SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED ]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-3920
KINARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
71-0268502
(I.R.S. Employer Identification No.)
7060 SOUTH YALE, TULSA, OKLAHOMA 74136
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code
(918) 494-0964
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, $.10 PAR VALUE AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 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 non-affiliates on March
15, 1996 was approximately $13.6 million. As of March 15, 1996, there were
6,026,536 shares of Kinark Corporation Common Stock $.10 par value outstanding.
Documents Incorporated by Reference
Portions of the registrant's definitive proxy statement to be filed not
later than 120 days after the end of the fiscal year covered by this report are
incorporated by reference in Part III.
Item 7 is hereby amended to read in its entirety as follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Indexes to Management's Discussion and Analysis of Financial Condition,
Results of Operations, Financial Statements and Supplementary Data are
presented on page 5 of this Amendment to Annual Report on Form 10-K/A.
Item 14 is hereby amended in its entirety to read as follows:
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS PAGE
Independent Auditors' Report FS-8
Consolidated Balance Sheets at December 31, 1995 and 1994 FS-9
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 FS-10
Consolidated Statements of Shareholders' Equity for the
years ended
December 31, 1995, 1994 and 1993 FS-11
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 FS-12
Notes to Consolidated Financial Statements FS-13
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts 3
All schedules omitted are inapplicable or the information required is
included in either the consolidated financial statements or the related
notes to the consolidated financial statements.
(3) EXHIBITS:
The Exhibits filed with or incorporated into this report are listed in the
following Index to Exhibits.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of Kinark Corporation, as
amended by Certificate of Amendment of Restated Certificate of
Incorporation dated May 19, 1987 and Certificate of Amendment of
Restated Certificate of Incorporation dated July 30, 1993. This
information is incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993.
3.2 Amended and Restated Bylaws of Kinark Corporation. This
information is incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995.
10.1 Employment Continuity Letter Agreement dated May 14, 1982, by
and between Kinark Corporation and Paul R. Chastain. This
information is incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993.
10.2 Revolving Credit and Term Loan Agreement dated as of March 24,
1992, as amended on October 16, 1992; March 31, 1993; March 31,
1994; March 31, 1995; and April 1, 1996 by and between Bank of
Oklahoma, N.A. and Kinark Corporation and subsidiaries. This
information is incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993.
10.3 Consulting Agreement dated July 1, 1993, by and between Kinark
Corporation and Harry D. Jones. This agreement is incorporated
by reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
21. Subsidiaries of the Registrant.
23. Independent Auditors' Consent (as corrected).
24.01 Power of attorney from Richard C. Butler.
24.02 Power of attorney from Michael T. Crimmins.
24.03 Power of attorney from Ronald J. Evans.
24.04 Power of attorney from Harry D. Jones.
24.05 Power of attorney from Mark E. Walker.
27. Amended Financial Data Schedule
(B) REPORTS ON FORM 8-K:
The Company filed a Current Report on Form 8-K dated October 13, 1995 in
connection with its announcement that it had caused an outside stockholder
of the Company to disgorge short-swing trading profits for violating
Section 16(b) of the Securities Exchange Act of 1934.
KINARK CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Additions Balance
Balance at Charged to at
Beginning Costs and End of
Description of Period Expenses Deductions Period
Allowance for bad debts -
Accounts Receivable
1995 $77,000 $140,000 $55,000 (a) $162,000
1994 $95,000 $46,000 $64,000 (a) $77,000
1993 $35,000 $153,000 $93,000 (a) $95,000
(a) Accounts written off, less recoveries
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this amendment to report
to be signed on its behalf by the undersigned, as duly authorized.
KINARK CORPORATION
(Registrant)
Date: July 30, 1996 By: /s/ Paul R. Chastain
Paul R. Chastain
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to report has been signed below on July 30, 1996, by the following
persons on behalf of the Registrant and in the capacities indicated.
