$9.9 million. Diluted loss per share increased to a loss of $2.24 in fiscal 2002
compared with a loss of $1.07 in fiscal 2001.
YEAR ENDED MARCH 31, 2001 (AS RESTATED) COMPARED TO YEAR ENDED MARCH 31, 2000
REVENUES
Revenues for fiscal 2001 totaled $163.9 million compared with $168.4
million for fiscal 2000, a decrease of 2.7%.
Fiscal 2001 revenues relating to our Domestic Core Operations segment
totaled $99.7 million, compared to $98.7 million in fiscal 2000, an increase of
1.0%. Fiscal 2001 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 was primarily because of the decline in the pipeline
segment of our cathodic protection business in fiscal 2001.
22
Fiscal 2001 revenues relating to our International Operations segment
totaled $36.9 million, compared to $42.0 million in fiscal 2000, a decrease of
12.1%. The decrease related partially to the Middle East operations, 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. Furthermore, the Australian operations saw a downturn in cathodic
protection business during the fiscal year. The decrease in our business in the
Middle East and Australian operations was partially offset by increased revenues
in both the Europe and Asia Pacific operations.
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 16.6%. The
Other Operations segment includes our corrosion monitoring business and our risk
assessment and analysis software business. The revenue decline was primarily due
to lower fiscal 2001 revenues at our corrosion monitoring business.
GROSS PROFIT
On a consolidated basis, gross profit for fiscal 2001 totaled $47.2
million (28.8% of revenues) compared to $52.0 million (30.9% of revenues) for
fiscal 2000, a decrease in gross profit dollars of 9.2%. Fiscal 2001 gross
profit included a $1.0 million unusual charge which is described below. Fiscal
2000 gross profit included a $1.5 million unusual charge which also is described
below. Excluding the unusual charges, gross profit for fiscal 2001 totaled $48.2
million (29.4% of revenues) compared to $53.5 million (31.8% of revenues) in
fiscal 2000, a decrease in gross profit dollars of 9.9%. The decrease in gross
profit dollars in fiscal 2001 was the result of lower revenues as discussed
above and lower gross profit margins. The lower gross profit margins related
primarily to our Domestic Core Operations segment. Operating margins in that
business were negatively impacted in fiscal 2001 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 $2.9 million, of which
$1.0 million was included in cost of sales and $1.9 million was 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 "Item 3 - Legal Proceedings" for a discussion of the ongoing
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 S,G&A expenses) represented accrued costs to be
incurred in connection with ongoing legal matters. See "Item 3 - Legal
Proceedings" for a discussion of these matters.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
S,G&A expenses for fiscal 2001 totaled $49.2 million (30.0% of revenues),
compared with $43.4 million (25.8% of revenues) for fiscal 2000, an increase of
13.3%. Fiscal 2001 S,G&A expenses included a $1.9 million unusual charge which
is described above. Fiscal 2000 S,G&A expenses included a $0.5 million unusual
charge which is also described above. Excluding the unusual charges, S,G&A
expenses for fiscal 2001 were $47.3 million (28.8% of revenues), compared to
$42.9 million (25.5% of revenues) in fiscal 2000, an increase of 10.2%. The
increase was 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 and especially so 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 were not realized until fiscal 2002.
23
OPERATING INCOME (LOSS)
Operating loss for fiscal 2001 totaled $2.0 million, compared with
operating income of $8.6 million during fiscal 2000, a decrease of $10.6
million. The decrease in operating income was 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 was related to increased weighted average
borrowings as well as higher interest rates in fiscal 2001. See Note 4,
Long-Term Debt, Notes to Consolidated Financial Statements included in Item 8.
INCOME TAX PROVISION
We recorded an income tax benefit of $0.4 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 6, Income Taxes, 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 for fiscal
2001 totaled $8.3 million, compared with income from continuing operations of
$1.9 million in fiscal 2000, a decrease of $10.2 million. Diluted earnings/loss
per share from continuing operations decreased to a loss of $1.07 in fiscal 2001
compared with income of $0.25 in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, we had working capital of $(21.7) million, compared to
$44.6 million at March 31, 2001, a decrease of $66.3 million. This decrease in
working capital is due to the classification of our senior secured credit
agreement and senior note facility to current debt from long-term debt.
During fiscal 2002, cash provided by operating activities totaled $7.1
million, compared to cash used by operating activities totaling $3.1 million in
fiscal 2001. This increase in cash provided by operating activities is primarily
the result of our continuing efforts of controllable asset management. Cash
provided by investing activities totaled $0.2 million during fiscal 2002, which
included $1.0 million for capital expenditures offset by $1.2 million of
proceeds from the disposal of capital assets compared to cash used by investing
activities totaling $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 used for financing activities totaled $5.6 million which
was used to pay down debt during fiscal 2002 compared to cash provided by
financing activities of $6.5 million that was provided under current year
borrowings in fiscal 2001.
In March 1999, the Company entered into an $80 million revolving credit
facility that expires on January 31, 2003 (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 February 11, 2002 ("February 2002 Amendment"), the size of the
Revolving Credit Facility was reduced to $40 million. In addition, the February
2002 Amendment also provides that any payments made under the Senior Notes (see
below) will result in a proportionate reduction in the lenders commitment
under the Revolving Credit Agreement. At March 31, 2002, lenders commitments
under the Revolving Credit Facility were limited to $37.7 million. Borrowings
under the Revolving Credit Facility are further limited to borrowing base
amounts as defined. The February 2002 Amendment provides for interest on
borrowings at prime plus 2.50%. In addition, the February 2002 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
24
places limitations on the Company's ability to pay cash dividends, incur
additional indebtedness and make investments, including acquisitions.
At March 31, 2002, the Company was in violation of several financial
covenants. These violations permit the lenders to cause the Revolving Credit
Facility to become due prior to its stated maturity. As a result of the
maturity, the Company has classified all of its outstanding indebtedness under
the Revolving Credit Facility at March 31, 2002 as current. This Event of
Default also restricts the Company from borrowing any additional funds under the
Revolving Credit Facility and increases the interest rate on borrowings to prime
plus 5.50%. The Company is continuing to make all required interest payments.
The Company is currently negotiating with its lenders to amend this Revolving
Credit Facility to eliminate the Company's violations and to extend the
expiration date. If the Company is unable to negotiate an amendment to the
Revolving Credit Facility, it will be necessary for the Company to refinance or
repay this debt. The Company cannot assure that it will be able to accomplish
such a transaction on terms acceptable to the Company. Failure to do so would
have a material adverse effect on the Company's liquidity and financial
condition and could result in the Company's inability to operate as a going
concern. If the Company is unable to operate as a going concern, it may file, or
may have no alternative but to file, bankruptcy or insolvency proceedings or
pursue a sale or sales of assets to satisfy creditors.
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 of 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. At March 31, 2002, the Company was in violation of several of
these financial covenants. These violations permit the lender to cause the
Senior Notes to become due prior to their stated maturity. As a result, the
Company has classified all of its outstanding indebtedness under the Senior
Notes at March 31, 2002 as current. The Company is continuing to make all
required interest payments. The Company made its required principal payments
through March 2002, but has not made the required monthly payments after March
2002. The Company is currently negotiating with its lender to amend the Senior
Notes to eliminate the Company's violations and to amend the schedule of
principal payments required. If the Company is unable to negotiate an amendment
to the Senior Notes, it will be necessary for the Company to refinance or repay
this debt. The Company cannot assure that it will be able to accomplish such a
transaction on terms acceptable to the Company. Failure to do so would have a
material adverse effect on the Company's liquidity and financial condition and
could result in the Company's inability to operate as a going concern. If the
Company is unable to operate as a going concern, it may file, or may have no
alternative but to file, bankruptcy or insolvency proceedings or pursue a sale
or sales of assets to satisfy creditors.
Because of uncertainty related to the Company's ability to amend or
refinance its debt, and the timing thereof, certain vendors may no longer do
business with the Company on favorable credit terms, and the Company could
experience cash flow problems or the inability to obtain materials and services
when required. In addition, vendors may require cash in advance or deposits.
All of these developments could materially increase the Company's operating
expenses and further reduce its liquidity.
The Company has incurred substantial costs in fiscal 2002, and will
continue to incur substantial costs in fiscal 2003, in connection with the
engagement of financial advisors and consultants, the investigation of
accounting matters and the preparation and review of its audited financial
statements and other reports. The Company also anticipates that it will
continue to incur significant legal and other expenses in connection with the
ongoing litigation and investigations described in Part I, Item 3 Legal
Proceedings.
Based on the Events of Default which prevent the Company from accessing
its Revolving Credit Facility, the Company can only obtain funds from its
operating cash flow and under its foreign credit facilities, subject to
applicable terms and conditions. Total availability under the foreign credit
facilities at March 31, 2002, was approximately $4.8 million.
In May 2002, with the assistance of strategic financial advisors, the
Company developed a formal business restructuring plan. The multi-year plan
includes a series of initiatives to improve operating income and reduce debt
through restructuring, consolidation and divestiture of non-core businesses.
Potential operating gains or losses may be experienced with the disposition of
assets at the time of disposal during the implementation of the restructuring
plan. Operating income improvements combined with debt reduction targets are
expected to result. Implementation efforts are currently underway. As
appropriate, the Company will report future quarterly and annual results
separately for continuing operations and for discontinued operations.
25
The Company is negotiating agreements with its lenders to amend the
current Revolving Credit Facility and Senior Note agreements and to address
existing violations. Among other things, we seek to revise principal
amortization of the Senior Notes and obtain ongoing borrowing capacity under
the Revolving Credit Facility, subject to applicable borrowing base and other
provisions. In addition to other terms and conditions, we expect to incur
interest rates on borrowings under the Revolving Credit Facility at a higher
applicable margin than under its existing provisions. We also intend to seek
during fiscal 2003 other financing to retire the Senior Notes and Revolving
Credit Facility. There can be no assurance however that we will be able to
amend the existing agreements or obtain other financing.
The Company currently operates in a decentralized and geographically
dispersed environment. This environment poses challenges, not found in
centralized environments, for ensuring the integrity of internal controls.
Management has reviewed existing controls and will continue to implement
changes as needed to preserve and strengthen the Company's internal controls.
We anticipate that the consolidation and divestiture initiatives contained in
the restructuring plan will reduce the internal control risks inherent in a
decentralized environment.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141"), and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), were
issued by the Financial Accounting Standards Board. SFAS 141 eliminates the
pooling-of-interests method for business combinations and requires the use of
the purchase method. SFAS 142 changes the accounting for goodwill and indefinite
life intangibles from an amortization approach to a non-amortization approach,
and requires periodic tests for impairment of these assets. Upon the Company's
adoption of SFAS 142 on April 1, 2002, the provisions of SFAS 142 require the
discontinuance of amortization of goodwill and indefinite life intangibles that
had been recorded in connection with previous business combinations. The
adoption of SFAS 142 is expected to add approximately $1.7 million to net income
before taxes for the year ending March 31, 2003 as compared to the year ended
March 31, 2002. The Company has not yet completed its impairment testing under
SFAS 142 and, because of the extensive effort needed to comply with adopting the
new rules, it is not practical to reasonably estimate the full impact of
adopting these statements on the Company's financial statements as of the date
of this report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." Statement No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity capitalizes
the cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period and the
capitalized cost is depreciated over the remaining useful life of the related
asset. Upon settlement of the liability, the entity either settles the
obligation for the amount recorded or incurs a gain or loss. Statement No. 143
is effective for fiscal years beginning after June 15, 2002. Management is
evaluating the effect of this statement on the Company's results of operations
and financial position.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which is effective for fiscal
periods beginning after December 15, 2001 and interim periods within those
fiscal years. SFAS 144 establishes an accounting model for impairment or
disposal of long-lived assets to be disposed. The Company is currently
evaluating the potential impact, if any, the adoption of SFAS 144 will have on
our financial position and results of operation.
26
In April 2000, the Financial Accounting Standards Board issued Statement
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This Statement rescinds FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements". This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers". This Statement amends FASB Statement
No. 13, "Accounting for Leases", to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provision of this Statement related to the rescission of Statement 4 are
applicable in fiscal years beginning after May 15, 2002. Early application is
encouraged. The provisions of this Statement related to Statement 13 are
effective for transactions occurring after May 15, 2002, with early application
encouraged. All other provisions of this Statement are effective for financial
statements issued on or after May 15, 2002, with early application encouraged.
Management is evaluating the effect of this statement on the Company's results
of operations and financial position.
27
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.
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, 2002 rates, and assuming no changes in debt from the March 31, 2002
levels, the additional annual expense would be approximately $1.3 million on a
pre-tax basis.
FOREIGN OPERATIONS AND FOREIGN CURRENCY EXCHANGE RISK
Our foreign subsidiaries generally conduct business in local currencies.
