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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO____
COMMISSION FILE NUMBER 1-12282
CORRPRO COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1422570
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1090 ENTERPRISE DRIVE, MEDINA, OHIO 44256
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 723-5082
SECURITIES REGISTERED PURSUANT SECURITIES REGISTERED
TO SECTION 12(B) OF THE ACT: PURSUANT TO SECTION 12(G)
OF THE ACT:
COMMON SHARES WITHOUT PAR VALUE NONE
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(TITLE OF CLASS) (TITLE OF CLASS)
NEW YORK STOCK EXCHANGE
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(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ___
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 Stock held by nonaffiliates of the
Registrant was approximately $55,495,000 at June 10, 1996. (The aggregate market
value has been computed using the closing market price of the stock as reported
by the New York Stock Exchange on June 10, 1996.)
6,565,089
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(Number of shares of common stock outstanding as of June 10, 1996.)
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file with the Securities and Exchange Commission a
definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange
Act of 1934 within 120 days of the close of its fiscal year ended March 31,
1996, portions of which document shall be deemed to be incorporated by reference
in Part I and Part III of this Annual Report on Form 10-K from the date such
document is filed.
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PART I
ITEM 1. BUSINESS
GENERAL
Corrpro Companies, Inc. was founded in 1984 and organized under the laws of
the State of Ohio. References herein to "Corrpro" or to the "Company" are to
Corrpro Companies, Inc. and its subsidiaries unless the context indicates
otherwise.
The Company operates in one industry segment which consists of providing
corrosion control engineering and monitoring services, systems and equipment to
the infrastructure, environmental and energy markets. Within the corrosion
control market, Corrpro has a specialty in the design, manufacture and
application of cathodic protection systems. Cathodic protection is an
electrochemical process which prevents corrosion in new structures and mitigates
the corrosion process in existing structures. Structures commonly protected
against corrosion by the cathodic protection process include above and
underground storage tanks, offshore platforms, ships, electric power plants,
bridges, oil and gas pipelines, parking garages, transit systems and water and
waste treatment equipment. Due to its ability to mitigate corrosion, cathodic
protection can provide a cost effective alternative to replacement of corroding
structures.
The Company has expanded its presence in the domestic and international
corrosion control markets through internal growth and the following
acquisitions: Corrosion Engineering and Research Company (CERCO) (fiscal 1987);
PSG Corrosion Engineering, Inc. (PSG) (fiscal 1988); Ocean City Research
Corporation (OCR) (fiscal 1988); Harco Technologies Corporation (Harco) (fiscal
1990); Commonwealth Seager Group (CSG) (fiscal 1994); the assets of Good-All
Electric, Inc. (Good-All) (fiscal 1994); UCC Corporation (UCC) (fiscal 1994);
The Wilson Walton Group Limited (WWGL) (fiscal 1994); Rohrback Cosasco Systems,
Inc. (RCS) (fiscal 1995); certain of the assets of Thermal Reduction Company
(TRC) (fiscal 1995); and the assets of American Corrosion Services, Inc. (ACS)
(fiscal 1995). During fiscal 1995, the operations of TRC and ACS were combined
to form Corrtherm, Inc. (Corrtherm).
The Company's operating units and a description of the products and
services they provide are described below:
Corrpro Services and Products. The Corrpro "core businesses" (which
includes all pre-fiscal 1994 acquisitions) offers services which include
contract research in various areas of corrosion control, cathodic protection
engineering services and general corrosion engineering services associated with
failure analysis, metallurgical problems and material selection. This operating
unit maintains advanced corrosion research and testing laboratories in order to
analyze the scope of a corrosion problem and to recommend appropriate methods of
corrosion control. The engineering services are provided to private sector
customers in the aerospace, defense, marine, chemicals, petroleum and utilities
industries and to governmental entities in connection with water treatment and
delivery systems, marine vessels, transit systems, weapons and infrastructure
assets. Engineering services accounted for approximately 53%, 44% and 51% of
this operating unit's revenues during fiscal 1996, 1995 and 1994, respectively.
This sector also sells material and equipment in conjunction with its services,
and often sells these products to other engineering and construction firms in
connection with corrosion control projects. Products sold include various
cathodic protection anodes, rectifier units and instrumentation, computer
hardware and software for monitoring corrosion, and accessory products. Sales of
material and equipment accounted for approximately 25%, 30% and 27% of this
operating unit's revenues during fiscal 1996, 1995, and 1994, respectively. An
additional service offered includes combining the design, manufacture,
installation and maintenance of cathodic protection systems to customers who
desire a "turnkey" response to their corrosion protection needs. Construction
services accounted for approximately 17%, 21% and 16% of this operating unit's
revenues during fiscal 1996, 1995 and 1994, respectively. This operating unit
also provides services for the prevention of corrosion on the internal surfaces
of water storage tanks and waste water treatment equipment. These services are
provided to municipal, state, and federal government agencies and industrial
customers. Water tank services accounted for approximately 5%, 5% and 6% of this
operating unit's revenues during fiscal 1996, 1995 and 1994, respectively. In
total, Corrpro services
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and products accounted for approximately 42%, 43% and 80% of the Company's
revenues during fiscal 1996, 1995 and 1994, respectively.
Corrpro Canada, Inc. (Corrpro Canada) Services and Products. This
operating unit resulted from the combination of CSG and UCC during fiscal 1995.
Corrpro Canada offers a combination of expertise in engineering, construction
and product supply in cathodic protection. In addition, this operating unit
provides material and equipment to customers in the oil and gas industry with
its primary focus on the needs of pipeline operators. Corrpro Canada also
specializes in pipeline integrity issues, and designs internal inspection
programs that are used to detect corrosion and pipe weld flaws, clean pipelines,
and confirm pipeline orientation. This operating unit accounted for
approximately 14%, 14% and 15% of the Company's revenues during fiscal 1996,
1995 and 1994, respectively.
Good-All Products. This operating unit designs and manufactures power
supplies (rectifiers) and junction, monitoring and control boxes for use in the
impressed current cathodic protection process. In addition, Good-All
manufactures a line of battery chargers for the utility (power,
telecommunication and gas) market. This operating unit accounted for
approximately 2%, 3% and 1% of the Company's revenues during fiscal 1996, 1995
and 1994, respectively.
WWGL Services and Products. This operating unit provides corrosion
engineering services and equipment supply primarily to the marine, offshore and
industrial markets. In the marine market, this operating unit manufactures and
supplies cathodic protection systems for hulls and ballast tanks on new ships
and those which are in need of repair. In the offshore market, it provides
cathodic protection equipment for new and existing subsea pipelines, offshore
drilling rigs and production platforms. Having manufacturing and distribution
centers in Europe, the Middle East and Asia enables it to serve many of the
world's major offshore oil production areas. WWGL offers electrolytic
antifouling systems for use on water inlets, electrolytic descaling systems for
marine vessel ballast tanks and corrosion control monitoring systems. In the
industrial market, it offers corrosion engineering, cathodic protection
equipment and installation services. WWGL is an ISO 9001 certified company. This
operating unit accounted for approximately 23%, 26% and 4% of the Company's
revenues during fiscal 1996, 1995 and 1994, respectively.
RCS Services and Products. This operating unit provides corrosion
engineering services and equipment supply for monitoring internal corrosion on
gas and liquid pipelines, storage vessels, well casings and refining and process
equipment. RCS's CORROSOMETER(R), CORRATER(R), and COSASCO(R) lines of
instruments, probes, fittings and accessories are the industry accepted
standards for internal corrosion monitoring. RCS also offers B-Scan ultrasonic
inspection services, utilizing the patented TMI-150 system, which provides
real-time, hard copy and electronically stored integrity analyses of underground
and aboveground storage tanks, pressure vessels, pulp and paper digesters,
pipelines, boiler tubing and other related assets. RCS is an ISO 9001 certified
company. This operating unit accounted for approximately 9% and 8% of the
Company's revenues in fiscal 1996 and 1995, respectively.
Corrtherm Products. This operating unit is the result of the fiscal 1995
combination of the TRC and ACS acquisitions. Corrtherm manufactures aluminum,
zinc and magnesium cathodic protection anodes for marine, offshore and
underground inland structures. This operating unit accounted for approximately
10% and 6% of the Company's revenues during fiscal 1996 and 1995, respectively.
The Company markets its products and services primarily through its sales
personnel. The technical nature of its products and services requires a highly
trained, professional sales force, and, as a result, many of the sales personnel
have engineering or technical expertise and experience. Because of the problem
solving experience of its engineering staff, advice from the technical personnel
is regularly sought out by potential and existing customers, resulting in
business opportunities on an ongoing basis.
The Company's products and services are marketed in the Middle East, Asia,
Europe and South America by sales personnel operating out of its Saudi Arabia,
Singapore, United Kingdom, Bahrain, UAE, Hong Kong, France, Portugal and two
U.S. offices. In addition, 26 independent, foreign sales representatives are
used to supplement the efforts of its direct sales force and to market its
services in other regions of the world. The
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independent sales representatives earn commissions on sales which vary by
product and service type. Certain products (e.g., Good-All rectifiers and RCS
and Corrtherm materials) are marketed through networks of both domestic and
international distributors.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's Corrtherm and WWGL operations convert raw aluminum, zinc and
magnesium metals to anode castings. Corrtherm has various sources of supply for
its aluminum, zinc and magnesium materials. During the first half of fiscal
1996, there was an unforeseen worldwide shortage of magnesium; however, the
Company is currently able to obtain adequate quantities of this metal.
PATENTS AND LICENSES
The Company owns patents, patent applications and licenses relating to
certain of its products and processes. While the Company's rights under the
patents and licenses are of some importance to its operations, the Company's
businesses are not materially dependent on any one patent or license or on the
patents and licenses as a group.
SEASONAL TRENDS
The Company's business is somewhat seasonal as winter weather can adversely
impact its operations in the northern U.S., Canada and the United Kingdom.
Therefore, the Company's revenues during the fourth quarter of its fiscal year
(i.e. January through March) are typically lower than revenues during each of
the other three quarters.
CUSTOMERS
Sales are made to a broad range of customers. During the fiscal year ended
March 31, 1996 no one customer accounted for more than 10% of the Company's
sales. The Company does not believe that the loss of any one customer would have
a materially adverse effect on its business.
The Company sells products and services to the U.S. government and agencies
and instrumentalities thereof, including the U.S. Navy. Sales to these customers
accounted for approximately 5% of the Company's net sales during both fiscal
1996 and 1995. The Company's contracts with the U.S. government contain standard
provisions permitting the government to terminate such contracts without cause.
In the event of termination, the Company is 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. The Company has no knowledge of
any pending or threatened termination of any of its material government
contracts or subcontracts. In addition, government procurement programs are
subject to budget cutbacks and policy changes that could alter the demand for
the Company's products. Accordingly, the Company's future sales to the
government are subject to these budgetary and policy changes.
BACKLOG
The backlog of unshipped orders as of March 31, 1996, 1995 and 1994 was
approximately $85 million, $93 million and $61 million, respectively. Backlog is
generally represented by purchase orders that may be terminated under certain
conditions. The decrease in backlog between 1996 and 1995 is primarily the
result of the Company's focus on improving gross profit margins. The increase in
the backlog from 1994 to 1995 reflects $8 million from the three acquisitions
completed during fiscal 1994. The Company estimates that, based on recent
experience, approximately 70% of its backlog of orders at March 31, 1996 will be
filled during the fiscal year ending March 31, 1997.
