SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1995
COMMISSION FILE NO. 1-3920
KINARK CORPORATION
(Exact name of the registrant as specified in its charter)
DELAWARE 71-0268502
(State of Incorporation) (I.R.S. Employer Identification No.)
7060 SOUTH YALE
TULSA, OKLAHOMA 74136
(Address of principal executive offices)
Registrant's telephone number: (918) 494-0964
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 and 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of June 30, 1995.
Common Stock $ .10 Par Value . . . . . 3,747,498
KINARK CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets as
of June 30, 1995 (unaudited), and
December 31, 1994 3
Condensed Consolidated Statements of
Operations for the three and six months
ended June 30, 1995 and 1994 (unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1995 and 1994 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements for the three and six months
ended June 30, 1995 and 1994 (unaudited) 6-7
Item 2. Managements' Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
PART II. OTHER INFORMATION 12-13
SIGNATURES 14
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Kinark Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Kinark Corporation and subsidiaries as of June 30, 1995 and the related
condensed consolidated statements of operations for the three and six-month
periods ended June 30, 1995 and 1994 and the condensed consolidated cash flow
statements for the six months ending June 30, 1995 and 1994. These financial
statements are the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Kinark Corporation and
subsidiaries as of December 31, 1994, and the related consolidated statements
of operations, shareholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated January 30, 1995 (except as to
the second paragraph of the Long-Term Debt Footnote, for which the date is
March 2, 1995), we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1994 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Deloitte & Touche
July 27, 1995
Tulsa, Oklahoma
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30 DEC 31
(Dollars in Thousands) 1995 1994
ASSETS Unaudited
CURRENT ASSETS
Cash $ 37 $ 32
Accounts receivable, less allowances 5,016 3,847
Inventories 3,030 3,301
Prepaid expenses 478 482
TOTAL CURRENT ASSETS 8,561 7,662
DEFERRED INCOME TAXES 1,803 1,356
OTHER ASSETS 769 740
PROPERTY, PLANT AND EQUIPMENT, AT COST 36,387 36,167
Less: Allowance for depreciation 25,622 24,971
TOTAL PROPERTY, PLANT & EQUIPMENT, NET 10,765 11,196
TOTAL ASSETS $21,898 $20,954
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,536 $ 1,722
Other accrued liabilities 2,807 2,415
Current portion of long-term obligations 801 764
TOTAL CURRENT LIABILITIES 5,144 4,901
LONG-TERM OBLIGATIONS 7,454 6,009
SHAREHOLDERS' EQUITY
Common stock 520 520
Additional paid-in capital 10,531 10,535
Retained earnings 4,226 4,969
Less: Treasury stock at cost (5,977) (5,980)
TOTAL SHAREHOLDERS' EQUITY 9,300 10,044
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $21,898 $20,954
See notes to condensed consolidated financial statements.
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in Thousands Except 1995 1994 1995 1994
per Share Amounts)
SALES $9,275 $8,786 $17,029 $17,820
COSTS AND EXPENSES
Cost of sales 6,811 5,890 12,716 11,883
Selling, general & administrative 2,206 1,885 4,183 3,603
Depreciation 482 436 946 876
TOTAL COSTS AND EXPENSES 9,499 8,211 17,845 16,362
OPERATING EARNINGS (224) 575 (816) 1,458
OTHER EXPENSE
Interest expense 188 130 355 282
EARNINGS (LOSS) BEFORE INCOME TAXES (412) 445 (1,171) 1,176
INCOME TAX (EXPENSE) BENEFIT 150 (162) (427) (429)
NET EARNINGS (LOSS) $ (262) $ 283 $ (744) $ 747
NET EARNINGS (LOSS) PER COMMON SHARE $(0.07) $ 0.08 $ (0.20) $ 0.20
See notes to condensed consolidated financial statements.