During fiscal 2002, the Company recorded an unfavorable foreign currency
translation adjustment of $0.2 million in equity related to net assets located
outside the United States. This foreign currency translation adjustment resulted
primarily from the weakening of the United States dollar in relation to the
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.
28
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Corrpro Companies, Inc.:
We have audited the accompanying consolidated balance sheets of Corrpro
Companies, Inc. and subsidiaries (Company) as of March 31, 2002 and 2001, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended March 31, 2002.
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, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
4 to the consolidated financial statements, at March 31, 2002, the Company was
not in compliance with certain financial covenants contained in its banking
agreements. This matter raises substantial doubt about the Company's ability to
continue as a going concern. Management's plan in regard to this matter is also
described in note 4. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in note 2 to the accompanying consolidated financial
statements, the accompanying consolidated balance sheet as of March 31, 2001,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended, have been restated.
/s/ KPMG LLP
Cleveland, Ohio
August 9, 2002
29
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND 2001
(In Thousands)
ASSETS
AS RESTATED
-----------
SEE NOTE 2
----------
2002 2001
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 5,754 $ 4,032
Accounts receivable, less allowance for
doubtful accounts of $3,243 and $2,516
at March 31, 2002 and 2001 as restated,
respectively 37,866 42,071
Inventories 14,567 20,689
Prepaid expenses and other 4,206 4,092
Deferred income taxes -- 2,526
--------- ---------
Total current assets 62,393 73,410
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 592 593
Buildings and improvements 6,612 6,615
Equipment, furniture and fixtures 19,138 19,667
--------- ---------
26,342 26,875
Less accumulated depreciation (16,100) (13,630)
--------- ---------
Property, plant and equipment, net 10,242 13,245
--------- ---------
OTHER ASSETS:
Goodwill, net 32,370 37,139
Deferred income taxes -- 6,512
Other assets 4,448 5,245
--------- ---------
Total other assets 36,818 48,896
--------- ---------
$ 109,453 $ 135,551
========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
30
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND 2001
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
AS RESTATED
-----------
SEE NOTE 2
----------
2002 2001
---- ----
CURRENT LIABILITIES:
Short-term borrowings $ 961 $ 939
Current portion of long-term debt 60,707 2,216
Accounts payable 11,308 13,897
Accrued liabilities and other 11,143 11,755
--------- ---------
Total current liabilities 84,119 28,807
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION 1,018 65,134
DEFERRED INCOME TAXES 397 --
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST 62 92
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
shares issued in 2002 and 2001; 8,288 and
7,897 shares outstanding in 2002 and 2001 2,276 2,276
Additional paid-in capital 46,993 49,979
Accumulated earnings (deficit) (16,251) 1,966
Accumulated other comprehensive loss (7,002) (6,679)
Common Shares in treasury, at cost; 250
and 641 shares held in 2002 and 2001 (2,159) (6,024)
--------- ---------
Total shareholders' equity 23,857 41,518
--------- ---------
$ 109,453 $ 135,551
========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
31
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
(In Thousands, Except Per Share Data)
AS RESTATED
-----------
SEE NOTE 2
----------
2002 2001 2000
---- ---- ----
Revenues $ 172,190 $ 163,937 $ 168,442
Operating costs and expenses:
Cost of sales 122,034 116,734 116,454
Selling, general and administrative expenses 47,282 49,160 43,401
Loss on investment in subsidiary 2,480 -- --
--------- --------- ---------
Operating income (loss) 394 (1,957) 8,587
Interest expense 7,352 6,754 5,339
--------- --------- ---------
Income (loss) from continuing operations before
income taxes (6,958) (8,711) 3,248
Provision for income taxes 11,259 (430) 1,299
--------- --------- ---------
Income (loss) from continuing operations (18,217) (8,281) 1,949
Discontinued operations:
Income (loss) from operations, net of income taxes -- -- (353)
Loss on disposal, net of income taxes -- -- (4,264)
--------- --------- ---------
Net loss $ (18,217) $ (8,281) $ (2,668)
========= ========= =========
Earnings (loss) per share - Basic:
Income (loss) from continuing operations $ (2.24) $ (1.07) $ 0.25
Discontinued operations:
Loss from operations, net of income taxes -- -- (0.05)
Loss on disposal, net of income taxes -- -- (0.55)
--------- --------- ---------
Net loss $ (2.24) $ (1.07) $ (0.35)
========= ========= =========
Weighted average shares outstanding - Basic 8,119 7,736 7,663
========= ========= =========
Earnings (loss) per share - Diluted:
Income (loss) from continuing operations $ (2.24) $ (1.07) $ 0.25
Discontinued operations:
Loss from operations, net of income taxes -- -- (0.05)
Loss on disposal, net of income taxes -- -- (0.54)
--------- --------- ---------
Net loss $ (2.24) $ (1.07) $ (0.34)
========= ========= =========
Weighted average shares outstanding - Diluted 8,119 7,736 7,824
========= ========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
32
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
(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, 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 (as restated, see Note 2) -- -- -- (8,281) -- -- (8,281)
Minimum pension liability, net of
tax of $142 (as restated) -- -- -- -- (366) -- (366)
Cumulative translation adjustment
(as restated) -- -- -- -- (4,614) -- (4,614)
--------
Total Comprehensive
Loss (as restated, see Note 2) -- -- -- -- -- -- (13,261)
Exercise of 2 stock options -- -- 4 -- -- -- 4
Issuance of 208 Treasury Shares -- -- (1,511) -- -- 2,051 540
-------- -------- -------- -------- -------- -------- --------
March 31, 2001 (as restated, see Note 2) -- 2,276 49,979 1,966 (6,679) (6,024) 41,518
Comprehensive Loss:
Net loss -- -- -- (18,217) -- -- (18,217)
Minimum pension liability, net
of tax of $74 -- -- -- -- (132) -- (132)
Cumulative translation adjustment -- -- -- -- (191) -- (191)
--------
Total Comprehensive Loss -- -- -- -- -- -- (18,540)
Issuance of 391 Treasury Shares -- -- (2,986) -- -- 3,865 879
-------- -------- -------- -------- -------- -------- --------
March 31, 2002 $ -- $ 2,276 $ 46,993 $(16,251) $ (7,002) $ (2,159) $ 23,857
======== ======== ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
33
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
(In Thousands)
AS RESTATED
-----------
SEE NOTE 2
----------
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net loss $(18,217) $ (8,281) $ (2,668)
Adjustments to reconcile net loss
to net cash provided (used) by continuing operations:
Depreciation and amortization 5,817 5,809 6,090
Asset impairment -- 659 --
401K matching contributions in Treasury shares 841 361 --
Deferred income taxes 9,442 (2,747) (758)
Loss on sale of assets (81) (100) (8)
Loss from discontinued operations -- -- 353
Loss on disposal of discontinued operations -- -- 4,264
Loss on investment in subsidiary 1,840 -- --
Minority interest (30) (53) (39)
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable 2,744 (4,523) 10,948
Inventories 5,792 2,316 2,840
Prepaid expenses and other 405 2,187 (1,771)
Other assets (1,559) (2,183) (2,459)
Accounts payable and accrued expenses 126 3,437 (3,259)
-------- -------- --------
Total adjustments 25,337 5,163 16,201
-------- -------- --------
Net cash provided (used) by continuing operations 7,120 (3,118) 13,533
Net cash provided by discontinued operations -- -- 147
-------- -------- --------
Net cash provided (used) by operating activities 7,120 (3,118) 13,680
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (969) (2,282) (3,800)
Proceeds from disposal of property, plant and equipment 1,160 999 346
Acquisitions, net of cash acquired -- -- (8,542)
-------- -------- --------
Net cash provided (used) by investing activities 191 (1,283) (11,996)
-------- -------- --------
Cash flows from financing activities:
Long-term debt, net (5,110) 6,924 (1,190)
Repayment of other debt (505) (564) (1,240)
Net proceeds from issuance of Common Shares 40 183 504
Repurchase of Common Shares, net -- -- (1,429)
-------- -------- --------
Net cash provided (used) by financing activities (5,575) 6,543 (3,355)
-------- -------- --------
Effect of changes in foreign currency exchange rates on cash (14) (75) (321)
-------- -------- --------
Net increase (decrease) in cash 1,722 2,067 (1,992)
Cash and cash equivalents at beginning of year 4,032 1,965 3,957
-------- -------- --------
Cash and cash equivalents at end of year $ 5,754 $ 4,032 $ 1,965
======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
34
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
(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 2001, as restated, and 2000 amounts have been reclassified to
conform with the fiscal 2002 presentation.
Following the appointment of an administrator and the commencement of
voluntary administration proceedings on March 21, 2002, a process under
Australian law providing relief from creditors of Australian companies, the
Company no longer controlled its Australian subsidiary. The results of
operations of the subsidiary are included in the Company's Consolidated
Statements of Operations through March 31, 2002. The assets and liabilities of
the subsidiary are not included in the Consolidated Balance Sheet of the Company
as of March 31, 2002 as the Company has written-off its investment in its
subsidiary. See Note 14 of Notes to Consolidated Financial Statements of the
Company for additional information regarding the Company's Australian
subsidiary.
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, 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 $3,243 and $2,516 at March 31, 2002 and 2001. Bad debt expense totaled $949,
$696 and $546 in fiscal 2002, 2001 and 2000, respectively. Trade receivables
written-off, net of recoveries of prior write-offs, totaled $222, $143 and
$1,086 in fiscal 2002, 2001 and 2000, 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, 2002 and 2001:
RESTATED
--------
2002 2001
---- ----
Component parts and raw materials $ 8,021 $ 9,450
Work in process 751 2,140
Finished goods 7,209 10,292
-------- --------
15,981 21,882
Inventory reserve (1,414) (1,193)
-------- --------
$ 14,567 $ 20,689
======== ========
35
Provision for inventory obsolescence totaled $404, $289 and $1,626 in
fiscal 2002, 2001 and 2000, respectively. Disposals of obsolete inventory, net
of proceeds, totaled $183, $1,728 and $93 in fiscal 2002, 2001 and 2000,
respectively.
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 account
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 $3,130, $3,356 and $3,124 in fiscal 2002,
2001 and 2000, 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. Following the appointment of an administrator and the commencement
of voluntary administration proceedings of the Company's Australian subsidiary,
consolidated goodwill was reduced by $3,510 as a result of the assets and
liabilities of the subsidiary not being included in the Consolidated Balance
Sheet of the Company as of March 31, 2002. Goodwill amortization totaled $1,723,
$1,668 and $1,587 in fiscal 2002, 2001 and 2000, respectively. Accumulated
amortization was $9,622 and $7,899 at March 31, 2002 and 2001, respectively.
Included in other assets are amortizable assets consisting primarily of
patents, trademarks and covenants not to compete. Such assets, with a cost of
$1,772 and $2,012 at March 31, 2002 and 2001, 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 $314, $394 and $244 in
fiscal 2002, 2001 and 2000, 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 $1,059 and $869 at March 31, 2002 and 2001, respectively, of amounts
billed but not paid by customers under retainage provisions of contracts.
36
Prepaid expenses and other includes $2,756 and $2,806 at March 31, 2002 and
2001, 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.
Product development expenses
Expenditures for product development totaled approximately $660, $1,006
and $1,169 in fiscal 2002, 2001 and 2000, respectively.
Income taxes
The Company uses the liability method whereby income taxes are recognized
during the fiscal year in which transactions enter into the determination of
financial statement income. Deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between
financial statement and tax basis of assets and liabilities. The Company
recorded a valuation allowance for its net deferred tax assets and net operating
loss carryforwards of $10,261 in the fourth quarter of fiscal 2002. The Company
intends to maintain a full valuation allowance for its net deferred tax assets
and net operating loss carryforwards until sufficient positive evidence exists
to support the reversal of the remaining reserve. Until such time, except for
foreign tax provisions, the Company will have no reported tax provision, net of
valuation allowance adjustments. In the event the Company was to determine,
based on the existence of sufficient positive evidence, that it would be able to
realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the valuation allowance would increase income in the
period such determination was made. See Note 6 of Notes to Consolidated
Financial Statements of the Company for additional information regarding income
taxes.
Unusual charges
During fiscal 2001, the Company recorded an unusual charge of $2,868 of
which $935 is included in cost of sales and $1,933 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.
Loss on investment in subsidiary
As discussed in Note 2, Restatement of Consolidated Financial Statements,
in March 2002, the Company's Australian subsidiary commenced voluntary
administration proceedings, a process under Australian law providing relief from
creditors of Australian companies. As a result of such proceedings, the Company
was no longer in control of the Australian subsidiary and recorded a charge to
earnings for its loss on investment related to the subsidiary of $2,480. See
Note 14 of Notes to Consolidated Financial Statements of the Company for
additional information regarding the Company's Australian subsidiary.
Earnings per share
Basic Earning Per Share ("EPS") is computed by dividing net income (loss)
for the period by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed by dividing net income (loss) 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.