COMPETITIVE CONDITIONS
The Company competes principally on the basis of quality, technical
expertise, customer service and product innovation. Because many different types
of businesses use one or more of the methods of corrosion
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protection, the corrosion control market includes many companies which could be
considered competitors, even though only a few of these companies offer the
broad range of corrosion control engineering services, systems and products
offered by the Company. Within the cathodic protection market, the Company faces
competition primarily from smaller domestic and international companies. The
Company believes that no other company currently offers the comprehensive
services that it provides, however, competition in all areas of the corrosion
control industry is likely to increase as the demand for corrosion control
products and services grows and more companies enter the market and expand the
range of their services. In that regard, the Company's competitors may in some
cases have substantially greater financial, technical and marketing resources
than those of the Company.
RESEARCH AND DEVELOPMENT
The Company's engineering and product development activities are directed
toward designing new products and services to meet customers' specific
requirements. Product development expenses that were charged to operations
amounted to approximately $718,000, $965,000, and $153,000 during fiscal years
1996, 1995 and 1994, respectively.
GOVERNMENT REGULATIONS
The Company believes that its current operations and its current uses of
property, plant and equipment conform in all material respects to applicable
laws and regulations. The Company has not experienced, nor does it anticipate,
any material claim or material capital expenditure in connection with
environmental laws and other regulations.
EMPLOYEES
As of March 31, 1996 the Company had 849 employees, 244 of whom were
located outside the United States.
FOREIGN OPERATIONS
The Company's foreign subsidiaries generally conduct business in local
currency. In addition, foreign sales activities are 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.
ITEM 2. PROPERTIES
As of March 31, 1996, nine locations were owned by the Company and
approximately forty locations were leased from unrelated third parties. Certain
property locations may contain multiple operations, such as an office and
warehouse facility.
The real properties owned by the Company are: its corporate headquarters
located in Medina, Ohio (8,000 sq. ft.); an office and manufacturing facility
located in Medina, Ohio (64,000 sq. ft.); an office and warehouse facility
located in Schaumburg, Illinois (10,000 sq. ft.); an office, manufacturing and
warehouse facility located in Fort Collins, Colorado (52,000 sq. ft.); two
office and warehouse facilities located in Edmonton, Alberta (42,000 sq. ft.);
an office and warehouse facility located in Estevan, Saskatchewan (4,000 sq.
ft.); an office, manufacturing and warehouse facility located in
Stockton-on-Tees, UK (34,000 sq. ft.); and an office and assembly facility
located in Lafayette, Louisiana (12,000 sq. ft.). The principal real properties
(over 5,000 sq. ft. of floor space) leased by the Company from unrelated third
parties are: an office and warehouse facility located in Glendale, Arizona; an
office and warehouse facility located in Hayward, California; an office and
warehouse facility located in Decatur, Georgia; an office facility located in
Ocean City, New Jersey; an office and warehouse facility located in West Chester
Pennsylvania; an office and warehouse facility located in Houston, Texas; an
office, manufacturing and warehouse facility located in Santa Fe Springs,
California; an office, manufacturing and warehouse facility located in Belle
Chasse, Louisiana; an
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office and warehouse facility located in Billings, Montana; an office and
manufacturing facility located in Sharjah, UAE; and an office, manufacturing and
warehouse facility located in Singapore.
The Company considers the properties owned or leased by it to be generally
sufficient to meet its requirements for office, manufacturing and warehouse
space. With the exception of its manufacturing facilities in Belle Chasse, Santa
Fe Springs, Stockton-on-Tees and Singapore, the Company does not consider any
one of its properties to be material, since it believes that if it becomes
necessary or desirable to relocate any of its office, manufacturing and
warehouse facilities, other suitable properties could be found.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, in June 1995 the Company announced that its
earnings per share for fiscal 1995 were expected to be substantially below
analysts' expectations, and in August 1995 the Company restated its previously
reported results for the second and third quarters of fiscal 1995. Commencing in
June 1995, six class action lawsuits were filed against the Company and certain
of its current and former directors and officers, and a shareholder derivative
action was commenced naming the Company, its current and former directors and
certain of its current and former officers as defendants.
On September 7, 1995, five of the class actions were consolidated in the
U.S. District Court for the Northern District of Ohio and styled In re Corrpro
Companies, Inc. Securities Litigation. On September 14, 1995, the other class
action was voluntarily dismissed. On or about September 29, 1995, an amended and
consolidated class action complaint was filed in this consolidated proceeding on
behalf of a purported class consisting of investors who purchased the Company's
common shares between June 1, 1994 and June 19, 1995. The Company and Joseph W.
Rog, Robert M. Gossett and Ronald S. Langos, current or former directors and/or
officers of the Company, remain the named defendants. The amended complaint
alleges claims under ss.ss.10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5, and common law fraud and negligent misrepresentation. It
asserts, among other things, that defendants made false and misleading
statements during the class period in the Company's quarterly and annual reports
filed with the Securities and Exchange Commission ("SEC"), press releases and
periodic reports to shareholders which are claimed to have materially overstated
the Company's assets, net income and projected net income. The amended complaint
seeks, on behalf of the purported class, compensatory damages of tens of
millions of dollars based on the number of shares claimed to have been traded
during the class period and the decline in the price of the shares following the
Company's June 1995 announcement, as well as punitive damages, prejudgment
interest and costs.
On November 1, 1995, the Company and all other defendants filed motions to
dismiss the amended and consolidated class action complaint in its entirety, and
these motions are still pending.
In August 1995, the Company was served with a lawsuit captioned Lani
Rothstein, Trustee vs. Robert M. Gossett, Barry W. Schadeck, Joseph C. Overbeck,
Joseph W. Rog, David H. Kroon, C. Richard Lynham, Robert E. Hodge, Robert (sic)
S. Langos, Richard Harr, Does 1-100, and Corrpro Companies, Inc., Medina County
Common Pleas Court, Case No. 95 CIV 0522. This shareholder derivative action was
filed August 2, 1995 and served on or about August 4, 1995. On behalf of the
shareholders of Corrpro Companies, Inc., Plaintiff alleges derivative claims for
intentional breaches of fiduciary duties and aiding and abetting, abuse of
control and aiding and abetting, waste of corporate assets and aiding and
abetting, constructive fraud, and accounting, and disgorgement of insider
trading profits. Plaintiff requests a declaratory judgment, an accounting,
compensatory damages, a court order to implement certain policies, return of
remuneration, exemplary and punitive damages, attorneys' fees, prejudgment and
postjudgment interest, and litigation costs and expenses in unspecified amounts.
The Company's D&O liability insurers have been given notice of the filing of the
lawsuit and assertion of the claims against its directors and officers.
On or about October 16, 1995, the defendants filed a motion to dismiss the
shareholder derivative action referred to above in its entirety. On December 28,
1995, the motion to dismiss the shareholder derivative action was granted
without prejudice. An appeal is pending.
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In addition, the Company is cooperating in an investigation being conducted
by the SEC concerning certain matters, including those described above.
In May 1995, a contingent settlement was reached relating to a lawsuit
filed in July 1992 by the City and County of San Francisco against a
wholly-owned subsidiary of the Company and other co-defendants. The settlement
was contingent upon being awarded "good faith" settlement status by the court.
On December 20, 1995, the settlement was awarded "good faith" settlement status
by the court. The settlement amount of $850,000 has been paid by the Company's
insurers, without contribution by the Company.
The Company is not involved in any other material litigation; however, the
Company is involved in routine litigation incidental to its business.
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 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of the
Company and certain other information relating to their position held with the
Company and other business experience.
EXECUTIVE OFFICER AGE RECENT BUSINESS EXPERIENCE
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Joseph W. Rog 56 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 41 Executive Vice President since April 1993, Assistant
Secretary since June 1995 and Senior Vice President since
1992. Prior to that, Mr. Baach was Vice President of Sales
and Marketing since the Company's formation in 1984.
George A. Gehring, Jr. 52 Executive Vice President since April 1993 and Senior Vice
President since 1991. Prior to that, Mr. Gehring served as
President of Ocean City Research Corporation.
David H. Kroon 46 Executive Vice President since April 1993 and Senior Vice
President since the Company's formation in 1984.
Barry W. Schadeck 45 Executive Vice President and Assistant Secretary 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 of the
Company's Commonwealth Seager Group subsidiary since April
1993 and Chief Financial Officer since 1979.
David M. Hickey 50 Executive Vice President of Worldwide Manufacturing and
International Operations since June 1995 and President of
Rohrback Cosasco Systems, Inc., a wholly-owned subsidiary of
the Company since its acquisition in August, 1994. Prior to
that, Mr. Hickey was President of Rohrback Cosasco Systems,
Inc., a wholly-owned subsidiary of MascoTech, Inc.
Neal R. Restivo 36 Senior Vice President, Chief Financial Officer, Secretary and
Treasurer since October 1995. From November 1989 to September
1995, Mr. Restivo was with Waxman Industries, Inc., most
recently as Senior Vice President, Finance and Chief
Financial Officer. Prior to that, from August 1982 to
November 1989, Mr. Restivo was employed by Arthur Andersen
LLP, where he was an Audit Manager since 1988.
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EXECUTIVE OFFICER AGE RECENT BUSINESS EXPERIENCE
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Michael R. Tighe 46 Senior Vice President since January 1994. Prior to that, Mr.
Tighe was President and General Manager of Elgard
Corporation, an anode manufacturer.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON SHARES
The Company's Common Shares have been listed on the New York Stock Exchange
("NYSE") since September 30, 1993 under the symbol "CO". The following table
sets forth the high and low closing sale prices for the Common Shares on the
NYSE for the fiscal periods indicated.
FISCAL 1996 FISCAL 1995
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HIGH LOW HIGH LOW
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First Quarter.................................. $19.25 $5.63 $20.25 $12.75
Second Quarter................................. 7.38 5.88 16.88 11.63
Third Quarter.................................. 6.50 5.25 16.25 13.13
Fourth Quarter................................. 7.88 5.75 18.25 13.25
HOLDERS OF RECORD
On June 10, 1996, there were 361 holders of record of the Company's Common
Shares.
DIVIDENDS
In recent years, the Company has not paid any cash dividends on its Common
Shares. The Company currently anticipates that it will retain all future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future. Provisions within the Company's domestic
bank credit agreement restrict the Company's ability to pay cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED MARCH 31,
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1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues................................ $140,521 $126,009 $ 69,536 $ 50,075 $ 45,998 $ 43,959
Cost of sales........................... 106,636 89,226 45,833 33,054 31,156 29,239
-------- -------- -------- -------- -------- --------
Gross profit............................ 33,885 36,783 23,703 17,021 14,842 14,720
Selling, general and administrative
expenses.............................. 33,905 30,390 16,206 12,493 12,928 14,038
Unusual charges......................... 4,368 -- 1,622 -- -- --
-------- -------- -------- -------- -------- --------
Operating income (loss)................. (4,388) 6,393 5,875 4,528 1,914 682
Interest expense........................ 2,633 1,112 887 1,328 1,847 2,056
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary charge, and cumulative
effect of change in accounting
principle............................. (7,021) 5,281 4,988 3,200 67 (1,374)
Income tax expense (benefit)............ (1,879) 2,445 2,282 1,200 52 (267)
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
charge and cumulative effect of change
in accounting principle............... (5,142) 2,836 2,706 2,000 15 (1,107)
Extraordinary charge.................... (70) -- (102) -- -- --
Cumulative effect on prior years of
change in accounting principle........ -- -- 136 -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)....................... $ (5,212) $ 2,836 $ 2,740 $ 2,000 $ 15 $ (1,107)
========= ========= ========= ========= ========= =========
EARNINGS PER SHARE:
Income (loss) before the extraordinary
charge and cumulative effect of change
in accounting principle............... $ (.83) $ .43 $ .67 $ .81 $ .01 $ (.47)
Extraordinary charge.................... (.01) -- (.02) -- -- --
Cumulative effect of change in
accounting principle.................. -- -- .03 -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)....................... $ (.84) $ .43 $ .68 $ .81 $ .01 $ (.47)
========= ========= ========= ========= ========= =========
Weighted average number of Common Shares
outstanding........................... 6,212 6,667 4,027 2,468 2,576 2,368
OTHER DATA:
Revenue per employee.................... $ 166 $ 140 $ 164 $ 145 $ 114 $ 93
MARCH 31,
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1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital......................... $ 33,790 $ 37,266 $ 20,441 $ 8,526 $ 8,577 $ 8,037
Total assets............................ 108,198 110,322 67,858 21,880 21,418 22,901
Long-term debt, net of current
portion............................... 26,616 25,869 21,492 10,700 13,694 14,300
Minority interest....................... 502 4,067 4,022 -- -- --
Shareholders' equity.................... 54,281 56,060 24,301 2,814 361 346
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
During fiscal 1996, the Company implemented a number of actions designed to
reduce costs and improve profitability, productivity and cash flow. Cost and
pricing actions relating to both service and product sales were taken in order
to improve gross profit margins. Such actions included work force reductions,
consolidation of certain production facilities and pricing disciplines. In
addition, the Company implemented a number of measures to reduce its selling,
general and administrative ("S,G&A") expenses and allow the Company to realize
efficiencies of scale as it continued to integrate its acquired companies. The
Company also implemented measures to improve cash flow from operations and
placed significant emphasis on reducing working capital levels.