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six Months Ended
June 30
(Dollars in Thousands) 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ (744) $ 747
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation 946 876
Change in assets and liabilities:
Accounts receivable (1,169) (752)
Deferred tax asset (447) 417
Inventories and other 245 (495)
Accounts payable and other accrued liabilities 206 905
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (963) 1,698
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (514) (813)
Discontinued operations 0 (40)
NET CASH USED FOR INVESTING ACTIVITIES (514) (853)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term obligations 7,885 5,670
Payments on long-term obligations (6,403) (6,630)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 1,482 (960)
INCREASE (DECREASE) IN CASH 5 (115)
CASH AT BEGINNING OF PERIOD 32 186
CASH AT END OF PERIOD $ 37 $ 71
See notes to condensed consolidated financial statements.
KINARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
UNAUDITED
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements included in this
report have been prepared by Kinark Corporation (the Company)
pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all normal and recurring
adjustments which are, in the opinion of management, necessary for a
fair presentation. These financial statements have not been audited
by an independent accountant. The condensed consolidated financial
statements include the accounts of the Company and its subsidiaries.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes
that the disclosures are adequate to make the information presented
not misleading. However, these financial statements should be read
in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994. The financial data for the interim periods
presented may not necessarily reflect the results to be anticipated
for the complete year.
NOTE 2. EARNINGS PER COMMON SHARE
Net earnings (loss) per common share for the periods presented has
been computed based upon the weighted average number of shares
outstanding of 3,747,115 and 3,755,179 for the three months ended
June 30, 1995 and 1994 respectively, and 3,746,765 and 3,753,833 for
the six months ended June 30, 1995 and 1994 respectively, including
the effect of stock options, when applicable, using the treasury
method.
NOTE 3. INVENTORIES
Inventories consist primarily of zinc, the principal raw material
used in galvanizing. Inventories consist of $2,743,000 raw
materials, $287,000 finished goods and $2,820,000 raw materials,
$481,000 finished goods at June 30, 1995 and December 31, 1994
respectively.
NOTE 4. PLANNED ACQUISITION
The Company has previously announced an agreement providing for the
acquisition of Rogers Galvanizing Company in Tulsa. On August 3, the
Company announced financing plans to complete the purchase of Rogers
and provide for other general corporate purposes. These plans
include subordinated debt provided by the Company's chairman, other
bank financing to be arranged and a Rights Offering of Common Stock
to the Company's stockholders which would raise up to $10 million.
The Company expects these financial arrangements to be completed
before the end of 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
SECOND QUARTER ANALYSIS
REVENUES
Quarter Ended 1995 1994
June 30 % of % of
$(000) Sales $(000) Sales
Boyles Galvanizing $4,536 48.9% $3,713 42.2%
Lake River Corporation 2,160 23.3% 2,905 33.1%
Kinpak, Inc. 2,579 27.8% 2,168 24.7%
Total $9,275 100.0% $8,786 100.0%
Consolidated sales for the second quarter of 1995 increased $489,000, or
5.6%, in comparison to the second quarter of 1994. Sales increased at the
Company's Boyles and Kinpak subsidiaries, but declined at Lake River. The
largest sales growth occurred at Boyles where sales were up $823,000, or 22.2%,
on improved volume. Galvanizing throughput totaled 18,988 tons, up 25.6% from
the prior year's second quarter. The volume increase at Boyles during the
second quarter was partially offset by a 2.7% reduction in average selling
price. Though unchanged from the first quarter of 1995, pricing was down
compared to the second quarter of 1994 as the Company continued to experience
declining prices in several markets. Boyles has succeeded in gaining market
share with its aggressive pricing approach and should continue to operate at an
increased volume in comparison to 1994 for the remainder of the year.
Increased sales at Kinpak during the second quarter also contributed to
the Company's sales growth. Sales at this subsidiary were up $411,000, or
19.0%, on improved revenues in each product line. Antifreeze sales increased
27% due primarily to price increases reflecting higher packaging costs.
Windshield washer fluid sales rose 30% also reflecting a higher selling price
in comparison to 1994. Household cleaning product sales were up 12% on
stronger volume for the quarter. The Company outsourced the demonstration
sales function during the second quarter and realized a slight increase in
volume as a result of this transition. At the conclusion of the quarter,
Kinpak's primary customer in this product line made the decision to discontinue
the use of vendor supported demonstrations. Kinpak will utilize the customer's
demonstration staff on a limited basis in an effort to maintain sales volume,
however the Company anticipates a significant reduction in household cleaning
product sales volume during the remainder of the year.