37
The effect of the 28 and 47 incremental shares stock options in fiscal 2002 and
2001, respectively, have been excluded from dilutive weighted average shares, as
the net loss for the year would cause the incremental shares to be antidilutive.
Comprehensive income(loss)
Comprehensive income (loss) includes net income (loss) and other revenues,
expenses, gains and losses that are excluded from net income (loss) but included
as a component of total shareholders' equity. Other comprehensive income (loss)
was $(323), $(4,980) and $(286) for the years ended March 31, 2002, 2001 and
2000, respectively. These amounts are comprised of the effect of foreign
currency translation adjustments in accordance with SFAS No. 52, "Foreign
Currency Translation" totaling $(191), $(4,614) and $(286) for the years ended
March 31, 2002, 2001 and 2000, respectively and minimum pension liability
totaling $(132), $(366) and $0 for the years ended March 31, 2002, 2001 and
2000, respectively. The accumulated balance of foreign currency translation
adjustments and a minimum pension liability excluded from net income (loss) at
March 31, 2002 is $(6,504) and $(498), respectively, and is presented in the
Consolidated Balance Sheets and Statements 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 (loss).
Financial statement estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 the intrinsic value method under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees."
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:
On March 20, 2002, the Company announced that it had discovered accounting
irregularities caused by apparent internal misconduct in its Australian
subsidiary. The accounting irregularities involved the overstatement of revenues
and understatement of expenses by the Australian subsidiary. The irregularities
were discovered by Corrpro management in connection with an internal review of
the subsidiary's working capital management practices and cash flow problems
inconsistent with the subsidiary's reported results. Upon discovering the
irregularities, the Company immediately began an internal investigation
conducted under the direction of the Audit Committee of its Board of Directors.
The Audit Committee subsequently retained special counsel in connection with the
investigation and retained the forensic investigation unit of the accounting
firm, Deloitte Touche Tohmatsu.
The Company also announced in March 2002 that its Australian subsidiary
was in the process of appointing an administrator and commencing voluntary
administration proceedings, a process under Australian law providing relief from
creditors of Australian companies. Following the appointment, the Company
recorded a charge to earnings in the fiscal fourth quarter ended March 31, 2002
for its loss on investment related to the subsidiary. The Company also stated
that, to the extent that the accounting irregularities materially affect
previously filed financial statements, the Company expected that it would have
to restate its audited financial statements for its fiscal year which ended
March 31, 2001 as well as unaudited financial information for the first nine
months through December 31, 2001 of its fiscal year ended March 31, 2002, as
previously released. See Note 12, Restated Quarterly Financial Information
(Unaudited), Notes to
38
Consolidated Financial Statements. Accordingly, the financial statements for
affected periods and accompanying auditor's report should no longer be relied
upon.
In addition to the Audit Committee investigation, the Company conducted a
review of the accounting records for fiscal 2001 and the first nine months
through December 31, 2001 of fiscal 2002 and contracted KPMG LLP to audit the
Company's restated consolidated financial statements for fiscal 2001. The
cumulative restatement of the Company's fiscal 2001 decreased consolidated
stockholders' equity as of March 31, 2001 by approximately $3,805 from amounts
previously reported and increased the loss by $3,575.
Following are the primary categories of restatement adjustments to the
Company's previously reported financial results:
39
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
As of March 31, 2001
--------------------
As
Previously As
Reported Restated
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,900 $ 4,032
Accounts receivable, less allowance
for doubtful accounts of $2,516 43,222 42,071
Inventories 22,298 20,689
Prepaid expenses and other 4,734 4,092
Deferred income taxes 2,688 2,526
--------- ---------
Total current assets 76,842 73,410
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land 593 593
Building and improvements 6,615 6,615
Equipment, furniture and fixtures 19,667 19,667
--------- ---------
26,875 26,875
Less accumulated depreciation (13,630) (13,630)
--------- ---------
Property, plant and equipment, net 13,245 13,245
--------- ---------
Other Assets:
Goodwill, net 37,139 37,139
Deferred income taxes 6,056 6,512
Other assets 4,852 5,245
--------- ---------
Total other assets 48,047 48,896
--------- ---------
$ 138,134 $ 135,551
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current
portion of long-term debt $ 939 $ 939
Current portion of long-term debt 2,216 2,216
Accounts payable 14,007 13,897
Accrued liabilities and other 10,423 11,755
--------- ---------
Total current liabilities 27,585 28,807
--------- ---------
Long-term debt, net of current portion 65,134 65,134
Commitments and contingencies -- --
Minority interest 92 92
Shareholders' Equity:
Serial preferred shares, voting, no par value;
1,000 shares authorized and unissued -- --
Common shares, no par value, at stated value;
40,000 shares authorized; 8,538 issued in 2001
and 7,897 shares outstanding in 2001 2,276 2,276
Additional paid-in capital 49,979 49,979
Accumulated earnings 5,541 1,966
--------- ---------
57,796 54,221
Accumulated other comprehensive loss (6,449) (6,679)
Common shares in treasury, at cost 641
shares held in 2001 (6,024) (6,024)
--------- ---------
Total shareholders' equity 45,323 41,518
--------- ---------
$ 138,134 $ 135,551
========= =========
40
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended March 31, 2001
-------------------------
As
Previously As
Reported Restated
-------- --------
Revenues $ 165,416 $ 163,937
Cost of sales 115,154 116,734
Selling, general & administrative expenses 48,701 49,160
--------- ---------
Operating income (loss) 1,561 (1,957)
Interest expense 6,771 6,754
--------- ---------
Loss before income taxes (5,210) (8,711)
Provision for income taxes (504) (430)
--------- ---------
Net loss $ (4,706) $ (8,281)
========= =========
Loss per share-
Basic $ (0.61) $ (1.07)
Diluted $ (0.61) $ (1.07)
Weighted average shares outstanding-
Basic 7,736 7,736
Diluted 7,736 7,736
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended March 31, 2001
-------------------------
As
Previously As
Reported Restated
-------- --------
Cash flows from operating activities:
Net loss $ (4,706) $ (8,281)
Adjustments to reconcile net loss to net cash
used for operations:
Depreciation and amortization 5,809 5,809
Asset impairment 659 659
401K matching contribution in Treasury shares 361 361
Deferred income taxes (2,423) (2,747)
Loss on sale of assets (100) (100)
Minority interest (53) (53)
Changes in operating assets and liabilities:
Accounts receivable (5,792) (4,523)
Inventories 590 2,316
Prepaid expenses and other 1,498 2,187
Other assets (1,864) (2,183)
Accounts payable and accrued expenses 2,813 3,437
--------- ---------
Total adjustments 1,498 5,163
--------- ---------
Net cash used by operating activities (3,208) (3,118)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (2,282) (2,282)
Proceeds from disposal of property, plant and equipment 999 999
--------- ---------
Net cash used by investing activities (1,283) (1,283)
--------- ---------
Cash flows from financing activities:
Long-term debt, net 6,924 6,924
Repayment of other debt (564) (564)
Net proceeds from issuance of Common Shares 183 183
--------- ---------
Net cash provided by financing activities 6,543 6,543
--------- ---------
Effect of changes in foreign currency exchange rates on cash (117) (75)
--------- ---------
Net increase in cash 1,935 2,067
Cash and cash equivalents at beginning of period 1,965 1,965
--------- ---------
Cash and cash equivalents at end of period $ 3,900 $ 4,032
========= =========
42
3. 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 consolidated financial statements were not
material. No acquisitions were made by the Company in fiscal 2002 and 2001. The
following is a discussion of acquisition activity for 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 cash purchase price for all three of these acquisitions was $3,800.
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.
4. LONG-TERM DEBT:
Long-term debt at March 31, 2002 and 2001 consisted of the following:
AS RESTATED
2002 2001
---- ----
Senior Notes, due 2008 $ 28,286 $ 30,000
Revolving Credit Facility 32,045 35,435
Other 2,355 2,854
-------- --------
62,686 68,289
Less: current portion 61,668 3,155
-------- --------
$ 1,018 $ 65,134
======== ========
In March 1999, the Company entered into an $80 million revolving credit
facility that expires on January 31, 2003 (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 February 11, 2002 ("February 2002 Amendment"), the size of the
Revolving Credit Facility was reduced to $40 million. In addition, the February
2002 Amendment also provides that any payments made under the Senior Notes (see
below) will result in a proportionate reduction in the lenders commitment under
the Revolving Credit Agreement. At March 31, 2002 lenders commitments under the
Revolving Credit Facility were limited to $37.7 million. Borrowings under the
Revolving Credit Facility are further limited to borrowing base amounts as
defined. The February 2002 Amendment provides for interest on borrowings at
prime plus 2.50%. In addition, the February 2002 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.
At March 31, 2002, the Company was in violation of several financial
covenants. These violations permit the lenders to cause the Revolving Credit
Facility to become due prior to its stated maturity. As a result of the
maturity, the Company has
43
classified all of its outstanding indebtedness under the Revolving Credit
Facility at March 31, 2002 as current. This Event of Default also restricts the
Company from borrowing any additional funds under the Revolving Credit Facility
and increases the interest rate on borrowings to prime plus 5.50%. The Company
is continuing to make all required interest payments. The Company is currently
negotiating with its lenders to amend this Revolving Credit Facility to address
the Company's violations and to extend the expiration date. If the Company is
unable to negotiate an amendment to the Revolving Credit Facility, it will be
necessary for the Company to refinance or repay this debt. The Company cannot
assure that it will be able to accomplish such a transaction on terms
acceptable to the Company. Failure to do so would have a material adverse
effect on the Company's liquidity and financial condition and could result in
the Company's inability to operate as a going concern. If the Company is unable
to operate as a going concern, it may file, or may have no alternative but to
file, bankruptcy or insolvency proceedings or pursue a sale or sales of assets
to satisfy creditors.
The weighted average interest rate on borrowings under the Revolving
Credit Facility was 9.2% during fiscal 2002.
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 of 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. At March 31, 2002, the Company was in violation of several of
these financial covenants. These violations permit the lender to cause the
Senior Notes to become due prior to their stated maturity. As a result, the
Company has classified all of its outstanding indebtedness under the Senior
Notes at March 31, 2002 as current. The Company is continuing to make all
required interest payments. The Company made its required principal payments
through March 2002, but has not made the required monthly payments after March
2002. The Company is currently negotiating with its lender to amend the Senior
Notes to eliminate the Company's violations and to amend the schedule of
principal payments required. If the Company is unable to negotiate an amendment
to the Senior Notes, it will be necessary for the Company to refinance or repay
this debt. The Company cannot assure that it will be able to accomplish such a
transaction on terms acceptable to the Company. Failure to do so would have a
material adverse effect on the Company's liquidity and financial condition and
could result in the Company's inability to operate as a going concern. If the
Company is unable to operate as a going concern, it may file, or may have no
alternative but to file, bankruptcy or insolvency proceedings or pursue a sale
or sales of assets to satisfy creditors.
The weighted average interest rate on borrowings under the Senior Notes
was 9.1% during fiscal 2002.
Other long-term debt bears interest at various rates, which ranged from
6.2% to 7.0% at March 31, 2002 and March 31, 2001. The obligations mature at
various intervals between 2003 and 2007.
The Company's long-term debt excluding the Revolving Credit Facility and
the Senior Notes, matures as follows: $313 in 2004, $313 in 2005, $313 in 2006
and $79 in 2007.
The Company also maintains available lines of credit from various foreign
banks, which are secured by the assets of certain foreign subsidiaries.
Short-term borrowings amounted to $961 and $939 at March 31, 2002 and 2001,
respectively, under these lines of credit. The interest rates on such borrowings
at March 31, 2002 ranged from 7.0% to 11.0%.
Based on the Events of Default which prevent the Company from accessing
its Revolving Credit Facility, the Company can only obtain funds under its
foreign credit facilities. Total availability under the foreign credit
facilities at March 31, 2002, was approximately $4,799.
Cash paid for interest totaled $6,633, $5,687 and $4,786 for fiscal year
2002, 2001 and 2000, respectively.
44
In May 2002, with the assistance of strategic financial advisors, the
Company developed a formal business restructuring plan. The multi-year plan
includes a series of initiatives to improve operating income and reduce debt
through restructuring, consolidation and divestiture of non-core businesses.
Potential operating gains or losses may be experienced with the disposition of
assets at the time of disposal during the implementation of the restructuring
plan. Operating income improvements combined with debt reduction targets are
expected to result. Implementation efforts are currently underway. As
appropriate, the Company will report future quarterly and annual results
separately for continuing operations and for discontinued operations.
The Company is negotiating agreements with its lenders to amend the
current Revolving Credit Facility and Senior Note agreements and to address
existing violations. Among other things, we seek to revise principal
amortization of the Senior Notes and obtain ongoing borrowing capacity under the
Revolving Credit Facility, subject to applicable borrowing base and other
provisions. In addition to other terms and conditions, we expect to incur
interest rates on borrowings under the Revolving Credit Facility at a higher
applicable margin than under its existing provisions. We also intend to seek
during fiscal 2003 other financing to retire the Senior Notes and Revolving
Credit Facility. There can be no assurance however that we will be able to amend
the existing agreements or obtain other financing.