/s/ Michael T. Crimmins* /s/ Ronald J. Evans*
Michael T. Crimmins, Chairman Ronald J. Evans, President and Director
of the Board and Chief Executive
Officer
(Principal Executive Officer)
/s/ Paul R. Chastain /s/ Richard C. Butler*
Paul R. Chastain, Vice President, Richard C. Butler, Director
Chief Financial Officer and
Director
(Principal Financial and Accounting
Officer)
/s/ Harry D. Jones* /s/ Mark E. Walker*
Harry D. Jones, Director Mark E. Walker, Director
*Paul R. Chastain, by signing his name hereto, does hereby sign this Annual
Report on Form 10-K on behalf of each of the directors and officers of the
Registrant after whose typed names asterisks appear pursuant to powers of
attorney duly executed by such directors and officers and filed with the
Securities and Exchange Commission as exhibits to this report.
By: /s/ Paul R. Chastain
Paul R. Chastain
Attorney-in-fact
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS,
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page(s)
Management's Discussion and Analysis. . . . . . . . . . . . . . .FS-1 to FS-7
Independent Auditor's Report. . . . . . . . . . . . . . . . . . .FS-8
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . .FS-9
Consolidated Statements of Operations . . . . . . . . . . . . . .FS-10
Consolidated Statements of Shareholder's Equity . . . . . . . . .FS-11
Consolidated Statements of Cash Flows . . . . . . . . . . . . . .FS-12
Notes to Consolidated Financial Statements. . . . . . . . . . . .FS-13 to FS-18
Segments of Business. . . . . . . . . . . . . . . . . . . . . . .FS-19
Quarterly Results . . . . . . . . . . . . . . . . . . . . . . . .FS-20
Five-Year Financial Summary . . . . . . . . . . . . . . . . . . .FS-21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS OR INFORMATION
Certain statements contained in this Management Discussion and Analysis
are not based on historical facts, but are forward-looking statements that are
based upon numerous assumptions about future conditions that may ultimately
prove to be inaccurate. Actual events and results may materially differ from
anticipated results described in such statements. The Company's ability to
achieve such results is subject to certain risks and uncertainties. Such risks
and uncertainties include, but are not limited to, product prices, continued
availability of capital and financing, and other factors affecting the
Company's business that may be beyond its control.
RESULTS OF OPERATIONS
The consolidated statements of operations provide an overview of Kinark's
operating results for 1993 through 1995. This section of Management's
Discussion and Analysis summarizes the major factors which influenced operating
results during the three-year period presented. Revenues and expenses
associated with the Company's previously owned Kinpak packaging subsidiary,
which are presented as discontinued operations, are not included in the
continuing operations analyzed below (see Discontinued Operations Note to the
Consolidated Financial Statements).
REVENUES
1995 1994 1993
$(000) % $(000) % $(000) %
Boyles Galvanizing $16,984 67.3% $15,476 59.0% $14,935 58.5%
Lake River Corp. 8,262 32.7% 10,747 41.0% 10,607 41.5%
Total $25,246 100.0% $26,223 100.0% $25,542 100.0%
1995 COMPARED WITH 1994
Consolidated sales for 1995 decreased $977,000, or 3.7%, from 1994 due to
lower sales at Lake River.
Lake River's sales of $8,262,000 were down $2,485,000, or 23.1%, from 1994
due to the loss of its largest customer for bulk liquid storage. Revenues from
drumming and warehousing increased 15% over 1994, partially offsetting the
decline in storage. The drumming and warehousing operations accounted for 76%
of Lake River's total sales in 1995, and it is expected to maintain that
relative share for the foreseeable future. The Company has prepared a program
to develop new terminaling business; however, the success of this program
cannot be assured due to the available supply of storage tanks in the Chicago
area.
Boyles' sales increased $1,508,000, or 9.7%, in 1995 on record volume and
higher pricing. Boyles galvanized a total of 70,363 tons of steel in 1995,
representing a 9.5% increase in volume over the prior year. Volume increased
in five of the six regions where Boyles plants are located, with the largest
increase being recorded in the Texas market. The sales trend has been up at
Boyles for the past two years and business activity early in 1996 continues
that trend.