The Company began to realize the benefits of these actions during the
second half of fiscal 1996 through improved gross profit margins, reduced S,G&A
and improved cash flow. The Company, however, continues to take cost and pricing
actions to further improve gross margins and is actively pursuing opportunities
to further decrease its operating expenses. In addition, significant emphasis
continues to be placed on improving cash flow.
OPERATING RESULTS OF THE COMPANY
FISCAL 1996 VERSUS FISCAL 1995
REVENUES
Revenues for fiscal 1996 totaled $140.5 million, an increase of $14.5
million or 11.5% over fiscal 1995. Approximately $12.8 million of the increase
is attributable to the inclusion of sales relating to RCS and Corrtherm. The
Company acquired all the shares of RCS and certain assets of ACS and TRC
(collectively Corrtherm) in the second and third quarters of fiscal 1995,
respectively. Excluding the impact of the RCS and Corrtherm acquisitions,
revenues for fiscal 1996 increased approximately 1.4%.
During fiscal 1996, approximately 47% of the Company's revenues related to
services and 53% related to product sales. In fiscal 1995, service and product
sales each represented approximately 50% of the Company's revenues.
Revenues from services, excluding the impact of the RCS acquisition,
increased approximately $2.6 million or 4.2% over fiscal 1995. The increase is
attributable to growth in revenues in the Company's domestic market (historical
core businesses), at its operations in Canada and at Wilson Walton. Fiscal 1996
service revenues were negatively impacted during the fourth quarter by unusually
severe winter weather in parts of the U.S. and Canada, resulting in certain
engineering and construction projects being delayed to future periods.
Product revenues, excluding the impact of the RCS and Corrtherm
acquisitions, were down $.9 million or 1.5%. Product revenues relating to the
domestic operations and Canada actually increased during fiscal 1996; however,
such increases were offset by lower anode sales (primarily in the fourth
quarter) as well as decreased product revenues at the Company's Good-All and
Wilson Walton operations. Product revenues at Good-All were down approximately
$.9 million between years. The Company is currently in the process of
consolidating Good-All's manufacturing operations located in Colorado into an
existing Company manufacturing facility in Ohio. This consolidation is expected
to have a favorable impact on Good-All's operating results; however, such
improvements are not expected to be realized until the second half of fiscal
1997. Wilson Walton's product revenues were down approximately $.3 million
between years. The entire decrease, however, relates to the first half of fiscal
1996. Wilson Walton's product revenues increased by approximately $2.2 million
during the second half of fiscal year 1996 as compared to the prior year second
half results.
9
11
GROSS PROFIT
The Company's gross profit for fiscal 1996 totaled $33.9 million (or 24.1%
of revenues) compared to $36.8 million (or 29.2% of revenues) for fiscal 1995, a
decrease in gross profit dollars of 7.9%.
Gross profit related to services totaled $17.6 million (or 26.7% of
revenues) for fiscal 1996 compared to $21.9 million (or 35.1% of revenues) for
fiscal 1995, a decrease in gross profit dollars of 19.8%. Gross profit margins
were negatively impacted during the first half of fiscal 1996 by the backlog of
lower margin jobs. During fiscal 1996, the Company completed a number of lower
margin jobs and orders which were in the backlog at the beginning of the fiscal
year. Service gross profit margins were also negatively impacted during the
first half of fiscal 1996 by increased use of third party contractors, as well
as higher labor and overhead costs. Service gross profit margins did, however,
begin to show improvement during the second half of fiscal 1996. Such margins
were 29.7% and 27.4% for the third and fourth quarter, respectively, compared to
24.7% during the first half of fiscal 1996. Fourth quarter service margins were
unfavorably impacted by sever winter weather in Canada which negatively impacted
the profitability of a large project completed during the quarter.
Gross profit related to product sales totaled $16.3 million (or 21.8% of
revenues) for fiscal 1996 compared to $14.9 million (or 23.4% of revenues) for
fiscal 1995, an increase in gross profit dollars of 9.7%. Excluding the impact
of the RCS acquisition, product gross profit dollars decreased 2.5%. The
decrease in product gross margins is the result of lower margins at the
Company's Good-All and Wilson Walton operations partially offset by improved
product margins at the Company's domestic operations. Product gross profit
margins did, however, begin to show improvement during the second half of fiscal
1996. Such margins were 24.3% and 25.8% for the third and fourth quarters,
respectively, compared to 18.9% during the first half of fiscal 1996. Gross
margins on product sales were negatively impacted throughout fiscal 1996 by
extremely low gross margins at the Company's Corrtherm foundry. Corrtherm's
margins were extremely weak as a result of start-up issues which resulted in
productivity problems, excess operating expenses and significant product rework
particularly during the first half of fiscal 1996. Corrtherm's margins did show
improvement during the second half of fiscal 1996, particularly in the fourth
quarter, however, the Company expects that Corrtherm's margins will continue to
be below those of its other operations.
The Company continues to take cost and pricing actions with respect to both
service and product sales in order to improve gross margins further. Such
actions include pricing disciplines, consolidation of certain production
facilities and work force reductions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
S,G&A expense for fiscal 1996 totaled $33.9 million (or 24.1% of revenues)
compared to $30.4 million (or 24.1% of revenues) for fiscal 1995, an increase of
11.6%. Approximately $3.5 million of the increase relates to the inclusion of
S,G&A expenses of RCS and Corrtherm. Excluding the impact of RCS and Corrtherm,
S,G&A expense was flat between years.
The Company has implemented a number of measures to reduce its S,G&A costs
and enable the Company to realize efficiencies of scale as it continues to
integrate its acquired companies. Such measures included work force reductions
and consolidation of facilities. During the second quarter of fiscal 1996, the
Company reduced its work force by approximately 7%, which resulted in annual
savings of approximately $2.0 million. The impact of the work force reduction
was realized beginning in the second half of fiscal 1996 through lower S,G&A
cost levels. The Company continues to review its S,G&A cost structure and pursue
opportunities to decrease these costs further.
UNUSUAL CHARGES
During fiscal 1996, the Company recorded unusual charges totaling
approximately $4.4 million. Such charges consisted primarily of
litigation-related legal expenses as well as costs associated with the
consolidation of facilities. See Liquidity and Capital Resources and Note 11 of
Notes to the Consolidated Financial Statements for further discussion regarding
litigation.
10
12
OPERATING INCOME (LOSS)
The Company incurred an operating loss of $4.4 million during fiscal 1996
compared to operating income of $6.4 million during fiscal 1995. The decrease is
primarily attributable to lower gross profit and the unusual charges discussed
above.
INTEREST EXPENSE
Interest expense for fiscal 1996 totaled $2.6 million compared to $1.1
million for fiscal 1995. The increase is primarily attributable to the
additional interest cost associated with the RCS and Corrtherm acquisitions as
well as increased borrowings to meet working capital needs.
INCOME TAX PROVISION (BENEFIT)
The Company recorded a benefit for income taxes of $1.9 million for fiscal
1996 compared to a provision of $2.4 million for fiscal 1995. The effective tax
rate for the current year was (26.8)% compared to 46.3% for fiscal 1995. The
(26.8)% rate reflects a benefit derived from losses which will be carried back
to prior year tax returns. The fiscal 1995 effective tax rate was impacted by a
higher proportion of income generated in Canada, which is taxed at a higher
rate, and the impact of permanent tax basis differences in the United States.
See Note 6 to Notes to Consolidated Financial Statements for reconciliations of
the Company's effective tax rates.
NET INCOME (LOSS)
The Company incurred a net loss of $5.2 million for fiscal 1996 compared to
net income of $2.8 million for fiscal 1995. The fiscal 1996 net loss includes a
$.1 million extraordinary charge related to the early retirement of bank debt.
Excluding the impact of the unusual charges, the majority of the current year
loss was incurred during the first half of fiscal 1996. The Company began to
realize the impact of the actions instituted to improve margins and reduce costs
described above during the second half of fiscal 1996.
FISCAL 1995 VERSUS FISCAL 1994
REVENUES
Revenues for fiscal 1995 were $126.0 million, an increase of $56.5 million
or 81.2% over fiscal 1994. This growth is attributable to a full year of
operating results of the Canadian and United Kingdom subsidiaries acquired in
March 1994 as well as the impact of the Company's fiscal 1995 acquisition of RCS
in August 1994 and the domestic foundry acquisitions of ACS and TRC in November
1994. Revenues from services provided by the Company increased $14.2 million or
29.5% from fiscal 1994. Of this growth, approximately $2.7 million represented
growth in the domestic market, other than from acquisitions, with the balance
attributed to growth in Canada and the impact of the acquired companies. Product
sales increased $42.2 million to $63.6 million in fiscal 1995. This growth is
attributed to the impact of acquired businesses, principally the United Kingdom
subsidiary. WWGL reported an approximate $25.0 million increase in revenues as a
full year was reported in fiscal 1995 compared with one month in fiscal 1994.
Product sales account for approximately 50% of total sales in fiscal 1995
compared with only approximately 30% in fiscal 1994. With the expected sales
impact of the Company's newly acquired domestic foundries, the trend toward
lower margin product sales will continue in fiscal 1996. Product sales from the
Company's domestic and Saudi Arabian operations declined approximately $2.3
million during fiscal 1995.
GROSS PROFIT
The Company's gross profit for fiscal 1995 was $36.8 million which
represents an increase of $13.1 million or 55.2% over fiscal 1994. As a
percentage of revenues, gross profit was 29.2% in fiscal 1995 compared with
34.1% in fiscal 1994. Gross profit related to services was $21.9 million for
fiscal 1995 as compared to $18.5 million for fiscal 1994 which represents an
increase of $3.5 million or 18.9%. As a percentage of revenues, gross profit
from services was 35.1% in fiscal 1995 compared with 38.3% for fiscal 1994.
Service margins declined in fiscal 1995 due to an increased use of third party
subcontracting in the Company's
11
13
domestic engineering business, which resulted in lower profit margins and the
write-off of certain costs due to the failure of one of the Company's
subcontractors to complete a domestic project. This decline is also attributed
in part to the results of the acquired businesses as these operations
collectively generate lower margins in their service business. Gross profit
related to product sales increased $9.6 million to $14.9 million in fiscal 1995.