5. 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: $1,781 in 2003,
$1,454 in 2004, $1,027 in 2005, $588 in 2006, $240 in 2007 and $522 after 2008
with a cumulative total of $5,612. In addition, the Company rents other property
on a month-to-month basis.
Total rental expense was $4,361, $4,164 and $3,600 for fiscal 2002, 2001
and 2000, respectively.
6. INCOME TAXES:
The Company recorded a $10,261 charge to establish a valuation allowance
for its net deferred tax assets and net operating loss carryforwards in the
fourth quarter of fiscal year 2002. The valuation allowance was calculated in
accordance with the provisions of SFAS 109. The Company intends to maintain a
full valuation allowance of its net deferred tax assets and net operating loss
carryforwards until sufficient positive evidence exists to support reversal of
the remaining reserve. Until such time, except for foreign tax provisions, the
Company expects to have no reported tax provision, net of valuation allowance
adjustments.
45
Components of income (loss) from continuing operations before income taxes
as follows:
AS RESTATED
2002 2001 2000
---- ---- ----
United States $ (60) $ (5,338) $ 473
Foreign (6,898) (3,373) 2,775
-------- -------- --------
$ (6,958) $ (8,711) $ 3,248
======== ======== ========
Components of the provision for income taxes by jurisdiction follow:
AS RESTATED
2002 2001 2000
---- ---- ----
Current -- Federal $ -- $ 431 $ (2,674)
-- State and local -- 11 (102)
-- Foreign 1,518 1,892 2,178
-------- -------- --------
1,518 2,334 (598)
Deferred -- Federal 9,351 (2,313) 1,612
-- State and local (56) (508) 154
-- Foreign 446 57 131
-------- -------- --------
9,741 (2,764) 1,897
-------- -------- --------
$ 11,259 $ (430) $ 1,299
======== ======== ========
Differences between the statutory United States federal income tax rate
(34%) and the effective income tax rate are as follows:
AS RESTATED
2002 2001 2000
---- ---- ----
Federal income tax provision
(benefit) at statutory rate $ (2,366) $ (2,962) $ 1,104
State income taxes, net -- (303) 34
Foreign tax rate differential 2,999 2,288 66
Meals and entertainment 179 198 219
Valuation allowance 10,261 -- --
Other 186 349 (124)
-------- -------- --------
Effective income tax $ 11,259 $ (430) $ 1,299
======== ======== ========
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities were comprised of the following at March 31, 2002 and
2001:
AS RESTATED
2002 2001
---- ----
DEFERRED TAX ASSETS
Bad debts $ 590 $ 458
Other reserves 1,267 1,329
Uniform cost capitalization 27 217
Accrued expenses 671 512
Pension and other benefit reserves 654 586
Minimum tax credit 557 557
Federal net operating loss carryforward 6,285 5,667
State net operating loss carryforwards 714 725
Other 710 636
-------- --------
Total deferred tax assets 11,475 10,687
46
AS RESTATED
2002 2001
---- ----
DEFERRED TAX LIABILITIES
Fixed assets (673) (917)
Other (938) (732)
-------- --------
Total deferred tax liabilities (1,611) (1,649)
-------- --------
Valuation allowance (10,261) --
-------- --------
Total net deferred taxes $ (397) $ 9,038
======== ========
Accrued liabilities included $375 and $588 at March 31, 2002 and 2001,
respectively, related to accrued income taxes.
No income tax benefit for United States income tax on approximately
$9,031 of undistributed losses of foreign subsidiaries at March 31, 2002 has
been made. Determination of the amount of the unrecognized deferred tax
liabilities for temporary differences related to investments in foreign
subsidiaries is not practicable.
The Company had state net operating loss carryforwards of approximately
$13,521 at March 31, 2002. At March 31, 2002, the Company had federal net
operating loss carryforwards of $18,188, which expire through 2022. The Company
also has federal credit carryforwards of $557 at March 31, 2002 relating to
non-expiring alternative minimum tax credits.
Cash paid for income taxes totaled $1,603, $1,897 and $2,471 for fiscal
2002, 2001 and 2000, respectively.
7. 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:
AS RESTATED
2002 2001
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 3,651 $ 3,745
Service cost -- --
Interest cost 218 211
Assumption change -- (221)
Benefits paid (53) (84)
-------- --------
Benefit obligation at end of year $ 3,816 $ 3,651
Change in plan assets
Fair value of plan assets at beginning of year $ 2,933 $ 3,145
Employer contributions 137 126
Benefits paid (53) (84)
Investment return 17 (254)
-------- --------
Fair value of plan assets at end of year $ 3,034 $ 2,933
Funded status $ (782) $ (718)
Amounts recognized in Consolidated Balance Sheets
Accrued benefit liability $ (68) $ (210)
Minimum pension liability (714) (508)
47
As Restated
2002 2001 2000
---- ---- ----
Net periodic pension benefit cost
Service cost $ -- $ -- $ 216
Interest cost 218 211 245
Actual return on assets (239) (256) (485)
Net amortization and deferral 17 -- 245
-------- -------- --------
Net periodic pension cost $ (4) $ (45) $ 221
Weighted-average assumptions as of March 31
Discount rate 6.0% 6.5% 6.5%
Long-term rate of return on plan assets 8.0% 8.5% 8.5%
Rate of increase in compensation level N/A N/A 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 plan permits matching contributions. Effective
October 1, 2000, the Company began matching employee contributions with treasury
shares. For fiscal year 2002 and 2001, the Company issued 375 and 148 treasury
shares for the Company's matching portion. Total matching contributions in cash
and treasury shares totaled $977, $973 and $924 in fiscal 2002, 2001 and 2000,
respectively.
Effective April 2002, the Company has suspended the Company match.
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.
8. 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 2002 or 2001
under this program. During fiscal 2000, the Company repurchased approximately
153 shares, at a total cost of $1,429 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.
48
9. 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.
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. Subsequently, in June 2001, the Company reissued options for 648 shares
with a price of $2.55, the market price.
Shares for issuance under equity compensation plans does not include the
Company's 2001 Non-Employee Directors' Stock Appreciation Rights Plan which has
not been approved by its shareholders. Under this plan, non-employee directors
received a one-time grant of vested stock appreciation rights as part of their
compensation for serving as directors. The stock appreciation rights entitle
each eligible director to be paid in cash, subject to the applicable terms and
conditions of the grant, on or after May 17, 2006, the amount of appreciation in
the fair market value of 10,000 Common Shares between May 17, 2001 and May 17,
2006. Currently, three such non-employee directors hold such stock appreciation
rights.
49
Stock option activity for the Company during fiscal 2002, 2001 and 2000
was as follows:
NUMBER OF SHARES 2002 2001 2000
---------------- ---- ---- ----
Options outstanding, beginning of year 757 1,107 1,229
Granted 676 425 45
Exercised -- (2) (82)
Expired, canceled or surrendered (130) (773) (85)
-------- -------- --------
Outstanding, end of year 1,303 757 1,107
-------- -------- --------
Exercisable, end of year 305 444 907
Available for grant, end of year 1,014 891 568
Price range of options:
Granted $ 1.30 to $ 3.69 to $ 5.25 to
$ 3.05 $ 4.00 $ 9.94
Exercised N/A $ 1.86 $ 1.86 to
$ 7.75
Options outstanding, end of year $ 1.30 to $ 1.86 to $ 1.86 to
$ 13.78 $ 13.78 $ 17.33
Of the options shares outstanding at March 31, 2002, 1,108 shares
outstanding were in a price range of $1.30 to $3.75. The remaining 195 options
shares outstanding were at a price range from $4.00 to $13.78.
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 the intrinsic value method under 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:
AS RESTATED
2002 2001 2000
---- ---- ----
Income (loss) from continuing operations:
As reported $ (18,217) $ (8,281) $ 1,949
Pro forma (18,339) (8,688) 1,506
Income (loss) from continuing operations per share - Basic:
As reported $ (2.24) $ (1.07) $ 0.25
Pro forma (2.26) (1.12) 0.20
Income (loss) from continuing operations per share - Diluted:
As reported $ (2.24) $ (1.07) $ 0.25
Pro forma (2.26) (1.12) 0.19
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
fair value price at the date of grant for options granted during fiscal 2002,
2001 and 2000 was $3.70, $3.75 and $5.63 per option, respectively. For purposes
of this pro forma, 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 113.5% for 2002, 46.5% for 2001 and 49.0% for 2000, an
expected life of 10 years and no expected dividends.
50
10. BUSINESS SEGMENTS:
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 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. This segment includes the
operations of our Australian subsidiary that became subject to voluntary
administration on March 21, 2002.
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.
Financial information relating to the Company's operations by segment are
presented below:
AS RESTATED
2002 2001 2000
---- ---- ----
Revenue:
Domestic Core Operations $ 101,549 $ 99,684 $ 98,727
Canadian Operations 21,277 24,328 26,189
International Operations 37,326 36,877 41,965
Other Operations 12,052 9,042 10,834
Eliminations (14) (5,994) (9,273)
--------- --------- ---------
$ 172,190 $ 163,937 $ 168,442
========= ========= =========
Operating Income (Loss):
Domestic Core Operations $ 14,980 $ 12,483 $ 15,389
Canadian Operations 2,850 4,193 5,072
International Operations (4,343) (1,992) 3,862
Other Operations 1,466 1,322 698
Corporate Related Costs, Unusual Items and Other (14,559) (17,963) (16,434)
--------- --------- ---------
$ 394 $ (1,957) $ 8,587
========= ========= =========
Total Assets:
Domestic Core Operations $ 73,241 $ 77,462
Canadian Operations 21,588 22,217
International Operations 4,736 17,060
Other Operations 7,801 7,177
Corporate Related Assets and Other 2,087 11,635
--------- ---------
$ 109,453 $ 135,551
========= =========
51
AS RESTATED
2002 2001 2000
---- ---- ----
Capital Expenditures, Net of Proceeds from Retirements:
Domestic Core Operations $ (511) $ 1,322 $ 2,220
Canadian Operations 6 (91) 851
International Operations 108 247 (139)
Other Operations 120 (40) 122
Corporate Related Capital Expenditures 86 (155) 400
-------- -------- --------
$ (191) $ 1,283 $ 3,454
======== ======== ========
Depreciation and Amortization:
Domestic Core Operations $ 1,566 $ 1,727 $ 1,439
Canadian Operations 683 729 730
International Operations 1,009 1,102 1,226
Other Operations 777 617 567
Corporate Related Depreciation and Amortization 1,782 1,634 2,128
-------- -------- --------
$ 5,817 $ 5,809 $ 6,090
======== ======== ========
11. 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.
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 in 2000 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 in 2000. The revenues included
intercompany sales of $2,122 in 2000. Loss from discontinued operations totaled
$(353) in 2000.
52
12. RESTATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following quarterly financial information for the Company's fiscal
year ended March 31, 2002 is, by means of this filing, being restated to reflect
certain adjustments discussed in Note 2.