Second quarter sales at Lake River declined $745,000, or 25.6%, from 1994
due to the previously announced loss of this subsidiary's largest customer
during the fourth quarter of 1994. Though down in comparison to the prior
year, sales at Lake River were up 8.5% from the first quarter of 1995 with
revenues up in each of Lake River's areas of operation. The Company expects
this trend to continue with sales down in comparison to the prior year over the
balance of the year.
Six Months Ended 1995 1994
June 30 % of % of
$(000) Sales $(000) Sales
Boyles Galvanizing $8,619 50.6% $7,682 43.1%
Lake River Corporation 4,151 24.4% 5,655 31.7%
Kinpak, Inc. 4,259 25.0% 4,483 25.2%
Total $17,029 100.0% $17,820 100.0%
Through the first half of the year, sales on a consolidated basis declined
$791,000, or 4.4%, from 1994 on sales declines at Lake River and Kinpak which
were partially offset by improved sales at Boyles. Sales were down at Lake
River due to the customer loss discussed above. Kinpak sales declined slightly
on lower windshield washer fluid volume in the first quarter attributable to
reduced distribution of this product. Boyles sales were up $937,000, or 12.2%,
on much stronger volume during the first half of the year.
COSTS AND EXPENSES
Quarter Ended 1995 1994
June 30 % of % of
$(000) Sales $(000) Sales
Cost of sales $6,811 73.4% $5,890 67.0%
Selling, general &
administrative 2,206 23.8% 1,885 21.5%
Depreciation 482 5.2% 436 5.0%
Total $9,499 102.4% $8,211 93.5%
As a percentage of sales, cost of sales increased 6.4% during the second
quarter of 1995 in comparison to 1994. This increase was primarily
attributable to Lake River where reduced sales coupled with significant fixed
costs associated with this subsidiary's terminal operations resulted in a 19%
erosion in gross profit. Boyles' cost of sales percentage increased 6% due to
the reduced average selling price and increased material cost. At Kinpak, cost
of sales as a percentage of sales declined 6% because of higher antifreeze and
windshield washer fluid pricing and increased household cleaning product sales
which have a relatively high gross profit margin. No significant change in
cost of sales percentage is anticipated during the third quarter at Boyles or
Lake River. However, should household cleaning product sales decline as
previously discussed, Kinpak's cost of sales percentage could increase in
future months.
Selling, general and administrative ("S, G & A") expenses for the second
quarter of 1995 increased $321,000 from the prior year's second quarter.
Kinpak's S, G & A expenses increased $239,000 due to increased demonstration
sales force staffing over the first two months of the quarter and the
demonstration outsourcing implementation during the final month of the quarter.
In addition, S, G & A expenses increased at Kinark's corporate office due to
legal and professional fees associated with the evaluation of certain
transactions which were not consummated. These increases in S, G & A expense
were partially offset by decreases at Lake River and Boyles. Lake River S, G &
A fell 14% as various administrative expenses were eliminated in connection
with the customer loss. During the second quarter, certain Boyles
administrative offices were consolidated to reduce staffing and lower
administrative cost. S, G & A expenses are expected to decline in future
months due to the reorganization at Boyles and the reduction in Kinpak sales
demonstration staffing.
Six Months Ended 1995 1994
June 30 % of % of
$(000) Sales $(000) Sales
Cost of sales $12,716 74.7% $11,883 66.7%
Selling, general &
administrative 4,183 24.6% 3,603 20.2%
Depreciation 946 5.5% 876 4.9%
Total $17,845 104.8% $16,362 91.8%
During the first half of 1995, the Company's cost of sales percentage
increased 8.0% compared to 1994. Lake River experienced the greatest increase
in percentage due to the decline in sales previously discussed. Boyles also
experienced increased cost of sales as a percentage of sales due to higher
material cost. Cost of sales at Kinpak on a percentage basis were essentially
unchanged from 1994 for the six month period.