As a percentage of revenues, gross profit related to product sales was 23.4% in
fiscal 1995 compared with 24.6% in fiscal 1994. This decline is due in part to
reduced volume in the domestic and Saudi Arabian product markets without a
corresponding reduction in fixed labor and overhead costs as well as increases
in raw material costs later in the year which were not fully recovered in
selling prices. Also, the Company's domestic foundry operations generated sales
of approximately $7.0 million with a gross margin of approximately 4.0% in
fiscal 1995 due primarily to start up inefficiencies and the impact of rising
material costs. Offsetting these reductions were improved margins in the
Canadian operations as well as the impact of the RCS acquisition which, due to
the nature of its products, generates a higher gross margin than the Company's
other products.
SELLING, GENERAL & ADMINISTRATIVE EXPENSE
S,G&A expense for fiscal 1995 was $30.4 million, which represents an 87.5%
increase over the $16.2 million for fiscal 1994. This increase is due primarily
to the impact of acquired businesses and approximately $3.0 million additional
S,G&A costs associated with the Company's corporate administration. Included in
the increase in corporate expenses are higher payroll costs, insurance costs,
professional fees, bad debt expense, and other costs associated with the recent
growth in the Company's business. Also, S,G&A includes $.8 million of goodwill
amortization in fiscal 1995 compared with $.2 million in fiscal 1994. As a
percentage of revenues, S,G&A was 24.1% in fiscal 1995 compared with 23.3% in
fiscal 1994.
UNUSUAL CHARGES
The unusual charge for stock appreciation rights in fiscal 1994 was the
result of a nonrecurring charge to earnings of $1.6 million to reflect an
obligation to a former shareholder.
OPERATING INCOME
Operating income was $6.4 million in fiscal 1995 compared with $5.9 million
in fiscal 1994. Operating income in fiscal 1994, excluding the unusual charge,
amounted to $7.5 million. Operating income as a percent of revenues, excluding
the unusual charge in fiscal 1994, amounted to 5.1% in fiscal 1995 compared with
10.8% in fiscal 1994. The decline in fiscal 1995 is primarily attributed to the
factors described above.
INTEREST EXPENSE
During fiscal 1995, interest expense was $1.1 million compared with $.9
million for fiscal 1994, representing an increase of $.2 million or 25.3%. The
increase in interest expense is primarily attributed to the interest cost
associated with the various fiscal 1995 acquisitions as well as the required
financing of working capital needs throughout fiscal 1995. Interest cost in
fiscal 1994 was favorably impacted due to the initial public offering in October
1994 and the resulting debt reduction.
INCOME TAX PROVISION
The provision for income taxes was $2.4 million for fiscal 1995 and $2.3
million for fiscal 1994. The effective tax rate in 1995 was 46.3% compared with
45.8% in 1994. The 1995 effective tax rate was impacted by a higher proportion
of income generated in Canada, which is taxed at a higher rate, and the impact
of permanent tax basis differences in the United States. The 1994 effective tax
rate was impacted by the unusual charge recognized during the period not being
tax deductible.
NET INCOME (LOSS)
The Company recorded net income of $2.8 million for fiscal 1995 compared to
$2.7 million for fiscal 1994. Fiscal 1994 net income included $1.6 million of
unusual charges relating to stock appreciation rights
12
14
obligation to a former shareholder. Fiscal 1994 net income also included a $.1
million extraordinary charge related to the early retirement of debt and $.1
million of income relating to a cumulative effect of change in accounting
principle.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company placed significant emphasis on the
improvement of cash flow primarily through the reduction of working capital
levels. Particular emphasis was placed on the reduction of accounts receivable
levels through enhanced credit and collection efforts. Working capital at March
31, 1996 totaled $33.8 million compared to $37.3 million at March 31, 1995, a
decrease of $3.5 million or 9.3% The favorable impact of the reduction in
accounts receivable on cash flow from operations was $4.2 million. As a result
of the working capital reductions as well as the improved operating results
achieved during the second half of the year, the Company generated cash flow
from operations of $5.3 million during fiscal 1996. Approximately $10.3 million
of this amount was generated during the second half of the year. The Company
will continue to place significant emphasis on the further improvement of cash
flow during fiscal 1997.
Cash used for investing activities totaled $3.4 million during fiscal 1996.
This consisted primarily of $1.9 million of net capital expenditures and $.7
million relating to the purchase of certain technology rights. Cash used for
financing activities totaled $.2 million during fiscal 1996.
On March 29, 1996, the Company entered into a new $37.5 million domestic
bank credit facility which consists of a three-year $32.5 million revolver which
expires on March 31, 1999 and a four-year $5 million term loan which matures on
March 31, 2000. Borrowings under the credit facility are initially limited to
borrowing base amounts as defined in the credit agreement. The credit agreement,
however, provides for the elimination of borrowing base limitations upon the
Company's achievement of certain financial ratios. Initial borrowings under the
credit facility were used to repay all borrowings under the Company's $30
million secured revolving credit facility as well as a bank term note.
In addition to the domestic bank credit facility discussed above, the
Company has various smaller lines of credit with foreign banks which totaled
approximately $3 million. Total availability under the domestic and foreign
credit facilities at March 31, 1996 was approximately $9 million. The Company
was in compliance with all of its debt covenants at March 31, 1996.
The Company believes that cash generated by operations and amounts
available under its domestic bank credit facility and foreign lines of credit
will be sufficient to satisfy the Company's liquidity requirements through at
least fiscal 1997.
As previously reported, in June 1995 the Company announced that earnings
per share for fiscal 1995 were expected to be substantially below analysts'
expectations, and in August the Company restated its previously reported results
for the second and third quarters of fiscal 1995. Class action litigation and
shareholder derivative litigation were commenced seeking substantial damages
from the Company and/or certain of its current and former directors and
officers. Motions to dismiss the consolidated class action lawsuit and the
shareholder derivative action were filed in November 1995 and October 1995,
respectively. On December 28, 1995, the motion to dismiss the shareholder
derivative action was granted without prejudice. An appeal is pending. The
Company intends to continue to defend itself vigorously in the class action
litigation. In addition, the Company is cooperating in an investigation being
conducted by the Securities and Exchange Commission. See Part II, Item 1, Legal
Proceedings. Management is unable to assess at this time the ultimate outcome of
this litigation and investigation. Other than an accrual for the cost of
defense, no provision for liability, if any, that may result has been made in
the Company's financial statements. The Company is a party to indemnification
agreements with the individual defendants in the class action and shareholder
derivative litigation. Also, the Company's directors and officers insurance
carriers have notified the Company that they are reserving their rights
concerning coverage with respect to the class action litigation. If resolved
unfavorably, the litigation and investigation could have a material adverse
effect on the Company's financial condition, results of operations and
liquidity. In addition, the Company has incurred, and will continue to incur,
significant legal fees in connection with these matters.
13
15
CHANGES IN ACCOUNTING STANDARDS
See Notes 1 and 9 of Notes to Consolidated Financial Statements for a
discussion of the Company's plans for adopting SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
SFAS No. 123, "Accounting for Stock-Based Compensation".
EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSLATION
The Company does not believe that inflation has had a significant effect on
the Company's results of operations for the periods presented.
The Company has not been significantly affected by currency fluctuations or
foreign exchange restrictions. Management believes that these risks resulting
from the Company's increased foreign sales are manageable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Begins on following page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Corrpro Companies, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Corrpro Companies, Inc. and its subsidiaries (the Company) at March 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Cleveland, Ohio
May 28, 1996
15
17
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(In Thousands)
ASSETS
1996 1995
-------- --------
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 3,256 $ 1,385
Accounts receivable, net.............................................. 30,257 34,930
Inventories........................................................... 17,056 18,304
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................................. 2,145 2,333
Prepaid expenses and other............................................ 7,201 4,562
-------- --------
Total current assets............................................. 59,915 61,514
-------- --------
PROPERTY AND EQUIPMENT:
Land.................................................................. 782 779
Buildings............................................................. 5,886 5,779
Equipment, furniture and fixtures..................................... 19,849 18,784
Leasehold improvements................................................ 529 606
-------- --------
27,046 25,948
Less accumulated depreciation......................................... (6,431) (4,563)
-------- --------
Property and equipment, net........................................... 20,615 21,385
-------- --------
OTHER ASSETS:
Goodwill.............................................................. 24,291 25,166
Patents and other intangibles......................................... 1,865 1,206
Other................................................................. 1,512 1,051
-------- --------
Total other assets............................................... 27,668 27,423
-------- --------
$108,198 $110,322
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
16
18
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(In Thousands, Except per Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
-------- --------
CURRENT LIABILITIES:
Short-term borrowings................................................. $ 40 $ 273
Current portion of long-term debt..................................... 1,487 2,322
Accounts payable...................................................... 16,836 15,449
Accrued liabilities and other......................................... 7,762 6,204
-------- --------
Total current liabilities........................................ 26,125 24,248
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION.................................. 26,616 25,869
DEFERRED INCOME TAXES................................................... 674 78
COMMITMENTS AND CONTINGENCIES........................................... -- --
MINORITY INTEREST....................................................... 502 4,067
SHAREHOLDERS' EQUITY:
Serial Preferred Shares, voting, no par value; 1,000 shares authorized
and unissued....................................................... -- --
Common Shares, voting, no par value, stated value $0.33 per share;
12,000 shares authorized; 6,584 and 5,966 shares issued in 1996 and
1995; 6,559 and 5,941 shares outstanding in 1996 and 1995.......... 2,196 1,989
Additional paid-in capital............................................ 50,043 46,333
Accumulated earnings.................................................. 1,963 7,175
-------- --------
54,202 55,497
Cumulative translation adjustment 131 615
Common Shares in treasury, at cost.................................... (52) (52)
-------- --------
Total shareholders' equity....................................... 54,281 56,060
-------- --------
$108,198 $110,322
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
17
19
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands, Except per Share Data)
1996 1995 1994
-------- -------- --------
Revenues:
Engineering and construction services..................... $ 65,916 $ 62,395 $ 48,166
Product sales............................................. 74,605 63,614 21,370
-------- -------- --------
140,521 126,009 69,536
-------- -------- --------
Cost of sales:
Engineering and construction services..................... 48,330 40,467 29,715
Product sales............................................. 58,306 48,759 16,118
-------- -------- --------
106,636 89,226 45,833
-------- -------- --------
Gross profit................................................ 33,885 36,783 23,703
Selling, general and administrative expenses................ 33,905 30,390 16,206
Unusual charges............................................. 4,368 -- 1,622
-------- -------- --------
Operating income (loss)..................................... (4,388) 6,393 5,875
Interest expense............................................ (2,633) (1,112) (887)
-------- -------- --------
Income (loss) before income taxes, extraordinary charge and
cumulative effect of change in accounting principle....... (7,021) 5,281 4,988
Provision (benefit) for income taxes........................ (1,879) 2,445 2,282
-------- -------- --------
Income (loss) before extraordinary charge and cumulative
effect of change in accounting principle.................. (5,142) 2,836 2,706
Extraordinary charge........................................ (70) -- (102)
Cumulative effect on prior years of change in accounting
principle................................................. -- -- 136
-------- -------- --------
Net income (loss)........................................... $ (5,212) $ 2,836 $ 2,740
======== ======== ========
Earnings per share:
Income (loss) before extraordinary charge and cumulative
effect of change in accounting principle............... $ (.83) $ 43 .67
Extraordinary charge...................................... (.01) -- (.02)
Cumulative effect of change in accounting principle....... -- -- .03
-------- -------- --------
Net income (loss)......................................... $ (.84) $ .43 $ .68
======== ======== ========