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended March 31, 2002
------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter
------------- -------------- -------------
Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
Revenues $ 44,377 $ 44,071 $ 43,231 $ 42,717 $ 47,081 $ 46,999
Cost of sales 30,967 30,951 28,950 29,030 33,166 33,325
Selling, general & administrative
expenses 11,202 11,233 10,742 10,902 10,830 10,894
-------- -------- -------- -------- -------- --------
Operating income 2,208 1,887 3,539 2,785 3,085 2,780
Interest expense 1,820 1,833 1,924 1,933 1,819 1,822
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes 388 54 1,615 852 1,266 958
Provision for income taxes 163 320 718 718 721 880
-------- -------- -------- -------- -------- --------
Net income (loss) $ 225 $ (266) $ 897 $ 134 $ 545 $ 78
======== ======== ======== ======== ======== ========
Earnings (loss) per share:
Basic $ 0.03 $ (0.03) $ 0.11 $ 0.02 $ 0.07 $ 0.01
Diluted $ 0.03 $ (0.03) $ 0.11 $ 0.02 $ 0.07 $ 0.01
Weighted average shares:
Basic 7,960 7,960 8,073 8,073 8,179 8,179
Diluted 7,978 7,960 8,104 8,104 8,199 8,199
53
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
Year Ended March 31, 2002
-------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter
------------- -------------- -------------
Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,279 $ 3,206 $ 4,399 $ 4,373 $ 4,908 $ 4,946
Accounts receivable, net 47,106 46,107 38,861 37,983 39,445 38,486
Inventories 20,499 19,083 21,482 20,200 19,956 18,466
Prepaid expenses and other 6,837 5,990 7,679 6,846 6,830 5,983
Deferred income taxes 2,697 2,526 2,691 2,526 2,662 2,526
--------- --------- --------- --------- --------- ---------
Total current assets 80,418 76,912 75,112 71,928 73,801 70,407
--------- --------- --------- --------- --------- ---------
Property, plant and equipment, net 12,632 12,530 11,735 11,636 11,241 11,241
Other Assets:
Goodwill 37,250 37,352 37,008 37,107 36,519 36,621
Other assets 11,077 11,904 11,015 11,840 10,821 11,632
--------- --------- --------- --------- --------- ---------
Total other assets 48,327 49,256 48,023 48,947 47,340 48,253
--------- --------- --------- --------- --------- ---------
$ 141,377 $ 138,698 $ 134,870 $ 132,511 $ 132,382 $ 129,901
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and
current portion of
long-term debt $ 5,881 $ 5,881 $ 6,276 $ 6,276 $ 8,108 $ 8,108
Accounts payable 15,206 15,257 12,805 13,341 11,692 12,182
Accrued liabilities and other 8,651 10,394 9,081 11,230 9,412 12,135
--------- --------- --------- --------- --------- ---------
Total current liabilities 29,738 31,532 28,162 30,847 29,212 32,425
--------- --------- --------- --------- --------- ---------
Long-term debt, net of current portion 65,126 65,126 59,300 59,300 54,653 54,653
Commitments and contingencies -- -- -- -- -- --
Minority interest 90 90 58 58 56 56
Shareholders' Equity:
Serial preferred shares -- -- -- -- -- --
Common shares 2,276 2,276 2,276 2,276 2,276 2,276
Additional paid-in capital 49,047 49,047 48,141 48,140 47,337 47,337
Accumulated earnings 5,766 1,700 6,663 1,834 7,208 1,912
--------- --------- --------- --------- --------- ---------
57,089 53,023 57,080 52,250 56,821 51,525
Accumulated other
comprehensive loss (5,789) (6,196) (6,048) (6,262) (5,721) (6,119)
Common shares in treasury,
at cost (4,877) (4,877) (3,682) (3,682) (2,639) (2,639)
--------- --------- --------- --------- --------- ---------
Total shareholders' equity 46,423 41,950 47,350 42,306 48,461 42,767
--------- --------- --------- --------- --------- ---------
$ 141,377 $ 138,698 $ 134,870 $ 132,511 $ 132,382 $ 129,901
========= ========= ========= ========= ========= =========
54
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Year Ended March 31, 2002
---------------------------------------------------------------------
Three Months Ended Six Months Ended Nine Months Ended
------------------ ---------------- -----------------
Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 225 $ (266) $ 1,122 $ (132) $ 1,667 $ (54)
Adjustments to reconcile net income (loss)
to net cash provided (used) for operations:
Depreciation and amortization 1,354 1,354 2,861 2,861 4,334 4,334
401K matching contribution in Treasury shares 215 215 465 465 704 704
Deferred income taxes (9) (1) (3) (1) 25 (1)
(Gain) loss on sale of assets 8 8 (86) (86) (79) (79)
Minority interest (1) (1) (36) (36) (37) (37)
Changes in operating assets and liabilities:
Accounts receivable (3,609) (3,786) 4,226 3,971 3,696 3,528
Inventories 1,965 1,750 920 602 2,581 2,457
Prepaid expenses and other (2,156) (1,970) (3,606) (3,419) (2,664) (2,477)
Other assets (572) (400) (614) (762) (960) (965)
Accounts payable and accrued expenses (369) (94) (2,026) (480) (2,725) (825)
------- ------- ------- ------- ------- -------
Total adjustments (3,174) (2,925) 2,101 3,115 4,875 6,639
------- ------- ------- ------- ------- -------
Net cash provided (used)
by operating activities (2,949) (3,191) 3,223 2,983 6,542 6,585
------- ------- ------- ------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (317) (220) (433) (337) (753) (753)
Proceeds from disposal of property,
plant and equipment 377 377 615 615 655 655
------- ------- ------- ------- ------- -------
Net cash provided (used)
by investing activities 60 157 182 278 (98) (98)
------- ------- ------- ------- ------- -------
Cash flows from financing activities:
Net (payments) borrowings under revolving credit
facility and lines of credit 2,419 2,419 (2,706) (2,706) (5,112) (5,112)
Net payments under other long-term debt (138) (138) (295) (295) (398) (398)
Net payments from issuance of Common Shares -- -- -- -- -- --
Net proceeds from employee stock purchase plan -- -- 40 40 40 40
------- ------- ------- ------- ------- -------
Net cash provided (used)
by financing activities 2,281 2,281 (2,961) (2,961) (5,470) (5,470)
------- ------- ------- ------- ------- -------
Effect of changes in foreign currency exchange rates
on cash (13) (73) 55 41 34 (103)
------- ------- ------- ------- ------- -------
Net increase (decrease) in cash (621) (826) 499 341 1,008 914
Cash and cash equivalents at beginning of period 3,900 4,032 3,900 4,032 3,900 4,032
------- ------- ------- ------- ------- -------
Cash and cash equivalents at end of period $ 3,279 $ 3,206 $ 4,399 $ 4,373 $ 4,908 $ 4,946
======= ======= ======= ======= ======= =======
55
The following quarterly financial information for the Company's fiscal
year ended March 31, 2001 is, by means of this filing, being restated to reflect
certain adjustments discussed in Note 2.
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended March 31, 2001
-------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter
------------- -------------- -------------
Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
Revenues $ 40,760 $ 40,496 $ 43,486 $ 43,440 $ 42,709 $ 42,452
Cost of sales 27,045 27,044 29,483 29,483 29,296 29,297
Selling, general &
administrative expenses 11,660 11,660 11,710 11,710 10,692 10,692
-------- -------- -------- -------- -------- --------
Operating income 2,055 1,792 2,293 2,247 2,721 2,463
Interest expense 1,456 1,456 1,571 1,571 1,747 1,747
-------- -------- -------- -------- -------- --------
Income before income taxes 599 336 722 676 974 716
Provision for income taxes 239 240 288 288 391 389
-------- -------- -------- -------- -------- --------
Net income $ 360 $ 96 $ 434 $ 388 $ 583 $ 327
======== ======== ======== ======== ======== ========
Earnings per share:
Basic $ 0.05 $ 0.01 $ 0.06 $ 0.05 $ 0.08 $ 0.04
Diluted $ 0.05 $ 0.01 $ 0.06 $ 0.05 $ 0.07 $ 0.04
Weighted average shares:
Basic 7,687 7,687 7,706 7,706 7,731 7,731
Diluted 7,748 7,748 7,760 7,760 7,783 7,783
56
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONTINUED
Year Ended March 31, 2001
-------------------------
Fourth Quarter
--------------
Previously As
Reported Restated
-------- --------
Revenues $ 38,461 $ 37,549
Cost of sales 29,330 30,910
Selling, general &
administrative expenses 14,639 15,098
-------- --------
Operating loss (5,508) (8,459)
Interest expense 1,997 1,980
-------- --------
Loss before income taxes (7,505) (10,439)
Provision for income taxes (1,422) (1,347)
-------- --------
Net loss $ (6,083) $ (9,092)
======== ========
Loss per share:
Basic $ (0.78) $ (1.16)
Diluted $ (0.78) $ (1.16)
Weighted average shares:
Basic 7,822 7,822
Diluted 7,822 7,822
57
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
Year Ended March 31, 2001
-------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter
------------- -------------- -------------
Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,048 $ 2,048 $ 2,502 $ 2,502 $ 1,581 $ 1,581
Accounts receivable, net 40,840 40,576 46,332 46,022 45,692 45,125
Inventories 23,855 23,855 24,196 24,196 24,022 24,022
Prepaid expenses and other 11,613 9,125 11,320 8,852 10,053 7,578
Deferred income taxes -- 2,488 -- 2,469 -- 2,475
--------- --------- --------- --------- --------- ---------
Total current assets 78,356 78,092 84,350 84,041 81,348 80,781
--------- --------- --------- --------- --------- ---------
Property, plant and equipment, net 15,828 15,828 15,571 15,571 14,668 14,668
Other Assets:
Goodwill 39,395 39,395 38,414 38,414 39,135 39,135
Other assets 10,187 9,067 9,948 8,830 9,833 8,356
--------- --------- --------- --------- --------- ---------
Total other assets 49,582 48,462 48,362 47,244 48,968 47,491
--------- --------- --------- --------- --------- ---------
$ 143,766 $ 142,382 $ 148,283 $ 146,856 $ 144,984 $ 142,940
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and
current portion of
long-term debt $ 2,114 $ 2,114 $ 2,217 $ 2,217 $ 1,191 $ 1,191
Accounts payable 14,642 14,642 17,569 17,569 15,297 15,297
Accrued liabilities and other 8,164 8,164 7,662 7,662 7,618 7,618
--------- --------- --------- --------- --------- ---------
Total current liabilities 24,920 24,920 27,448 27,448 24,106 24,106
--------- --------- --------- --------- --------- ---------
Long-term debt, net of current portion 63,966 63,966 66,629 66,629 65,435 65,435
Deferred income taxes 1,120 -- 1,118 -- 1,477 --
Commitments and contingencies -- -- -- -- -- --
Minority interest 192 192 100 100 88 88
Shareholders' Equity:
Serial preferred shares -- -- -- -- -- --
Common shares 2,276 2,276 2,284 2,284 2,276 2,276
Additional paid-in capital 51,486 51,486 51,259 51,259 51,013 51,013
Accumulated earnings 10,607 10,343 11,041 10,732 11,624 11,057
--------- --------- --------- --------- --------- ---------
64,369 64,105 64,584 64,275 64,913 64,346
Accumulated other
comprehensive loss (2,726) (2,726) (3,833) (3,833) (3,662) (3,662)
Common shares in treasury,
at cost (8,075) (8,075) (7,763) (7,763) (7,373) (7,373)
--------- --------- --------- --------- --------- ---------
Total shareholders' equity 53,568 53,304 52,988 52,679 53,878 53,311
--------- --------- --------- --------- --------- ---------
$ 143,766 $ 142,382 $ 148,283 $ 146,856 $ 144,984 $ 142,940
========= ========= ========= ========= ========= =========
58
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Year Ended March 31, 2001
---------------------------------------------------------------------
Three Months Ended Six Months Ended Nine Months Ended
------------------ ---------------- -----------------
Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
Cash flows from operating activities:
Net income $ 360 $ 96 $ 794 $ 484 $ 1,377 $ 811
Adjustments to reconcile net income
to net cash provided (used) for operations:
Depreciation and amortization 1,372 1,372 2,903 2,903 4,462 4,462
401K matching contribution in Treasury shares -- -- -- -- 221 221
Deferred income taxes 52 52 95 95 437 437
(Gain) loss on sale of assets (44) (44) (46) (46) (82) (82)
Minority interest 50 50 (48) (48) (62) (62)
Changes in operating assets and liabilities:
Accounts receivable (2,410) (2,146) (8,170) (7,860) (7,420) (6,854)
Inventories 16 16 (655) (655) (488) (488)
Prepaid expenses and other (2,185) (2,185) (2,190) (2,190) (2,095) (2,095)
Other assets (427) (427) (31) (31) 71 71
Accounts payable and accrued expenses 77 77 2,470 2,470 (144) (144)
------- ------- ------- ------- ------- -------
Total adjustments (3,499) (3,235) (5,672) (5,362) (5,100) (4,534)
------- ------- ------- ------- ------- -------
Net cash provided (used)
by operating activities (3,139) (3,139) (4,878) (4,878) (3,723) (3,723)
------- ------- ------- ------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (875) (875) (1,576) (1,576) (972) (972)
Proceeds from disposal of property, plant
and equipment 348 348 348 348 -- --
------- ------- ------- ------- ------- -------
Net cash provided (used)
by investing activities (527) (527) (1,228) (1,228) (972) (972)
------- ------- ------- ------- ------- -------
Cash flows from financing activities:
Net (payments) borrowings under revolving credit
facility and lines of credit 3,916 3,916 7,198 7,198 4,733 4,733
Net payments under other long-term debt (130) (130) (601) (601) (479) (479)
Net payments from issuance of Common Shares -- -- 4 4 -- --
Net proceeds from employee stock purchase plan -- -- 89 89 93 93
------- ------- ------- ------- ------- -------
Net cash provided (used)
by financing activities 3,786 3,786 6,690 6,690 4,347 4,347
------- ------- ------- ------- ------- -------
Effect of changes in foreign currency exchange rates
on cash (37) (37) (47) (47) (36) (36)
------- ------- ------- ------- ------- -------
Net increase (decrease) in cash 83 83 537 537 (384) (384)
Cash and cash equivalents at beginning of period 1,965 1,965 1,965 1,965 1,965 1,965
------- ------- ------- ------- ------- -------
Cash and cash equivalents at end of period $ 2,048 $ 2,048 $ 2,502 $ 2,502 $ 1,581 $ 1,581
======= ======= ======= ======= ======= =======
59
13. LEGAL MATTERS:
As previously reported, in January 2000, the Michigan Department of
Environmental Quality ("MDEQ") issued an administrative decision which
effectively limited the scope of MDEQ's 1995 approval of certain assessment
methodologies utilized by Corrpro in determining whether certain underground
storage tanks meet Michigan's regulatory requirements for upgrade by means of
cathodic protection. The MDEQ decision also would have required us to conduct
further assessments and provide certain information. The assessment
methodologies at issue have been and remain recognized by the Environmental
Protection Agency ("EPA") and the other states in which we utilized such
methodologies for virtually identical purposes. We believed that MDEQ's decision
was in error and on January 24, 2000, filed a complaint and claim of appeal in
the Circuit Court for the County of Ingham, Michigan seeking declaratory relief
and appealing the decision on several grounds. In its November 14, 2000 ruling,
the Ingham Circuit Court reversed MDEQ's decision that directed we take certain
actions and provide certain information, however, the court also found that MDEQ
had not approved the full use of the assessment methodologies we utilized in
Michigan.