S, G & A expenses increased $580,000 over the first six months of 1995 in
comparison to 1994. Increases occurred at Kinpak due to increased
demonstration sales force staffing and at the Kinark corporate office as
discussed above. These increases were partially offset by reduced S, G & A
expenses at Lake River and Boyles.
OTHER EXPENSE
Interest expense for the second quarter of 1995 was up $58,000 compared to
1994 due to the Company's increased bank debt and higher interest rate. For
the six month period, interest was up $73,000 in the current year in comparison
to 1994. Interest expense should continue to exceed 1994 levels because the
Company's negative operating cash flow has resulted in increased borrowing to
support capital needs.
INCOME TAXES
The Company recorded a net income tax benefit of $150,000 for the second
quarter of 1995 as compared to tax expense of $162,000 in 1994. This income
tax benefit resulted from the Company's pretax loss and reflects management's
view that it is more likely than not the full value of these tax benefits will
ultimately be realized based upon the Company's projected future earnings. Tax
expense includes federal income tax recorded at current rates and state income
tax provisions for various Company operations.
EARNINGS
The Company's increased cost of sales and S, G & A expenses more than
offset the increase in sales during the second quarter of 1995 resulting in a
net loss of $(262,000) or $(.07) per share, down from earnings of $283,000,
$.08 per share, in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's loss during the first half of 1995 resulted in a $963,000
net use of cash for operating activities. During the comparable period in
1994, net cash provided by operating activities totaled $1,698,000.
Cash used for investing activities declined to $514,000 through the second
quarter of 1995, a reduction of $339,000 from 1994. The major factor in this
reduction was lower capital expenditures. The Company continued to control
capital expenditures at reduced levels due to the reduced cash from operating
activities.
The Company utilized its credit facilities to fund the cash used by
operating and investing activities during the first six months of 1995,
resulting in cash provided by financing activities of $1,482,000. Outstanding
borrowings on the Company's $4,250,000 revolving line of credit totaled
$3,346,000 at June 30,1995. The Company has maintained adequate liquidity
despite the losses incurred during the first half of 1995 and expects some
improvement in liquidity through the second half of the year as certain
operations experience seasonal improvements in performance.
On August 3, the Company announced financing plans to complete the
purchase of Rogers Galvanizing Company and provide for other general corporate
purposes. These plans include subordinated debt provided by the Company's
chairman, other bank financing to be arranged and a Rights Offering of Common
Stock to the Company's stockholders which would raise up to $10 million. The
acquisition of Rogers is expected to be completed during the fourth quarter.
This acquisition is expected to essentially double the revenues of the
Company's galvanizing business. Consolidating these two operations should
improve Kinark's galvanizing profitability.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1995 Annual Meeting of the Company's stockholders was held on
Wednesday, May 17, 1995. The stockholders elected six directors at
the meeting: Richard E. Baierlein, Richard C. Butler, Paul R.
Chastain, Michael T. Crimmins, Harry D. Jones and Mark E. Walker.
The votes for the election of directors were as follows:
Richard E. Baierlein 3,279,047 For
79,198 Against
Richard C. Butler 3,278,600 For
79,645 Against
Paul R. Chastain 3,279,175 For
79,070 Against
Michael T. Crimmins 3,278,950 For
79,295 Against
Harry D. Jones 3,280,050 For
78,195 Against
Mark E. Walker 3,272,830 For
85,415 Against
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 - Amended and Restated Bylaws of Kinark Corporation.
b) Reports on Form 8-K
On June 19, 1995 the Registrant filed a Form 8-K current
report concerning the March 31, 1995 amendment to Article
II, Section 1 of the Company's bylaws reducing the number
of directors from seven (7) to six (6).
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
KINARK CORPORATION
Registrant
/S/J. Bruce Lancaster
J. Bruce Lancaster
Vice President - Finance
(Principal Financial Officer)
Date: August 14, 1995
Exhibit Index
Page
3.1 Amended and Restated Bylaws of Kinark Corporation 15