Number of Common and Common Share equivalents............... 6,212 6,667 4,027
======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
18
20
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands, Except per Share Data)
COMMON COMMON
SERIAL SHARES ADDITIONAL CUMULATIVE SHARES
PREFERRED ($0.33 PAID-IN ACCUMULATED TRANSLATION IN
SHARES STATED VALUE) CAPITAL EARNINGS ADJUSTMENT TREASURY* TOTAL
--------- ------------- ---------- ----------- ---------- --------- -------
March 31, 1993.................. $ -- $ 601 $ 666 $ 1,599 $ -- $ (52) $ 2,814
Net income.................... -- -- -- 2,740 -- -- 2,740
Issuance of 132 Common
Shares..................... -- 44 175 -- -- -- 219
Issuance of 1,862 Common
Shares in Initial Public
Offering................... -- 621 17,529 -- -- -- 18,150
Conversion of 150 CSG
shares..................... -- 50 943 -- -- -- 993
Cumulative translation
adjustment................. -- -- -- -- (615) -- (615)
--------- ------------- ---------- ----------- ---------- --------- -------
March 31, 1994.................. -- 1,316 19,313 4,339 (615) (52) 24,301
Net income.................... -- -- -- 2,836 -- -- 2,836
Issuance of 1,845 Common
Shares in Secondary Public
Offering................... -- 615 26,859 -- -- -- 27,474
Exercise of 30 stock
options.................... -- 10 209 -- -- -- 219
Exercise of 144 warrants...... -- 48 (48) -- -- -- --
Cumulative translation
adjustment................. -- -- -- -- 1,230 -- 1,230
--------- ------------- ---------- ----------- ---------- --------- -------
March 31, 1995.................. -- 1,989 46,333 7,175 615 (52) 56,060
Net income (loss)............. -- -- -- (5,212) -- -- (5,212)
Exercise of 89 stock
options.................... -- 30 391 -- -- -- 421
Conversion of 530 CSG
shares..................... -- 177 3,319 -- -- -- 3,496
Cumulative translation
adjustment................. -- -- -- -- (484) -- (484)
--------- ------------- ---------- ----------- ---------- --------- -------
March 31, 1996.................. $ -- $ 2,196 $ 50,043 $ 1,963 $ 131 $ (52) $54,281
======= ========== ======= ========= ======== ======= =======
*Shares held in treasury totaled 25 for all periods presented.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
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21
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands)
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income (loss)......................................... $ (5,212) $ 2,836 $ 2,740
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization............................. 3,790 2,805 1,437
Deferred income taxes..................................... (900) 282 (155)
Cumulative effect of change in accounting principle....... -- -- (136)
Gain on sale of assets.................................... 94 (136) (34)
Minority interest......................................... (54) 181 --
Equity in net income of affiliated companies.............. -- -- (188)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable.................................. 4,163 (7,491) (3,317)
Inventories.......................................... 615 (1,131) (809)
Contracts in progress, net........................... 1,458 (708) (970)
Prepaid expenses and other........................... (363) (2,293) 59
Accounts payable and accrued expenses................ 2,275 (1,204) (533)
Other assets......................................... (557) (170) (82)
-------- -------- --------
Total adjustments................................. 10,521 (9,865) (4,728)
-------- -------- --------
Net cash provided by (used for) operating
activities...................................... 5,309 (7,029) (1,988)
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (2,144) (3,085) (771)
Disposal of property, plant and equipment................. 224 238 117
Acquisitions, net of cash acquired........................ (700) (23,283) (21,651)
Other assets.............................................. (731) (59) 92
-------- -------- --------
Net cash used for investing activities............ (3,351) (26,189) (22,213)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 51,949 39,885 78,467
Repayment of long-term debt............................... (50,439) (34,084) (68,886)
Repayment of short-term debt.............................. (1,750) (766) --
Repayment of shareholder loans............................ (33) (132) (1,912)
Debt issue costs.......................................... (120) (15) (180)
Deferred public offering costs............................ -- 417 (417)
Net proceeds from issuance of Common Shares............... 207 27,693 18,368
-------- -------- --------
Net cash provided by (used for) financing
activities...................................... (186) 32,998 25,440
-------- -------- --------
Effect of changes in foreign currency exchange rates........ 99 (62) (5)
-------- -------- --------
Net increase (decrease) in cash............................. 1,871 (282) 1,234
Cash and cash equivalents at beginning of period............ 1,385 1,667 433
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 3,256 $ 1,385 $ 1,667
======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
20
22
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In Thousands, Except per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Consolidation and basis of presentation
The consolidated financial statements include the accounts of Corrpro
Companies, Inc. and its wholly-owned subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain fiscal 1995 and 1994 amounts have been reclassified to conform with the
fiscal 1996 presentation.
The Company operates in a single industry segment, which consists of
providing corrosion control engineering and monitoring services, systems and
equipment to the infrastructure, environmental and energy markets.
B. Cash and cash equivalents
The Company considers cash and all other highly liquid investments with
original maturities of three months or less to be cash equivalents.
C. Accounts receivable
Accounts receivable are presented net of allowances for doubtful accounts
of $1,198, $1,013, $1,007 and $367 at March 31, 1996, 1995, 1994 and 1993,
respectively. Bad debt expense totaled $654, $587 and $86 in fiscal 1996, 1995
and 1994, respectively. Approximately $620 of the increase in the allowance for
doubtful accounts between March 31, 1994 and 1993 resulted from the inclusion of
amounts related to acquisitions.
The Company performs ongoing credit evaluations of its customers' financial
condition. Corrosion control services are provided to a large number of
customers with no substantial concentration in a particular industry.
D. 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, 1996 and 1995:
1996 1995
------- -------
Component parts and raw materials.............................. $ 9,004 $ 7,281
Work in process................................................ 1,492 944
Finished goods................................................. 7,215 10,783
------- -------
17,711 19,008
Reserve for slow moving and potentially obsolete materials..... (655) (704)
------- -------
$17,056 $18,304
======= =======
The reserve for slow moving and potentially obsolete materials totaled $555
and $150 at March 31, 1994 and 1993, respectively. Approximately $499 of the
increase between March 31, 1995 and 1994 and $666 of the increase between March
31, 1994 and 1993 resulted from the inclusion of amounts related to
acquisitions. Amounts expensed for slow moving and potentially obsolete
materials were not significant during fiscal years 1996, 1995 and 1994.
21
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
E. Property, plant and equipment
Fixed assets are recorded at cost. Depreciation for the Company's domestic
and European subsidiaries is computed principally on the straight-line method
while depreciation for the Company's Canadian subsidiary is computed on the
declining balance method, all over the estimated useful lives of the assets for
financial reporting purposes, as follows:
Buildings................................................. 25 - 40 years
Equipment, furniture and fixtures......................... 4 - 10 years
Leasehold improvements.................................... Term of lease
Depreciation is computed principally using accelerated methods for income
tax reporting purposes. Maintenance, repairs and minor renewals are charged to
operations as incurred. Major renewals and betterments which substantially
extend the useful life of the property are capitalized. Upon sale or other
disposition of assets, the cost and related accumulated depreciation and
amortization are removed from the accounts and the resulting gain or loss, if
any, is reflected in income.
Depreciation expense totaled $2,481, $1,745 and $938 in fiscal 1996, 1995
and 1994, respectively.
F. Goodwill, patents and other intangibles
Goodwill is being amortized on a straight-line basis, principally over 30
years. Goodwill amortization totaled $908, $783 and $175 in fiscal 1996, 1995
and 1994, respectively. Accumulated amortization was $1,862 and $954 at March
31, 1996 and 1995, respectively.
Included in patents and other intangibles are amortizable assets consisting
primarily of patents, trademarks and covenants not to compete. Such assets, with
a cost of $2,965 and $1,958 at March 31, 1996 and 1995, respectively, are
amortized on the straight-line method over their estimated useful lives ranging
from four to twenty years. Amortization expense for such assets totaled $401,
$276 and $325 in fiscal 1996, 1995 and 1994, 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.
The Company will adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" during the first
quarter of 1997. This statement requires that the Company measure its long-lived
assets for impairment utilizing undiscounted cash flows when events or changes
in circumstances suggest that the carrying value of an asset or group of assets
is not recoverable. Management does not anticipate that the effect of adoption
will be significant, as an approach similar to that required by SFAS No. 121 has
historically been utilized by the Company.
G. Fair value of financial instruments
The recorded value of cash and cash equivalents, receivables, payables 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.
H. 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
22
24
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
revisions are made. Accounts receivable includes $754 and $800 at March 31, 1996
and 1995, respectively, of amounts billed but not paid by customers under
retainage provisions of contracts. The Company recognizes revenue from product
sales upon shipment.
I. Product development expenses
Expenditures for product development are charged to expense as incurred.
Research and development expenses, net of amounts funded by third parties,
totaled approximately $718, $965 and $153 in fiscal 1996, 1995 and 1994,
respectively.
J. Income taxes
As discussed in Note 6, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," effective April 1,
1993. This Statement required application of the asset and liability method of
accounting for income taxes.
K. Earnings per share
Earnings per share is computed by dividing net income (loss) by the
weighted average number of Common and Common Share equivalents outstanding
during the year. Common Shares, options and warrants issued or granted at prices
below the initial public offering price during the twelve month period prior to
the initial filing of the registration statement have been included in the
calculation of Common Share equivalents, using the treasury stock method, as if
they were outstanding for all periods presented. Common Share equivalents were
excluded from the net loss per share computation for fiscal 1996 as the effect
would be antidilutive.
L. Foreign currency translation
The functional currency for each of the Company's foreign operations is the
applicable local currency. Accordingly, assets and liabilities are translated
into U.S. dollars at the exchange rate in effect at the balance sheet date, and
income and expenses are translated at average exchange rates prevailing during
the year. Translation gains or losses are accumulated as a separate component of
shareholders' equity entitled cumulative translation adjustment. Foreign
currency transaction gains or losses are credited or charged to income, and such
amounts have been insignificant for the periods presented.
M. Financial statement estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. ACQUISITIONS:
A. Acquisition of Commonwealth Seager Group
Effective April 1, 1993, the Company completed the acquisition of the
Commonwealth Group of Companies ("CSG"), a Canadian group of corporations and a
partnership under common ownership. CSG is a specialty engineering firm which
provides corrosion engineering services and products to a variety of industries,
including pipeline companies, oil and gas producing entities, refinery and
petrochemical facilities, pulp and paper operations, utilities and
municipalities.
23
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The acquisition was paid through the issuance to the sellers of preferred
stock of a Canadian corporation whose common stock is wholly owned by the
Company. Such preferred stock was exchangeable for a maximum of 680 Common
Shares of the Company at any time at the option of the holders until March 31,
1998. As of March 31, 1996, all such preferred stock had been exchanged for
Common Shares. See Note 8. The purchase price, including acquisition related
expenses of $657, aggregated $5,147 based on the estimated market value of the
Company's Common Shares at the date of acquisition. Such market value
approximated the initial public offering price discounted by 40%, as the
Company's Common Shares were not publicly traded at the date of consummation of
the acquisition. The acquisition has been accounted for as a purchase and the
net assets and results of operations have been included in the Company's
consolidated financial statements since April 1, 1993. The purchase price was
allocated to the net assets acquired on the basis of the estimated fair value of
the assets acquired and liabilities assumed at the effective date of
acquisition. The excess of purchase price over the fair value of net assets
acquired aggregated $4,057.
B. Acquisition of Good-All Electric, Inc.
On January 2, 1994, the Company purchased certain assets of Good-All
Electric, Inc. ("Good-All") of Ft. Collins, Colorado from Valmont Industries.
Good-All is a manufacturer of rectifiers, a key component in cathodic protection
systems which mitigate corrosion.
The purchase price of $3,093 was paid in cash. The purchase price was
allocated to the net assets acquired on the basis of the estimated fair value of
the assets acquired and liabilities assumed at the effective date of
acquisition. The Good-All results of operations have been included in the
Company's consolidated financial statements from the effective date of the
purchase.