We believed that the circuit court's finding that MDEQ had not approved
full use of the methodologies was not supported by the evidence, and was
contradicted by evidence contained in the administrative record. On December 5,
2000, we filed, in the Michigan Court of Appeals, an application for leave to
appeal the circuit court's finding that MDEQ did not approve the full use of the
assessment methodologies we utilized in Michigan. By order dated February 14,
2001, the Michigan Court of Appeals denied our application for leave to appeal
the circuit court's finding. On March 7, 2001, we filed an application for leave
to appeal with the Supreme Court of the State of Michigan. On August 28, 2001,
the Michigan Supreme Court denied our application for leave to appeal.
As a result of these proceedings, the MDEQ's administrative decision
finding that certain of our assessment methodologies were not approved in full
was upheld, but the MDEQ was found not to have jurisdiction to enforce its
decision against us. In July 2002, the MDEQ sent certain underground storage
tank owners and operators who may have relied on our method of assessment a
notice informing them that certain of such owners and operators' tanks were
improperly upgraded, that such owners and operators are to provide to MDEQ upon
request evidence that they have conducted state required tank tightness testing,
and certain of such tanks must be internally inspected. MDEQ also advised that
internally inspected tanks that do not satisfy applicable criteria should be
taken out-of-service and removed from the ground. There can be no assurance that
the MDEQ will not take further action against underground storage tank owners or
operators.
On July 25, 2002, a summons and complaint was issued from the Circuit
Court for the County of Ingham, Michigan. The action was commenced by Blogett
Oil Company, Inc. and other owners and operators of underground storage tanks
systems on behalf of themselves and others similarly situated. The complaint
relates to the MDEQ regulatory proceeding described immediately above and names
both the Company and MDEQ. The plaintiffs seek an unspecified amount of damages
in excess of $25 from Corrpro. The plaintiffs also seek injunctive relief
prohibiting the MDEQ from declaring that underground storage tanks upgraded by
the Company do not meet the current requirement for corrosion protection set
forth by law. The Company is unable at this time to make a determination as to
whether an adverse outcome is likely and whether an adverse outcome would have a
materially adverse affect on its operations or financial condition.
During fiscal 2001, the Company discovered that a former employee used an
incorrect assessment standard in connection with the evaluation of whether
certain underground storage tanks located at as many as 67 sites were eligible
for upgrade using cathodic protection. Such evaluations were done using one of
the approved assessment methodologies. The tanks at these sites, which are
located in five states, were subsequently upgraded using cathodic protection
which arrests corrosion. These tanks are also subject to ongoing leak detection
requirements. Based on the Company's review of available information and
governmental records, the Company believes that there have not been any releases
from the affected tanks as a result of the actions of the former employee. The
Company has contacted, and in October and November 2000 met with, officials from
the EPA and officials 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 nor the EPA intend to take any enforcement
action as a result of the use of the inaccurate standard by the former employee.
The Company is currently 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 for this matter will
have a material effect on the future operations, financial position or cash
flows of the Company.
60
The Company is a defendant in a purported class action suit filed on June
24, 2002, in the United States District Court, Northern District of Ohio,
Eastern Division by Russell J. Stambaugh. The complaint also names certain
former and current officers and a director of the Company. The complaint was
purportedly filed on behalf of all persons who purchased Corrpro Common Shares
during the period April 1, 2000 through March 20, 2002 and alleges violations of
the federal securities laws resulting in artificially inflated prices of the
Company's Common Shares during the class period. The complaint relates to the
Company's announcement that it had discovered accounting irregularities caused
by apparent internal misconduct in its Australian subsidiary. The plaintiff
seeks a declaration of the action as a proper class action and certifying
plaintiff as class representative. The plaintiff also seeks unspecified
compensatory damages, fees and expenses. The Company is unable at this time to
make a determination as to whether an adverse outcome is likely and whether an
adverse outcome would have a materially adverse affect on its operations or
financial condition.
Company management discovered accounting irregularities at the Australian
subsidiary in early calendar 2002 and upon discovery immediately began an
internal investigation, which has been conducted under the direction of the
Audit Committee of its Board of Directors. The Australian Securities and
Investments Commission has commenced an independent investigation of the
accounting irregularities. Corrpro voluntarily disclosed this matter to the
SEC, which has commenced a formal inquiry. Corrpro is cooperating with both
commissions.
The Company is subject to other legal proceedings and claims which arise
in the ordinary course of business.
14. CORRPRO COMPANIES AUSTRALIA:
On March 20, 2002, the Company announced that it had discovered accounting
irregularities caused by apparent internal misconduct in its Australian
subsidiary. The accounting irregularities involved the overstatement of revenues
and understatement of expenses by the Australian companies. The irregularities
were discovered by Corrpro management in connection with an internal review of
the subsidiary's working capital management practices and cash flow problems
inconsistent with the subsidiary's reported results. Upon discovering the
irregularities, the Company immediately began an internal investigation
conducted under the direction of the Audit Committee of its Board of Directors.
The Audit Committee subsequently retained special counsel in connection with the
investigation and retained the forensic investigation unit of the accounting
firm, Deloitte Touche Tohmatsu.
The Australian subsidiary appointed an administrator and commenced
voluntary administration proceedings, a process under Australian law providing
relief from creditors of Australian companies. As a result of the appointment,
the Company no longer controlled the Australian subsidiary and the Company
recorded a charge to earnings in the fiscal fourth quarter ended March 31, 2002
for its loss on investment related to the subsidiary.
On April 24, 2002, the creditors of the Australian subsidiary resolved
that the Administrators of the Australian subsidiary should enter into a Deed of
Company Arrangement. The Deed of Company Arrangement became effective May 1,
2002. The arrangement requires the Australian subsidiary to make unsecured
payments to the Administrators for the Administrator's fees, certain employee
benefit programs and unsecured creditors. The Company is not required to fund
any of these unsecured payments. The Company did guarantee payment of the
Australian subsidiary's bank debt, which totaled $961 at March 31, 2002. The
arrangement also returns the day-to-day management of the Australian subsidiary
to the Director of the subsidiary subject to the oversight of the Administrator
who will retain control of, and be entitled to realize and deal with in
accordance with the Deed of Company Arrangement, the claims against the
Australian subsidiary.
61
For the fiscal years ended March 31, 2002 and March 31, 2001, the results
of the Australian subsidiary are included in the Company's consolidated results.
The results of the Australian subsidiary are identified below:
Year Ended Year Ended
March 31, 2002 March 31, 2001
-------------- --------------
Revenues $ 7,696 $ 8,235
Cost of sales 6,809 7,964
-------- --------
Gross margin 887 271
Operating expenses 3,676 3,068
Loss on investment in subsidiary 2,480 --
-------- --------
Operating loss $ (5,269) $ (2,797)
======== ========
Due to the commencement of the voluntary administration proceedings, and
the resulting loss of control over the Australian subsidiary, the Company
believes its investment in the subsidiary has been fully impaired. The assets
and liabilities of the subsidiary are not included in the consolidated balance
sheet of the Company as of March 31, 2002, and except for the existing
obligation of $961 under the guarantee of the subsidiary's bank debt, the
Company will no longer provide any financial support to the subsidiary. In the
fourth quarter of fiscal year 2002, the Company has recorded a provision of
$2,162 to write its net investment to zero.
The loss also includes $318 of legal and professional fees related to the
Australian subsidiary in fiscal year 2002. In connection with the Company's and
the Audit Committee's investigation, the Company expects to incur additional
legal and professional fees of approximately $800 in fiscal 2003 related to this
matter. In addition, as a result of the Company's decision to sell the
subsidiary subsequent to year end, a loss of $1,418 related to the cumulative
currency translation adjustment of the subsidiary will be recognized in the
first quarter of fiscal year 2003.
62
SUPPLEMENTAL FINANCIAL INFORMATION
Quarterly Results of Operations (Unaudited):
The following is a summary of the unaudited quarterly results of operations of
the Company for the fiscal years ended March 31, 2002 and 2001. The sum of the
quarterly per share figures does not equal annual per share figures due to
rounding.
Three Months Ended As Restated As Restated As Restated
06/30/01 09/30/01 12/31/01 03/31/02 Total
-------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except per Share Data)
Revenues $ 44,071 $ 42,717 $ 46,999 $ 38,403 $ 172,190
Operating income (loss) 1,887 2,785 2,780 (7,058) 394
Income (loss) from continuing operations (266) 134 78 (18,163) (18,217)
Net income (loss) (266) 134 78 (18,163) (18,217)
Earnings (loss) per share - Basic:
Income (loss) from continuing operations $ (0.03) $ 0.02 $ 0.01 $ (2.20) $ (2.24)
Net income (loss) (0.03) 0.02 0.01 (2.20) (2.24)
Weighted average number of shares - Basic 7,960 8,073 8,179 8,268 8,119
Earnings (loss) per share - Diluted:
Income (loss) from continuing operations $ (0.03) $ 0.02 $ 0.01 $ (2.20) $ (2.24)
Net income (loss) (0.03) 0.02 0.01 (2.20) (2.24)
Weighted average number of shares - Diluted 7,960 8,104 8,199 8,268 8,119
Three Months Ended As Restated As Restated As Restated As Restated As Restated
06/30/00 09/30/00 12/31/00 03/31/01 Total
-------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except per Share Data)
Revenues $ 40,496 $ 43,440 $ 42,452 $ 37,549 $ 163,937
Operating income (loss) 1,792 2,247 2,463 (8,459) (1,957)
Income (loss) from continuing operations 96 388 327 (9,092) (8,281)
Net income (loss) 96 388 327 (9,092) (8,281)
Earnings (loss) per share - Basic:
Income (loss) from continuing operations $ 0.01 $ 0.05 $ 0.04 $ (1.16) $ (1.07)
Net income (loss) 0.01 0.05 0.04 (1.16) (1.07)
Weighted average number of shares - Basic 7,687 7,706 7,731 7,822 7,736
Earnings (loss) per share - Diluted:
Income (loss) from continuing operations $ 0.01 $ 0.05 $ 0.04 $ (1.16) $ (1.07)
Net income (loss) 0.01 0.05 0.04 (1.16) (1.07)
Weighted average number of shares - Diluted 7,748 7,760 7,783 7,822 7,736
Included in the fourth quarter of fiscal 2002 was a tax valuation
allowance of $10,261 and a loss on investment in subsidiary of $2,480. In
addition, the Company recorded a loss on inventory in the Australian subsidiary
of $683 and $520 in the fourth quarters of fiscal years 2002 and 2001,
respectively.
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names of all the directors of the Company as
of March 31, 2002 and certain other information relating to their position with
the Company and/or other business experience.
Michael K. Baach
Mr. Baach has been a director of Corrpro since August 2000 and an
Executive Vice President since April 1993. Mr. Baach was our Vice President of
Sales and Marketing from our formation in 1984 until February 1992 when he was
elected Senior Vice President. Mr. Baach has over twenty years of experience in
the corrosion control market and has been responsible for Corrpro's marketing
and sales activities, manufacturing and international operations. Mr. Baach
attended Cuyahoga Community College. Age 47.
David H. Kroon
Mr. Kroon has been a director of Corrpro since 1984, and an Executive Vice
President since April 1993. Mr. Kroon is currently our Executive Vice President,
Engineering. He served as Senior Vice President of Corrpro from its formation in
1984 until April 1993. Mr. Kroon has over thirty years of engineering and
consulting experience in the corrosion control market, including management of
business, planning, policies and procedures, and professional development. Mr.
Kroon graduated from Yale University with a Bachelor of Science degree in
Chemistry. Age 53.
C. Richard Lynham
Mr. Lynham has been a director of Corrpro since June 1992. Since 1992, Mr.
Lynham has been the owner and Chief Executive Officer of Harbor Castings, Inc.,
an investment-casting foundry holding company with wholly-owned subsidiaries in
North Canton, Ohio, Piney Flats, Tennessee, and Muskegon, Michigan. From 1984 to
1992, he was Group Vice President, Industrial Ceramics, for Ferro Corporation, a
Fortune 500 manufacturer of specialty industrial products. Mr. Lynham is a
director of Western Reserve Bancorp, Inc. He holds the degrees of Bachelor of
Mechanical Engineering from Cornell University and Master of Business
Administration from Harvard University. Age 60.
Harry W. Millis
Mr. Millis has been a director of Corrpro since February 2002. Mr. Millis
has been Managing Director of SM Berger & Company, Inc., an investor relations
consulting firm, since January 1999. From April 1991 to January 1999, he was
Managing Director for Fundamental Research, Inc., an investment research
corporation. Mr. Millis began his financial career at National City Bank, was a
general partner in the brokerage firm of Prescott, Ball & Turben, where he also
served as Partner in Charge of Institutional Research, and then joined McDonald
& Co. as a general partner in 1979. Age 65.
Neal R. Restivo
Mr. Restivo has been a director since January 2001. Mr. Restivo is
currently Vice President - Operations and Finance and Chief Financial Officer of
Weatherchem Corporation, a provider of dispensing and packaging products which
he joined in October 2001. From February 2001 until September 2001, Mr. Restivo
was Vice President, Chief Financial Officer, Secretary and Treasurer at Grand
Eagle, Inc., a motor, transformer and power system repair services company. From
October 1995 to January 2001, Mr. Restivo was employed as our Chief Financial
Officer, Secretary and Treasurer. He was also elected Senior
64
Vice President in October 1995 and became an Executive Vice President of the
Company in March 1998. Mr. Restivo graduated from Miami University, Ohio with
the degree of Bachelor of Science, Accountancy. Age 42.
Joseph W. Rog
Mr. Rog has been a director and Corrpro's Chief Executive Officer since
our formation in 1984. Mr. Rog became Chairman of the Board in June 1993 and has
been President since June 1995. Mr. Rog was also Corrpro's President between
January 1984 and June 1993. Mr. Rog has over thirty-five years of industry
experience in various technical and management capacities, and particularly in
corrosion analysis and the design and implementation of corrosion control
systems. He graduated from Kent State University with a Bachelor of Science
degree in Geology, and has also completed the Graduate School of Business course
at Stanford University. Age 62.
Warren F. Rogers
Dr. Rogers has been a director of Corrpro since July 1996. Dr. Rogers has
been President of Warren Rogers Associates, Inc., a Newport, Rhode Island firm
which provides underground storage tank management and consulting services,
including mathematical and statistical modeling, since 1979. Dr. Rogers also
served as a Vice President of the Center for Naval Analysis in Alexandria,
Virginia from 1982 to 1989. He earned a Ph.D. in statistics from Stanford
University and has an M.S. in Operations Research from the U.S. Naval
Post-Graduate School. Age 72.
Information regarding the executive officers of the Company as of March
31, 2002 is set forth in Part I, Item 4A of this Form 10-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of reports filed by our directors, executive officers
and beneficial holders of 10% or more of our shares, and upon information
provided by those persons, all SEC stock ownership reports required to be filed
by those reporting persons during fiscal 2002 were timely made, with the
exception that the initial Form 3, Initial Statement of Beneficial Ownership of
Securities for Mr. Robert Sloan was inadvertently filed late.
65
ITEM 11. EXECUTIVE COMPENSATION
BOARD COMPENSATION
RETAINER AND FEES
Corrpro pays non-employee directors an annual retainer of $12,000. Corrpro
also pays non-employee directors $1,000 ($1,200 for a Committee chairperson) for
each in-person Board or Committee meeting attended and $350 ($550 for a
Committee chairperson) for each telephonic Board or Committee meeting attended.
Corrpro also reimburses its directors for reasonable out of pocket expenses
incurred in attending Board and Committee meetings.
In May 2001, we reviewed our non-employee directors' historic level of
compensation and the compensation levels of directors within the industry and at
other publicly held companies. As a result, we recommended to the Compensation
Committee an increase in our director's cash compensation. The Compensation
Committee expressed its desire to align more closely the compensation of our
outside directors with the performance of the Company and the interests of the
shareholders. The Compensation Committee asked the Company to explore the use of
equity incentives in lieu of increasing the cash retainer to accomplish this
purpose. As a result, the Board approved the 2001 Non-Employee Directors' Stock
Appreciation Rights Plan, at an exercise price of $2.10 per share was made,
which became effective May 17, 2001. Pursuant to the plan, a one-time grant of
vested stock appreciation rights to non-employee directors then serving on the
Board. The stock appreciation rights entitle each eligible director to be paid
in cash, subject to the applicable terms and conditions of the grant, on or
after May 17, 2006 the amount of appreciation in the fair market value over the
exercise price of 10,000 Corrpro Common Shares between May 17, 2001 and May 17,
2006.
DEFERRED COMPENSATION PLAN
Eligible directors may elect to defer payment of all or any part of their
retainer and fees under the Deferred Compensation Plan for Outside Directors.
Participating directors elect an investment model which determines the return on
their deferred funds. The investment model can include Corrpro Common Shares.
Deferred portions are payable in a lump sum, over a period of five years or over
a period of ten years. The director specifies in advance the date on which
payments will begin. Payments may be accelerated if the director dies or becomes
disabled.
OUTSIDE DIRECTORS' STOCK OPTION PLAN
Under the 1997 Non-Employee Directors' Stock Option Plan, Corrpro
automatically grants stock options to purchase 2,500 Corrpro Common Shares at
fair market value on the date a director is first elected and, beginning the
next calendar year, on each September 30th on which the individual continues as
a Corrpro director.
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF COMPENSATION
The following table summarizes the compensation we paid our CEO and each
of the four other most highly compensated executive officers for fiscal 2002,
2001 and 2000.
--------------------------------------------------------------------------------
66
Long Term
Compensation
Awards
Name and Principal Fiscal Other Annual Stock All Other
Position Year Salary Bonus(3) Compensation Options(2) Compensation(1)
---------------------------------------------------------------------------------------------------------------------------
Joseph W. Rog 2002 $285,000 $ 0 0 206,250 $ 8,418
Chairman of the Board, 2001 285,000 0 0 28,000 8,543
Chief Executive Officer 2000 274,000 0 0 0 7,850
and President
Michael K. Baach 2002 180,000 0 0 56,250 6,628
Executive Vice President, 2001 180,000 0 0 17,000 6,690
Sales 2000 165,000 0 0 0 6,341
George A. Gehring, Jr. 2002 172,000 17,355 0 131,250 6,881
Executive Vice 2001 172,000 0 0 17,000 6,865
President, 2000 165,000 0 0 0 6,021
Operations
David H. Kroon 2002 170,000 0 0 46,875 6,016
Executive Vice 2001 170,000 0 0 17,000 6,120
President, 2000 160,000 0 0 0 4,967
Engineering
Barry W. Schadeck 2002 180,000 0 0 91,250 0
Executive Vice President, 2001 180,000 0 0 17,000 0
Manufacturing and President 2000 165,000 0 0 0 0
of Corrpro Canada, Inc.
(1) Amounts represent Company matching contributions under Corrpro's 401(k)
retirement savings plan.
(2) These options were granted in June 2001 pursuant to the Company's stock
option surrender program in an amount equal to the same number of options
surrendered under the program. The new options are subject to the terms of
the applicable option agreement and the provisions of the Corrpro 1997
Long-Term Incentive Plan and become exercisable in equal annual increments
on the first, second and third anniversaries of the grant date.
(3) Amounts represent bonus earned pursuant to the Company's Management
Incentive Plan for fiscal 2002.
67
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table lists our grants during fiscal 2002 of stock options
to the officers named in the Summary Compensation Table. The amounts shown as
potential realizable values rely on arbitrarily assumed increases in value
required by the SEC. The ultimate value of the options depends on actual future
share prices. Market conditions and other factors can influence those future
share values, and the amounts shown below are not intended to forecast future
appreciation of Corrpro Common Shares.
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL EXERCISE PRICE APPRECIATION FOR
UNDERLYING OPTIONS/SARs OR BASE OPTION TERM
OPTION/SARs GRANTED TO PRICE -----------------------------
GRANTED (#) EMPLOYEES IN ($/SH)
NAME (1) FISCAL YEAR (2) EXPIRATION DATE 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
--------------------------------------------------------------------------------------------------------------------
Joseph W. Rog 206,250 30.8 2.55 June 29, 2011 330,759 838,209
Michael K. Baach 56,250 8.4 2.55 June 29, 2011 90,207 228,602
George A. Gehring, Jr. 131,250 19.6 2.55 June 29, 2011 210,483 533,406
David H. Kroon 46,875 7.0 2.55 June 29, 2011 75,173 190,502
Barry W. Schadeck 91,250 13.6 2.55 June 29, 2011 146,335 370,843
(1) These options were granted in June 2001 pursuant to the Company's stock
option surrender program in an amount equal to the same number of options
surrendered under the program. The new options are subject to the terms of
the applicable option agreement and the provisions of the Corrpro 1997
Long-Term Incentive Plan and become exercisable in equal annual increments
on the first, second and third anniversaries of the grant date. The
options also may become exercisable upon a change in control as defined
either in the 1997 Long-Term Incentive Plan or the applicable change in
control agreements entered into by Corrpro and the named executive
officers. The new options were granted subject to a new 3-year vesting
schedule, regardless of the vested status of the options surrendered.
(2) Based on the closing price of the Common Shares of $2.55 on the New York
Stock Exchange on June 30, 2001.
68
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR/AND FISCAL YEAR END
OPTION/SAR VALUES
The following table shows for the officers named in the Summary
Compensation table above information about their exercise of stock options to
purchase Common Shares during fiscal 2002 and their unexercised stock options to
purchase Common Shares at March 31, 2002.
SHARES
ACQUIRED VALUE NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
ON REALIZED OPTIONS AT FISCAL YEAR-END MONEY OPTIONS AT FISCAL YEAR END
NAME EXERCISE ($) EXERCISABLE/ UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
Joseph W. Rog None N/A 45,000 234,250 0 0
Michael K. Baach None N/A 18,750 73,250 0 0
George A. Gehring, Jr. None N/A 15,600 148,250 0 0
David H. Kroon None N/A 18,750 63,875 0 0
Barry W. Schadeck None N/A 0 108,250 0 0
(1) Based on the fact that the closing price of Corrpro's Common Shares
on March 29, 2002 was less than the exercise price of the options,
none of the outstanding options were in-the-money.
In fiscal 2001, we initiated a stock option surrender program. Under the
program, eligible participants were provided the opportunity to surrender
voluntarily any or all of their eligible existing Corrpro stock options
(generally those granted prior to fiscal 2001) and have a like number of new
options issued at a date at least six months in the future at the fair market
value of the common shares at that time.
In exchange, Corrpro granted new options on June 30, 2001 in an amount
equal to the same number of options surrendered under this program. Participants
who surrendered options had to be in our employ on the date the new options were
granted in order to receive a grant of new options. The new options are subject
to the terms of the applicable option agreement and the provisions of the
Corrpro 1997 Long-Term Incentive Plan.
These new options were granted at an exercise price of $2.55 per share,
the fair market value of our common shares on June 30, 2001. The new options
become exercisable in equal annual increments on the first, second and third
anniversaries of the grant date. The new options were granted subject to a new
3-year vesting schedule, regardless of the vested status of the options
surrendered.
In December 2000, Messrs. Rog, Baach, Gehring, Kroon and Schadeck
surrendered, respectively: 206,250; 56,250; 131,250; 46,875; and 91,250
previously granted options. On June 30, 2001, each was granted a like number of
options, subject to a new vesting schedule, at the June 30, 2001 fair market
value of $2.55 per share.
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
Mr. Rog is employed under an employment agreement having a term through
March 31, 2004. Under this agreement, Mr. Rog serves as Corrpro's Chairman of
the Board, Chief Executive Officer and President. The agreement provides for Mr.
Rog to be nominated as a Corrpro director for so long as such agreement remains
in effect.
This employment agreement provides for the payment of Mr. Rog's base
salary and such other compensation as determined by the Board of Directors from
time to time. Other compensation may include bonuses, stock options and
incentive compensation. Mr. Rog's base salary is subject to annual review.
Mr. Rog may not compete with Corrpro during the term of the agreement and
for as long as Mr. Rog receives retirement income payments from Corrpro. Corrpro
may terminate Mr. Rog's employment for good cause (as defined in the agreement),
in which case the Company will pay Mr. Rog his base salary earned through
termination with no further obligation
69
to him except as required by law. Mr. Rog has earned the right to receive
retirement income with a lifetime survivor benefit to his spouse in an amount
equal to 50% of his base salary, payable monthly, provided that certain
conditions are satisfied.
Corrpro may have to pay severance to Mr. Rog if specified events occur.