C. Acquisition of UCC Corporation
On March 1, 1994, the Company acquired all of the issued and outstanding
shares of common stock of UCC Corporation ("UCC") of Edmonton, Alberta, Canada
for $4,181, including $179 of acquisition related expenses. The purchase price
was allocated to the net assets acquired on the basis of the estimated fair
value of the assets acquired and liabilities assumed at the effective date of
acquisition. The excess of purchase price over the fair value of net assets
acquired aggregated $3,402. UCC is a specialty engineering firm which provides a
broad range of corrosion engineering services and products including engineering
expertise in protective coatings to a variety of industries such as pipeline
companies, oil and gas producing entities, refinery and petrochemical
facilities, pulp and paper operations, utilities and municipalities. The UCC
results have been included in the Company's results since March 1, 1994. During
fiscal 1995, the operations of CSG and UCC were combined to form Corrpro Canada,
Inc.
D. Acquisition of The Wilson Walton Group Limited
Effective March 1, 1994, the Company acquired all of the issued and
outstanding shares of voting stock of The Wilson Walton Group Limited ("Wilson
Walton") of London, England for $15,220 in cash, including $592 of acquisition
related expenses. The purchase price was allocated to the net assets acquired on
the basis of the estimated fair value of the assets acquired and liabilities
assumed at the effective date of acquisition. The excess of purchase price over
the fair value of net assets acquired aggregated $11,607. Wilson Walton is a
provider of offshore and industrial cathodic protection products and services,
primarily to the marine market. The results of Wilson Walton have been included
in the Company's consolidated financial statements since March 1, 1994.
E. Acquisition of Rohrback Cosasco Systems, Inc.
Effective August 1, 1994, the Company purchased all of the shares of
Rohrback Cosasco Systems, Inc. ("RCS") of Santa Fe Springs, California from
MascoTech, Inc. for $8,439, including $161 of acquisition
24
26
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
related expenses. The purchase price was allocated to the net assets acquired,
including acquired cash of $232, on the basis of the estimated fair value of the
assets acquired and liabilities assumed at the effective date of acquisition.
The excess of purchase price over the fair value of net assets acquired
aggregated $3,445. RCS is a supplier of corrosion monitoring equipment and
services for process systems and pipelines. The RCS results have been included
in the Company's consolidated financial statements since August 1, 1994.
F. Acquisition of Wayne Broyles Cathodic Services, Inc.
Effective October 1, 1994, the Company purchased substantially all of the
assets, rights and properties relating to Wayne Broyles Cathodic Systems, Inc.
("Wayne Broyles") of Houston, Texas for cash of $510 and a promissory note
aggregating $415. The purchase price was allocated to the net assets acquired,
including acquired cash of $45, on the basis of the estimated fair value of the
assets acquired and liabilities assumed at the effective date of acquisition.
Wayne Broyles is in the business of providing a broad range of corrosion control
services, systems and equipment to the infrastructure, environmental and energy
markets located throughout the world. The results of Wayne Broyles have been
included in the Company's results since October 1, 1994.
G. Acquisition of Thermal Reduction Company
On October 30, 1994, the Company purchased substantially all of the assets
of Thermal Reduction Company ("TRC") of Riverside, New Jersey for $9,309,
including $541 of acquisition related expenses. The purchase price was allocated
to the net assets acquired on the basis of the estimated fair value of the
assets acquired and liabilities assumed at the effective date of acquisition.
The excess of purchase price over the fair value of net assets acquired
initially aggregated $2,497. During the second quarter of fiscal 1996, the
Company refined the allocation of the purchase price which resulted in an
additional net $300 allocation to excess of purchase price over fair value of
assets acquired. TRC manufactures zinc, aluminum and magnesium anodes for
corrosion control systems. The results of TRC have been included in the
Company's consolidated financial statements since November 1, 1994.
H. Acquisition of American Corrosion Services, Inc.
Effective November 1, 1994, the Company purchased the foundry, anode
manufacturing and technical corrosion services business of American Corrosion
Services, Inc. ("ACS"), a subsidiary of American Oilfield Divers, Inc. of New
Orleans, Louisiana, for cash of $1,500 and promissory notes aggregating $3,387.
The purchase price was allocated to the net assets acquired on the basis of the
estimated fair value of the assets acquired and liabilities assumed at the
effective date of acquisition. The excess of purchase price over the fair value
of net assets acquired aggregated $356. The results of the ACS operations have
been included in the Company's results since November 1, 1994. Effective
November 1, 1994, the operations of TRC and ACS were combined to form Corrtherm,
Inc.
3. UNUSUAL AND EXTRAORDINARY CHARGES:
A. Unusual charges
During fiscal 1996, the Company recorded unusual charges totaling $4,368.
Such charges consisted primarily of litigation related legal and professional
expenses as well as costs associated with the consolidation of facilities and
the integration of acquisitions.
During fiscal 1994, the Company recorded an unusual charge totaling $1,622
which represented a stock appreciation rights obligation to a former
shareholder.
25
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. Extraordinary charges
During fiscal 1996, the Company recorded a $70 extraordinary charge, net of
tax benefit, as a result of the refinancing of borrowings under its domestic
revolving credit facility. The extraordinary charge represented the write-off of
unamortized deferred financing costs.
During fiscal 1994, the Company recorded a $102 extraordinary charge, net
of tax benefit, as a result of the early extinguishment of certain debt. The
extraordinary charge consisted of the write-off of unamortized deferred
financing costs and debt discount as well as prepayment penalties.
4. LONG-TERM DEBT:
Long-term debt at March 31, 1996 and 1995 consisted of the following:
1996 1995
------- -------
Domestic bank credit facility --
Revolver..................................................... $19,466 $ --
Term loan.................................................... 5,000 --
Revolving credit facility...................................... -- 20,900
Bank term loan................................................. -- 2,115
Other term notes payable....................................... 2,374 3,860
Mortgages payable.............................................. 1,263 1,316
------- -------
28,103 28,191
Less: current portion.......................................... 1,487 2,322
------- -------
$26,616 $25,869
======= =======
On March 29, 1996, the Company entered into a new $37.5 million domestic
bank credit facility with a three-bank group. The credit facility consists of a
three-year $32.5 million revolver which matures on March 31, 1999 and a
four-year $5.0 million term loan which matures on March 31, 2000. The term loan
is payable in quarterly installments of $150 in fiscal 1997 and 1998 and $300 in
fiscal 1999 and 2000 with the balance due on maturity. Borrowings under the
credit facility are initially limited to borrowing base amounts as defined in
the credit agreement. Interest on revolver and term loan borrowings is based, at
the Company's option, on either (a) the prime rate, as defined in the credit
agreement or (b) LIBOR plus 1.5% to 2.5%. The spread over LIBOR varies based
upon a certain financial covenant. The interest rate on borrowings outstanding
at March 31, 1996 was 8.25%. The Company is required to pay a commitment fee of
.25% per annum on the unused revolver commitment. Borrowings under the credit
facility are secured by the Company's domestic accounts receivable, inventories,
certain intangibles, machinery and equipment and real estate owned by the
Company located in Colorado. The Company has also pledged slightly less than
two-thirds of the capital stock of its Wilson Walton and Corrpro Canada
subsidiaries. The credit agreement requires the Company to maintain certain
tangible net worth, leverage, debt service coverage and debt to operating cash
flow ratios. The Company was in compliance with all covenants at March 31, 1996.
The credit agreement provides for the elimination of borrowing base limitations
and the release of collateral upon the Company's achievement of certain
financial ratios.
Initial borrowings under the domestic bank credit facility were used to
repay all borrowings under its $30 million revolving credit facility as well as
its bank term note. The $30 million credit facility was terminated at the
Company's direction, in connection with the refinancing. The weighted average
interest rate on borrowings outstanding under the $30 million credit facility
was 9.0% during fiscal 1996.
26
28
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Other term notes payable include certain other promissory notes. These
notes bear interest at various rates, which ranged from 6.75% to 11.0% at March
31, 1996. The obligations mature at various intervals between 1997 and 2002.
Mortgages payable, which bear interest from 8.25% to 11.25% and are due on
various dates between 1997 and 2010, are repayable in monthly installments and
are secured by the fixed assets of certain subsidiaries as well as personal
guarantees of certain shareholders.
The Company's long-term debt matures as follows: $1,487 in 1997, $1,169 in
1998, $21,369 in 1999, $2,867 in 2000, $181 in 2001 and $1,030 after 2001.
The Company also maintains available lines of credit from various foreign
banks approximating $3,001 at March 31, 1996, which are secured by the assets of
certain foreign subsidiaries. Short-term borrowings amounted to $40 and $240 at
March 31, 1996 and 1995, respectively, under these lines of credit. The interest
rates on such borrowings at March 31, 1996 ranged from 7.50% to 11.0%. In
addition, notes payable to former shareholders totaled $33 at March 31, 1995
(none at March 31, 1996).
Cash paid for interest totaled $2,006, $847 and $888 for fiscal years 1996,
1995 and 1994, respectively.
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 are as follows: $2,061 in 1997, $1,729 in 1998, $1,334 in 1999,
$806 in 2000, $640 in 2001 and $1,499 after 2001 with a cumulative total of
$8,069.
In addition, the Company rents other property on a month-to-month basis.
Total rental expense was $2,318, $2,061 and $1,419 for fiscal 1996, 1995 and
1994, respectively.
6. INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109,
("SFAS No. 109"), "Accounting for Income Taxes," effective April 1, 1993. SFAS
No. 109 required the Company to adopt the asset and liability method of
accounting for income taxes. The cumulative effect to April 1, 1993, of this
accounting change was to increase net income by $136 or $0.03 per share. The
adoption of SFAS No. 109 had no cash flow impact.
Components of income (loss) before income taxes, extraordinary charge and
cumulative effect of change in accounting principle follow:
1996 1995 1994
------- ------- -------
United States............................................ $(9,116) $ 1,022 $ 2,901
Foreign.................................................. 2,095 4,259 2,087
------- ------- -------
$(7,021) $ 5,281 $ 4,988
======= ======= =======
27
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Components of the provision (benefit) for income taxes by jurisdiction
follow:
1996 1995 1994
------- ------- -------
Current -- Federal...................................... $(2,023) $ 220 $ 1,506
-- State and local.............................. 146 136 329
-- Foreign...................................... 863 1,807 602
------- ------- -------
(1,014) 2,163 2,437
------- ------- -------
Deferred -- Federal...................................... (533) 209 (179)
-- State and local.............................. (460) 7 --
-- Foreign...................................... 128 66 24
------- ------- -------
(865) 282 (155)
------- ------- -------
$(1,879) $ 2,445 $ 2,282
======= ======= =======
Differences between the statutory United States federal income tax rate and
the effective income tax are as follows:
1996 1995 1994
------- ------- -------
Federal income tax provision (benefit) at statutory
rate.................................................... $(2,387) $ 1,795 $ 1,696
State income taxes, net................................... (164) 95 242
Nondeductible charge for stock appreciation rights........ -- -- 552
Utilization of state operating loss carryforwards......... -- -- (102)
Foreign tax rate differential............................. 282 424 (131)
Meals and entertainment................................... 125 115 32
Other..................................................... 265 16 (7)
------- ------- -------
Effective income tax...................................... $(1,879) $ 2,445 $ 2,282
======= ======= =======
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities were comprised of the following at March 31, 1996 and
1995:
1996 1995
------- ------
DEFERRED TAX ASSETS
Bad debts..................................................... $ 336 $ 206
Other reserves................................................ 432 562
Uniform cost capitalization................................... 141 131
Accrued expenses.............................................. 905 113
Pension and other benefit reserves............................ 242 275
Federal tax carryforward and other tax credit and
carryforwards.............................................. 1,195 471
State net operating loss carryforwards........................ 629 82
Other......................................................... 91 24
------- ------
3,971 1,864
Valuation reserve............................................. (111) (111)
------- ------
Total deferred tax assets............................. 3,860 1,753
DEFERRED TAX LIABILITIES
Fixed assets.................................................. (1,351) (601)
Other......................................................... (21) (10)
------- ------
Total deferred tax liabilities........................ (1,372) (611)
------- ------
Total net deferred taxes........................................ $ 2,488 $1,142
======= ======
28
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The valuation reserve has been established for certain state net operating
loss carryforwards and foreign tax carryforwards because management believes
that it is more likely than not that such benefits will not be realized.
No provision for United States income tax on approximately $5,124 of
undistributed earnings of international subsidiaries at March 31, 1996, has been
made, because the earnings are indefinitely reinvested in the subsidiaries.
Determination of the amount of the unrecognized deferred tax liability for
temporary differences related to investments in foreign subsidiaries is not
practicable.
At March 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $2,638 and $11,916, respectively and federal
credit carryforwards of $298. The foreign tax credit carryforward will expire in
the year 2000. The federal carryforward will expire in the year 2011 and the
state carryforwards expire in various future periods. There can be no assurance
that tax carryforwards will be utilized.
Cash paid for income taxes totaled $1,776, $4,276 and $3,275 for fiscal
1996, 1995 and 1994, respectively.
7. EMPLOYEE BENEFIT PLANS:
The Company maintains the Corrpro Companies, Inc. Profit Sharing Plan and
Trust 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. The Company currently matches 20% of the first 3% of
employees' contributions. The Company's matching contribution to this retirement
plan totaled $81, $72 and $56 in fiscal 1996, 1995 and 1994, respectively.
The Company has a Key Employee Incentive Bonus Plan, pursuant to which
bonuses are paid in cash or Common Shares. No bonuses were paid under this plan
for fiscal 1996 or 1995. The Company recorded expense of $360 during 1994
pursuant to this plan. Additionally, the Company from time to time pays bonuses
on a discretionary basis.
One of the Company's foreign subsidiaries has a contributory defined
benefit pension plan for certain salaried employees. The Company funds the plan
in accordance with recommendations from independent actuaries. Pension benefits
generally depend on length of service and job grade.
Pension expense for fiscal years 1996 and 1995 is as follows:
1996 1995
------- -------
Service cost................................................... $ 210 $ 177
Interest cost.................................................. 150 140
Actual return on plan assets................................... (133) (73)
Net amortization and deferrals................................. (6) (53)
------- -------
Net periodic pension cost...................................... $ 221 $ 191
======= =======
The funded status of the plan at March 31, 1996 and 1995 is summarized as
follows:
1996 1995
------- -------
Accumulated benefit obligation................................. $(1,512) $(1,329)
Effect of increase in compensation levels...................... (321) (292)
------- -------
Projected benefit obligation................................... (1,833) (1,621)
Plan assets at fair value...................................... 1,760 1,465
------- -------
Funded status.................................................. (73) (156)
Unrecognized gain.............................................. (81) (29)
------- -------
Accrued pension liability...................................... $ (154) $ (185)
======= =======
29
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Pension expense for the one month period (since date of acquisition) ending
March 31, 1994 was approximately $17. Significant actuarial assumptions include
both a discount rate and expected return on plan assets of 9.0% in both fiscal
1996 and 1995 and an assumed rate of increase in compensation levels of 7.0% in
1996 and 6.5% in 1995.
The Company has entered into an employment agreement with one of its
executives which provides, among other things, that such employee shall be
eligible at 63 1/2 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.
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," was issued in
December 1990. SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," was issued in November 1992. The implementation of these Statements
had no effect on the financial statements of the Company as the Company
currently provides no significant benefits, as defined by the Statements, to
retired, former or inactive employees.
8. SHAREHOLDERS' EQUITY:
Substantially all of the Common Shares outstanding prior to the initial
public offering were owned by Company employees, former employees or the
Company's 401(k) retirement plan and were subject to an agreement among
shareholders imposing certain restrictions upon the transferability of these
shares and granting first rights of repurchase to other shareholders and the
Company.
On June 11, 1993, the Board of Directors authorized a three-for-one stock
split of the Company's Common Shares which became effective in September 1993
immediately prior to the initial public offering. Retroactive effect has been
given to the stock split in all share and per share data in the accompanying
consolidated financial statements.
The Company completed its initial public offering of 1,862 Common Shares
during October 1993. Net proceeds from such offering totaled $18,150 and were
used to repay approximately $14,000 of debt as well as amounts due to a former
shareholder for stock appreciation rights. See Note 3 for discussion regarding
the unusual charge associated with the stock appreciation rights.
In May 1994, the Company received net proceeds of $28,114 from a secondary
offering of 1,845 Common Shares. The proceeds were used to repay indebtedness
incurred to finance the acquisitions of Good-All, UCC and Wilson Walton.
Conversion of CSG preferred stock
The Company's acquisition of CSG, effective April 1, 1993, was paid through
the issuance to the sellers of preferred stock of a Canadian corporation whose
common stock is wholly-owned by the Company. The preferred stock could be
exchanged for a maximum of 680 Common Shares of the Company at any time at the
option of the holders until March 31, 1998. Through March 31, 1995, 150 Common
Shares had been issued to holders of the preferred stock in connection with such
exchange rights. In November 1995, the remaining preferred shares were exchanged
for 530 Common Shares of the Company. The value assigned to the preferred stock
at the date of acquisition was $4,489. The preferred shares were presented as
minority interest in the Company's consolidated balance sheet at March 31, 1995,
and the conversion has been treated as a non-cash transaction in the
consolidated statement of cash flows.
Warrants
Certain indebtedness, which was retired in October 1993 using proceeds from
the initial public offering, provided for the granting of a stock purchase
warrant for the purchase of 183 Common Shares at $.000033 per
30
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CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
share, subject to adjustment. As of March 31, 1995, all such warrants had been
exercised.
9. STOCK PLANS:
The Company established various employee stock option programs and, in
addition, awarded one-time stock options to key employees and directors of the
Company, as described below.
1994 Corrpro Stock Option Plan
During June 1993, the Board of Directors adopted the 1994 Corrpro Stock
Option Plan. This plan provides for the granting of options to certain key
employees and consultants to purchase an aggregate of 600 Common Shares, subject
to certain provisions set forth in the plan agreement. Such provisions
effectively limit the number of shares available for future grant to 168 at
March 31, 1996, based on the number of options outstanding at that date.
Options to purchase 270 and 189 Common Shares were awarded during 1996 and
1995, respectively, at an exercise price equal to 110% of fair market value at
the date of grant. These options are exercisable for ten years from the date of
grant, however, such options become exercisable at various dates during the ten
year period beginning with the first anniversary date of the date of grant.
During 1996 and 1995, 247 and 5 options previously granted were terminated in
accordance with the provisions of the plan.
1994 Corrpro Outside Directors' Stock Option Plan
During June 1993, the Board of Directors adopted the 1994 Corrpro Outside
Directors' Stock Option Plan. This plan provides for the granting of options to
purchase up to 30 Common Shares to those directors who are not employees or
consultants of the Company.
During 1996 and 1995, options to purchase 2 Common Shares were awarded to
each of three of the Company's outside directors. The options become
fifty-percent exercisable on each of the first and second anniversary of the
date of grant. During 1995, 2 options granted to one director in 1994 were
terminated.
1993 Incentive Stock Option Program
In April 1992, the Company established an Incentive Stock Option Program
and reserved 300 Common Shares for the granting of options to officers and other
key employees. The program provided for the granting of incentive stock options
during fiscal 1993 at an option price of not less than the fair market value at
the date of grant. On May 11, 1992, the Company granted options under this
program to certain employees for the purchase of 203 Common Shares. The options
are exercisable at $2.33 per share and expire in May 1997. These options became
exercisable upon the completion of the Company's initial public offering.
Other 1993 stock option awards and arrangements
On September 28, 1992, the Company awarded to a key executive, options at
$2.33 per share for the purchase of 30 Common Shares which became exercisable
upon the achievement of certain performance goals for the Company's fiscal year
ending March 31, 1993. The options were terminated in fiscal 1996.
On June 15, 1992, the Company awarded options to certain members of the
Board of Directors at an exercise price of $2.33 per share for the purchase of 6
Common Shares. The options became exercisable upon the completion of the
Company's initial public offering and will expire in June 1997.
On November 15, 1992, the Company awarded options at an exercise price of
$2.33 per share to certain members of senior management and to two members of
the Board of Directors for the purchase of 132
31
33
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Common Shares. The options became exercisable upon the completion of the
Company's initial public offering and will expire in September 1998.
Under the terms of an employment agreement entered into during September
1992, the Company granted an employee the option to purchase 60 Common Shares at
$2.33 per share. The options are exercisable in annual installments of 12 shares
each, beginning on December 31, 1992 and ending on December 31, 1996, and
terminate five years subsequent to the date upon which they become exercisable.
No such options were exercised during fiscal 1996, 1995 or 1994.
In December 1992, the Company reserved 60 Common Shares for the awarding of
options during the negotiation of future employment arrangements. Such options
are intended to be exercised only upon the achievement of specified performance
goals. On March 1, 1993, the Company awarded options under this program to two
employees for the purchase of an aggregate 26 Common Shares at a price of $2.33
per share. These options, which expire five years from the date of grant, became
exercisable in thirds beginning on March 1, 1994.
The following table summarizes the changes in the number of Common Shares
under option for the various option arrangements:
OPTION PRICE RANGE
------------------
Shares subject to option at March 31, 1993................... 507 $2.33 to $6.10
Options granted............................................ 16 $14.44 to $21.66
Options exercised.......................................... -- --
Options terminated......................................... -- --
----
Shares subject to option at March 31, 1994................... 523 $2.33 to $21.66
----
Options granted............................................ 194 $14.64 to $21.13
Options exercised.......................................... (30) $2.33
Options terminated......................................... (6) $14.63 to $17.88
----
Shares subject to option at March 31, 1995................... 681 $2.33 to $21.66
----
Options granted............................................ 274 $5.98 to $8.59
Options exercised.......................................... (89) $2.33
Options terminated......................................... (247) $2.33 to $18.70
----
Shares subject to option at March 31, 1996................... 619 $2.33 to $21.66
====
Exercisable options at March 31, 1996........................ 411 $2.33 to $21.66
====
The Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation," in fiscal year 1997. This statement encourages, but does not
require, the recording of compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation under the provisions of Account Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, the adoption of SFAS No. 123 will not affect the
Company's results of operations or financial position.
10. BUSINESS SEGMENTS:
The Company operates in a single industry segment domestically and through
subsidiaries headquartered in Canada, United Kingdom, Saudi Arabia and
Singapore, with various other locations in Europe, the Middle East and Asia.
Inventory transfers between geographic locations are recorded at cost plus a
mark up; intercompany revenues and profits are eliminated. Assets of geographic
areas are identified with the operations of each area. Assets used for general
corporate purposes are not considered significant and have therefore been
reflected in the United States segment information.