These events include termination of his employment at a time when Corrpro is in
breach or termination of the agreement by Corrpro without good cause. In such
cases, Corrpro must pay two years of severance at the rate of his base salary in
effect at the time of termination plus a payment equal to one full year's
participation in any short-term incentive bonus plan at the 100% level. Mr. Rog
also would be entitled to continue any medical or other insurance coverage in
effect at the time of termination until age 65.
Mr. Rog is eligible for disability benefits. If he becomes disabled while
employed, his salary and other compensation continues for the first ninety days,
offset by amounts paid under other company-sponsored disability plans. If his
disability cannot be reasonably accommodated, the Board may terminate his
employment. In such case, Mr. Rog's current participation in bonus and incentive
plans will not be adversely affected. Mr. Rog also is covered by other company
welfare benefits.
Corrpro and each of Mr. Baach, Mr. Gehring and Mr. Kroon have signed
employment agreements effective through March 31, 2004 under which each serves
as an Executive Vice President. These agreements provide for the payment of base
salaries, subject to annual adjustment. In general, these agreements provide
severance arrangements similar to those included in the employment agreement
with Mr. Rog described above, except that no retirement income will be paid and
that medical and other insurance coverage shall continue for a period of
twenty-four months rather than to age 65 if the executive is terminated when
specified events occur. Mr. Schadeck's services are provided through one of
Corrpro's Canadian subsidiaries. This subsidiary has engaged Mr. Schadeck under
a management services agreement which provides for base level compensation and
bonuses based on performance. The agreements with the named executive officers
generally restrict the officers from competing for two years following
termination.
We recognize that our executives may be involved from time to time in
evaluating or negotiating offers, proposals, or other transactions that could
result in a change in control of Corrpro and believe that it is in the best
interest of Corrpro and its shareholders for such executives to be in a
position, free from personal financial and employment considerations, to be able
to assess objectively and pursue aggressively our interests and the interests of
our shareholders in making these evaluations and carrying on such negotiations.
Therefore, we have entered into change in control agreements with our named
executive officers. The agreements are intended to provide the executives with
certain benefits and to grant certain protections so that the executives may
more fully focus on enhancing shareholder value and addressing the issues
related to a change in control (as defined in the agreements), and to reward the
executives for the substantial extra effort involved in a change in control.
The change in control agreements provide for severance payment and other
benefits without duplication of amounts payable under the executive employment
contracts, if certain events occur. Each agreement applies only to the first
change in control to occur.
The type of change in control determines the potential severance benefits.
Upon the occurrence of a hostile change in control, the executive would be
entitled, whether or not employment is terminated, to a lump sum payment equal
to three times current cash compensation, bonus and certain benefits and a
gross-up for certain excise taxes, if they apply. The executive would also be
entitled to three years of continued welfare benefits. In a friendly change in
control, if the executive is terminated, other than for good cause, or resigns
for good reason, in contemplation of or before the second anniversary of the
friendly change in control, the executive is entitled to, in total, a lump sum
payment equal to two times current cash compensation, bonus and certain
benefits. The executive would also be entitled to two years of continued welfare
benefits. In the event of a change in control of any type, all of the
executives' outstanding stock options become exercisable. In addition, Corrpro
must set aside sufficient funds, in a trust which satisfies certain tax
requirements, covering potential obligations to Mr. Rog. The following terms are
used in this paragraph, as defined in the change in control agreements: hostile
change in control, welfare benefits, friendly change in control, good cause,
good reason and in contemplation of.
In addition, to provide further incentives to management to maximize
shareholder value on a continuing basis and to address certain other concerns,
executives can earn a transaction bonus upon a change in control in certain
70
circumstances. In the event of a friendly change in control, the transaction
bonuses are payable 50% upon completion of a change in control and 50% on the
first anniversary thereof, provided the executive is still a Corrpro employee at
that time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2002, Joseph W. Rog served as our Chairman of the Board,
Chief Executive Officer and President and also served on our Compensation
Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information regarding beneficial ownership of our
Common Shares as of June 17, 2002, unless otherwise indicated, by each person or
group which is known by us to own beneficially more than 5% of our common
shares, each director and nominee for election as a director, each of the
officers named in the Summary Compensation Table and all directors and executive
officers as a group. All information with respect to beneficial ownership has
been furnished by the respective director, officer or shareholder, as the case
may be. Ownership includes direct and indirect (beneficial) ownership, as
defined by SEC rules. To our knowledge, each person, along with his or her
spouse, has sole voting and investment power over the shares unless otherwise
noted.
--------------------------------------------------------------------------------
CERTAIN BENEFICIAL OWNERS
Number of
Name Shares(1) Percent
--------------------------------------------------------------------------------
Michael K. Baach ................................ 128,614 1.5
George A. Gehring, Jr ........................... 67,000 *
David H. Kroon .................................. 282,772 3.2
C. Richard Lynham ............................... 25,625 *
Harry Millis .................................... 39,850 *
Neal R. Restivo ................................. 110,749 1.3
Joseph W. Rog ................................... 383,629 4.4
Warren F. Rogers ................................ 30,875 *
14 Directors and executive officers as a group .. 1,157,467 13.2
Royce & Associates, Inc. (2) .................... 857,975 10.6
1414 Avenue of the Americas
New York, New York 10019
Delta Partners LLC (2) .......................... 735,000 8.9
One Financial Center, Suite 1600
Boston, Massachusetts 02111
JB Capital Partners L.P. (2) .................... 519,800 6.3
23 Berkley Lane
Rye Brook, New York 10573
Dimensional Fund Advisors, Inc. (2) ............. 504,400 6.2
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
----------
*Less than 1%
71
(1) The number of shares listed includes shares under currently exercisable
stock options and stock options which may become exercisable within 60
days following June 17, 2002. The number of such exercisable stock options
for those listed above are: Mr. Baach (37,500 shares); Mr. Gehring (59,350
shares); Mr. Kroon (34,375 shares); Mr. Lynham (23,750 shares); Mr.
Restivo (107,917 shares); Mr. Rog (113,750 shares); and Dr. Rogers (10,625
shares); and all directors and executive officers as a group (443,808
shares).
(2) Based upon information contained in the following documents as filed with
the SEC:
- Amendment to Schedule 13G filed by Royce & Associates, Inc. on
February 7, 2002.
- Amendment to Schedule 13G jointly filed by Delta Partners LLC, Prism
Partners LP, Delta Advisors LLC, Prism Offshore Fund Ltd., Charles
Jobson and Christopher Argyople on June 18, 2002. Delta Partners LLC
reported that it had shared voting and dispositive power with
respect to 735,000 shares. Prism Partners LP reported that it had
sole voting and dispositive power with respect to 268,011 shares.
Delta Advisors LLC reported that it had shared voting and
dispositive power with respect to 268,011 shares. Prism Offshore
Fund Ltd. reported that it had shared voting and dispositive power
with respect to 466,989 shares. Charles Jobson reported that he had
shared voting and dispositive power with respect to 735,000 shares.
Christopher Argyrople reported that he had shared voting and
dispositive power with respect to 735,000 shares.
- Schedule 13G jointly filed by JB Capital Partners, L.P. and Alan W.
Weber on April 11, 2002. JB Capital Partners, L.P. reported that it
had shared voting and dispositive power with respect to 484,800
shares. Alan W. Weber reported that he had sole voting and
dispositive power with respect to 35,000 shares and shared voting
and dispositive power with respect to 484,800 shares.
- Amendment to Schedule 13G filed by Dimensional Fund Advisors, Inc.
on February 12, 2002.
Information regarding the Company's equity compensation plans is set forth
in Part II, Item 5 of this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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, 2002 and 2001
Consolidated Statements of Income for the years ended March
31, 2002, 2001 and 2000
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
72
(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. (12)
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. (12)
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. (12)
4.6 Third Amendment to Credit Agreement dated as of August 10, 2001
relating to the Amended and Restated Credit Agreement dated as of
June 9, 2000 among Corrpro Companies, Inc., CSI Coating Systems,
Inc. and the Lenders Party thereto. (13)
4.7 Fourth Amendment to Credit Agreement dated as of November 12, 2001
relating to the Amended and Restated Credit Agreement dated as of
June 9, 2000 among Corrpro Companies, Inc., CSI Coating Systems,
Inc. and the Lenders Party thereto. (14)
4.8 Fifth Amendment to Credit Agreement dated as of February 11, 2002
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. (15)
4.9 Note Purchase Agreement dated as of January 21, 1998 by and among
the Company and the Purchaser herein. (5)
4.10 Rights Agreement dated as of July 23, 1997 between the Company and
Fifth Third Bank, successor Rights Agent. (6)
4.11 Amendment dated June 9, 2000 to Note Purchase Agreement dated
January 21, 1998. (4)
4.12 Amendment dated October 18, 2000 to Note Purchase Agreement dated
January 21, 1998. (12)
73
4.13 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. (12)
4.14 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. (12)
*10.1 Corrpro Companies, Inc. 2001 Non-Employees Directors' Stock
Appreciation Rights Plan and form of Award Agreement. (16)
*10.2 1997 Long-Term Incentive Plan of Corrpro Companies, Inc. (7)
*10.3 Amendment to 1997 Long-Term Incentive Plan of Corrpro Companies,
Inc. (8)
*10.4 1997 Non-Employee Directors' Stock Option Plan. (7)
10.5 Corrpro Companies, Inc. Employee Stock Purchase Plan. (9)
*10.6 December 2000 Stock Option Agreement Surrender form. (12)
*10.7 Form of Indemnification Agreement for Officers and Directors of the
Company. (10)
10.8 Consulting Agreement dated April 1, 1997 by and between Commonwealth
Seager Holdings Ltd. and Corrtech Consulting Group. (11)
*10.9 Employment Agreement effective November 2, 2000 by and between the
Company and Joseph W. Rog. (12)
*10.10 Form of Executive Officer Employment Agreement by and between the
Company and certain executive officers and schedule thereto. (10)
*10.11 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)
*10.12 Company Incentive Option Plan as amended. (3)
*10.13 Company Deferred Compensation Plan. (12)
*10.14 Consulting Agreement dated January 26, 2001 by and between the
Company and Neal R. Restivo. (12)
*10.15 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.
----------
* Management contract or compensatory plan or arrangement identified
pursuant to Item 14(a)(3) of this Annual Report on Form 10-K.
74
(1) A copy of this exhibit filed as Exhibit 3.1 to the Company's report on
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 to 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) to 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 Registration
Statement on 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 Inventive Plan) and 4.5
(1997 Non-Employee Directors' Stock Option Plan) to 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 to 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.
(10) Copies of the exhibits to which this footnote applies were filed,
respectively, as Exhibits 10.2 (Change in Control Agreement) and 10.3
(Indemnification Agreement) to 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.
(12) Copies of the exhibits filed to which this footnote applies were filed,
respectively, as Exhibits 4.3 (First Amendment to Credit Agreement), 4.4
(Letter Agreement), 4.5 (Second Amendment to Credit Agreement), 4.9
(Amendment to Note Purchase Agreement), 4.10 (Letter Agreement), 10.3
(Employment Agreement), 10.7 (Deferred Compensation Plan) and 10.8
(Consulting Agreement) to the Company's report on Form 10-K for the period
ended March 31, 2001 and are hereby incorporated by reference.
(13) A copy of this exhibit filed as Exhibit 4.3 to the Company's report on
Form 10-Q for the quarterly period ended June 30, 2001 and is incorporated
herein by reference.
(14) A copy of this exhibit filed as Exhibit 4.2 to the Company's report on
Form 10-Q for the quarterly period ended September 30, 2001 and is
incorporated herein by reference.
75
(15) 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, 2001 and is
incorporated herein by reference.
(16) A copy of this exhibit filed as exhibit 4.9 to the Company's report
on Form 10-K for the period ended March 31, 2002 is hereby incorporated by
reference.
(b) REPORTS ON FORM 8-K:
During the quarter ended March 31, 2002, the Company filed one
current report on Form 8-K. A current report on Form 8-K, dated
March 20, 2002, furnished a press release pursuant to Regulation FD.
(c) EXHIBITS
See "Index to Exhibits" at Item 14(a) above.
76
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.
August 9, 2002 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.
August 9, 2002 /s/ Joseph W. Rog
--------------------------------------
Joseph W. Rog
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
August 9, 2002 /s/ Robert M. Sloan
--------------------------------------
Robert M. Sloan
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
August 9, 2002 /s/ Michael K. Baach
--------------------------------------
Michael K. Baach, Director
August 9, 2002 /s/ David H. Kroon
--------------------------------------
David H. Kroon, Director
August 9, 2002 /s/ C. Richard Lynham
--------------------------------------
C. Richard Lynham, Director
August 9, 2002 /s/ Harry W. Millis
--------------------------------------
Harry W. Millis, Director
August 9, 2002 /s/ Neal R. Restivo
--------------------------------------
Neal R. Restivo, Director
August 9, 2002 /s/ Warren F. Rogers
--------------------------------------
Warren F. Rogers, Director
77