32
34
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company's operations by geographic area are presented below:
1996 1995 1994
-------- -------- --------
Net revenues, including intercompany:
United States............................................. $ 87,932 $ 75,180 $ 53,603
Canada.................................................... 17,981 19,153 11,002
United Kingdom and Europe................................. 19,376 11,408 1,931
Middle East and Asia...................................... 24,236 26,108 7,242
Intercompany.............................................. (9,004) (5,840) (4,242)
-------- -------- --------
$140,521 $126,009 $ 69,536
======== ======== ========
Income before taxes:
United States............................................. $ (6,174) $ 2,561 $ 3,880
Canada.................................................... 1,810 2,728 990
United Kingdom and Europe................................. (78) 209 29
Middle East and Asia...................................... 54 895 939
Adjustments/eliminations.................................. -- -- 37
-------- -------- --------
Operating income (loss)................................ (4,388) 6,393 5,875
Interest expense.......................................... (2,633) (1,112) (887)
-------- -------- --------
Income (loss) before taxes............................. $ (7,021) $ 5,281 $ 4,988
======== ======== ========
Identifiable assets:
United States............................................. $ 60,305 $ 55,528 $ 26,054
Canada.................................................... 17,726 27,591 18,244
United Kingdom and Europe................................. 19,650 20,487 22,519
Middle East and Asia...................................... 10,172 7,898 6,982
Adjustments/eliminations.................................. 345 (1,182) (5,941)
-------- -------- --------
$108,198 $110,322 $ 67,858
======== ======== ========
11. COMMITMENTS AND CONTINGENCIES:
Legal matters
In June 1995, the Company announced that earnings per share for fiscal 1995
were expected to be substantially below analysts' expectations, and in August
the Company restated its previously reported unaudited results for the second
and third quarters of fiscal 1995. Class action litigation and shareholder
derivative litigation were commenced seeking substantial damages from the
Company and/or certain of its current and former directors and officers. During
September 1995, the class action litigation was consolidated and an amended and
consolidated class action complaint was filed on behalf of a purported class
consisting of inventors who purchased the Company's Common Shares between June
1, 1994 and June 19, 1995. The Company and its current or former directors
and/or officers remain the named defendants. The amended complaint alleges
claims under various sections of the Securities Exchange Act of 1934 and Rule
10b-5, and common law fraud and negligent misrepresentation. It asserts, among
other things, that defendants made false and misleading statements during the
class period in the Company's quarterly and annual reports filed with the
Securities and Exchange Commission ("SEC"), press releases and periodic reports
to shareholders which are claimed to have materially overstated the Company's
assets, net income and projected net income. The amended complaint seeks, on
behalf of the purported class, compensatory damages of tens of millions of
dollars, as well as punitive damages, prejudgment interest and costs. Motions to
dismiss the consolidated class action lawsuit and the shareholder derivative
action were filed in November 1995 and October 1995, respectively. On December
28, 1995, the motion to dismiss the shareholder derivative action was granted
33
35
CORRPRO COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
without prejudice. An appeal is pending. The motions to dismiss the consolidated
class action complaint are still pending. The Company intends to continue to
defend itself vigorously in the class action litigation; however, the ultimate
outcome of the litigation cannot be determined at present. As such, other than
an accrual for the cost of defense, no provision for liability, if any, that may
result has been made in the accompanying consolidated financial statements. In
addition, the Company is cooperating in an investigation being conducted by the
SEC. Management is unable to assess at this time whether the ultimate outcome of
this litigation and investigation will have a material adverse effect on the
Company's financial condition, results of operations and cash flows; however, it
is possible that events could occur in the coming year that could affect the
Company's ability to estimate the impact of the above matters.
In May 1995, a contingent settlement was reached relating to a lawsuit
filed in July 1992 by the City and County of San Francisco against a
wholly-owned subsidiary of the Company and other codefendants. The settlement
was contingent upon being awarded "good faith" settlement status by the court
which occurred on December 20, 1995. The settlement amount of $850 has been paid
by the Company's insurers, without contribution by the Company.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to any such actions, except as otherwise
discussed above, will not materially affect future operations, the financial
position or cash flows of the Company.
34
36
PART III
Part III, except for certain information relating to Executive Officers
included in Part I, Item 4A, is omitted inasmuch as the Company intends to file
with the Securities and Exchange Commission with 120 days of the close of its
fiscal year ended March 31, 1996 a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934.
PART IV
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, 1996 and 1995
Consolidated Statements of Income for the years ended March 31,
1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended March 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(A) (2) FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules have been omitted as they are not
required or not applicable, or as the information is furnished
elsewhere in the consolidated financial statements or the notes
thereto.
(A) (3) INDEX TO EXHIBITS:
EXHIBIT
NO. EXHIBIT
- ----------- ----------------------------------------------------------------------
2.1 Stock Purchase Agreement dated May 3, 1993 by and among the Company
and R. David Webster, H. Joyce Webster, Richard B. Jones, Maureen
Jones, Donald G. Marr, Linda Marr, Barry W. Schadeck, Bonnie E.
Schadeck, Grant G. Firth, Maureen Firth, Ronald E. Ginther, Phyllis
Ginther, Ronald W. Bladon, Diane Wilkinson, Bruce J. Wiskel, Darlene
Wiskel, Lloyd Wiebe, Lynne Wiebe, Donald S. Demich, Ronald V. Maurier,
Aime Archer, James Hunter, Ronald Sherstan, Darlene Butlin, Art Gaber,
Don U. Young, Leonard Pederson, Barry Bilawey and Lindsay Blair
Stuparek, individually.(1)
2.2 Offer to Purchase all Outstanding Shares of Common Stock of Harco
Technologies Corporation dated April 29, 1989 by CORACQ, Inc., a
wholly owned subsidiary of the Company.(1)
2.3 Stock Purchase Agreement dated November 20, 1987 by and between the
Company and TWC Holdings, Inc.(1)
2.4 Asset Purchase Agreement dated February 18, 1987 by and among William
J. Ellis and Corrosion Engineering & Research Co. aka CERCO and the
Company.(1)
2.5 Asset Purchase Agreement dated January 2, 1994 by among Valmont
Industries, Inc., Good-All Electric, Inc., a Nebraska corporation, the
Company and Good-All Electric, Inc., an Ohio corporation.(4)
35
37
EXHIBIT
NO. EXHIBIT
- ----------- ----------------------------------------------------------------------
2.6 Stock Purchase Agreement dated March 1, 1994 by and among the Company,
UCC, United Corrosion Consultants Ltd., and Tom Burke, Valerie Burke,
Pierre Crevolin, Sylvia Crevolin, John Chase, Jim Schell, Cliff
Willment, Ken Roth, Duane Luterbach, George Gebkenjans, Dwane Taylor,
Denis Trudeau, Kevin Vandewoestyne, Craig Prusakowski, Parker
Fjeldberg, Mark Tarnes, Don Martineau, Ole Peteherych, Doug Hill and
Jerry Beahm, individually.(4)
2.7 Share Sale Agreement dated March 15, 1994 by and among Christopher L.
Westcott, William N. Darley, Pang Kok Wah, Man Siu Ping, Stanley J.
Downes, Michael B. Thurman, Winston Shepherd, Gillian M. Shepherd,
Christopher J. G. Shepherd, Northern Investors Company PLC, Northern
Venture Partnership Fund and the Company.(4)
2.8 Share Purchase Agreement dated August 24, 1994 by and among MascoTech,
Inc., Rohrback Cosasco Systems, Inc. and the Company.(5)
2.9 Asset Purchase Agreement dated October 30, 1994 by and among Thermal
Reduction Company, W.B. Coleman Testing Laboratories Corporation,
Nicholas S. Schorsch, the Company and Corrtherm, Inc.(6)
2.10 Asset Purchase Agreement dated November 23, 1994 by and among American
Corrosion Services, Inc., American Oilfield Divers, Inc., Corrtherm,
Inc. and the Company.(8)
3.1 Amended and Restated Articles of Incorporation of the Company.(2)
3.2 Amended and Restated Code of Regulations of the Company.(3)
4.1 Specimen certificate for the Common Shares.(1)
4.2-4.4 Not used.
4.5 Amended and Restated Purchase Agreement by and between MLBC, Inc. and
the Company.(4)
4.6-4.9 Not used.
4.10 Credit Agreement dated as of March 29, 1996 by and among Corrpro
Companies, Inc., the Lenders Party Thereto and Bank One, Columbus, NA.
Other long term debt agreements of the Company 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.
10.1 Form of Indemnification Agreement for Officers and Directors of the
Company.(1)
10.2 Not used.
10.3 Consulting Agreement dated May 3, 1993 by and between Commonwealth
Seager Holdings Ltd. and Corrtech Consulting Group.(1)
10.4 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and Michael K. Baach.(1)
10.5 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and George A. Gehring, Jr.(1)
10.6 Not used.
10.7 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and David H. Kroon.(1).
10.8 Employment Agreement dated June 11, 1993, and effective April 1, 1993
by and between the Company and Joseph W. Rog.(1)
36
38
EXHIBIT
NO. EXHIBIT
- ----------- ----------------------------------------------------------------------
10.9-10.12 Not used.
10.13 Stock Option Agreement dated as of June 15, 1992 by and between the
Company and C. Richard Lynham, as amended.(1)
10.14 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and C. Richard Lynham.(1)
10.15-10.17 Not used.
10.18 Not used.
10.19 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and Michael K. Baach.(1)
10.20 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and George A. Gehring, Jr.(1)
10.21 Not used.
10.22 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and David H. Kroon.(1)
10.23 Stock Option Agreement dated as of November 15, 1992 by and between
the Company and Joseph W. Rog.(1)
10.24 Not used.
10.25 Company Incentive Option Plan as amended.(1)
10.26 Not used.
10.27 1994 Corrpro Stock Option Plan.(1)
10.28 1994 Corrpro Outside Directors' Stock Option Plan.(1)
10.29 Not used.
10.30 Employment Agreement effective January 15, 1994 by and between the
Company and Michael R. Tighe.(4)
10.31 Employment Agreement dated as of August 24, 1994 by and between the
Company and David M. Hickey.(8)
11.1 Statement re Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Experts.
27.1 Financial Data Schedule.
99.1 Director and Officer Liability Insurance Policy.(7) --
- ---------------
(1) A copy of this exhibit filed as the same exhibit number of the Company's
Registration Statement on Form S-1 (Registration No. 33-64482) is
incorporated herein by reference.
(2) A copy of this exhibit filed as Exhibit 4.1 of the Company's Registration
Statement on Form S-8 (Registration No. 33-74814) is incorporated herein by
reference.
(3) A copy of this exhibit filed as Exhibit 4.2 of the Company's Registration
Statement on Form S-8 (Registration No. 33-74814) is incorporated herein by
reference.
(4) A copy of this exhibit filed as the same exhibit number of the Company's
Registration Statement on Form S-1 (Registration No. 33-76730) is
incorporated herein by reference.
(5) A copy of this exhibit filed as the exhibit to the Company's report on Form
8-K which report is dated August 24, 1994.
37
39
(6) A copy of this exhibit filed as the exhibit to the Company's report on Form
8-K which report is dated October 30, 1994.
(7) A copy of this exhibit filed as Exhibit 99.2 of the Company's Registration
Statement on Form S-1 (Registration No. 33-64482) is incorporated herein by
reference.
(8) A copy of this exhibit filed as the exhibit to the Company's report on Form
10-K for the year ended March 31, 1995.
- ---------------
(B) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed during the three months ended
March 31, 1996.
(C) EXHIBITS
See "Index to Exhibits" at Item 14(a) above.
38
40
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF 15(D) OF THE SECURITIES AN
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.
June 14, 1996 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.
June 14, 1996 /s/ Joseph W. Rog
-------------------------------------------
Joseph W. Rog
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
June 14, 1996 /s/ Neal R. Restivo
-------------------------------------------
Neal R. Restivo
Senior Vice President,
Chief Financial Officer, Secretary
and Treasurer
June 14, 1996 /s/ David H. Kroon
-------------------------------------------
David H. Kroon, Director
June 14, 1996 /s/ Barry W. Schadeck
-------------------------------------------
Barry W. Schadeck, Director
June 14, 1996 /s/ Robert E. Hodge
-------------------------------------------
Robert E. Hodge, Director
June 14, 1996 /s/ C. Richard Lynham
-------------------------------------------
C. Richard Lynham, Director
-------------------------------------------
Joseph C. Overbeck, Director
39