1994 COMPARED WITH 1993
The Company's consolidated sales increased $681,000, or 2.6%, over 1993
due to improved sales at Boyles and Lake River.
Sales at Boyles increased in 1994 by $541,000, or 3.6%, on improved
volume. During the year, Boyles galvanized 64,261 tons of steel, up 6,612 tons
from 1993, due primarily to increased volume in the two Texas plants. The
average selling price fell by 7% in 1994 compared to 1993, partially offsetting
the higher sales volume experienced in 1994. Selling price declined in 1994
following the trend from 1993 due to continuing competitive pressures in the
markets served by Boyles. Boyles continued to generate the largest portion of
the Company's sales in 1994 accounting for 59.0% of consolidated sales.
Lake River sales of $10,747,000 in 1994 were up slightly from 1993.
Revenues from the terminal operations declined during 1994 on reduced
throughput. However, revenues from warehousing and drumming operations more
than offset the reduced sales from terminal activities. In the fourth quarter
of 1994, Lake River lost its largest customer which accounted for over 30% of
Lake River's 1994 revenues. Lake River sales represented 41.0% of the
Company's consolidated sales in 1994.
EXPENSES
1995 1994 1993
% of % of % of
$(000) Sales $(000) Sales $(000) Sales
Cost of
sales $20,524 81.3% $18,999 72.5% $17,731 69.4%
Selling,
general &
administrative 3,766 14.9% 3,619 13.8% 3,802 14.9%
Depreciation 1,471 5.8% 1,469 5.6% 1,304 5.1%
Total $25,761 102.0% $24,087 91.9% $22,837 89.4%
1995 COMPARED WITH 1994
Cost of sales, as a percentage of sales, increased 8.8% in 1995 at Lake
River. There has been a continuing shift in service mix to lower margin
warehousing which accounted for 57% of Lake River's activity in 1995. Lake
River's cost of sales were 84.3% in 1995, up from 65.6% in 1994 due to a
reduction in high margin terminal throughput following the loss of its largest
customer. Cost of sales at Boyles increased to 80%, up 3% from 1994 on higher
direct material costs. In 1995, zinc usage per ton of production rose 3.7%
with most of the increase concentrated in three plants that had a strong
increase in volume. Direct labor per ton of steel galvanized decreased 1.9% in
1995, partially offsetting the higher material costs.
Selling, general and administrative expenses increased $147,000, or 4.1%,
in 1995 to $3,766,000. One-time severance costs associated with closing and
transferring the Boyles accounting office to the corporate headquarters, and
additional legal expenses accounted for this increase. Depreciation expense
was $1,471,000, essentially unchanged from 1994.
1994 COMPARED WITH 1993
Cost of sales, as a percentage of sales, increased 3.1% in 1994 due to
lower margins at Boyles and Lake River. Cost of sales at Boyles increased to
77.2%, up 3.7% from 1993, due primarily to the lower selling price for
galvanizing discussed above. In addition, two unusual equipment failures
occurred during the year which led to increased worker's compensation expense
and lost production time. The Company filed a lawsuit in 1994 to attempt to
recover damages from the equipment manufacturer. Zinc prices remained
favorable through the first three quarters of 1994 resulting in relatively
low material cost. During the fourth quarter, the price of zinc began to
increase placing additional pressure on Boyles margins in certain markets.
Lake River's cost of sales totaled 65.6 % in 1994, up 2% from 1993 because of
increased activity in lower margin warehousing operations and reduced terminal
throughput.
Total selling, general and administrative ("S, G & A") expenses decreased
$183,000 to $3,619,000 in 1994, down 4.8% from 1993 primarily due to reductions
in travel, administrative staff and related expenses at the Kinark corporate
office. S, G & A expenses at the operating subsidiaries increased less than 3%
in 1994. Depreciation expense increased to $1,469,000 in 1994, up $165,000
from 1993 due to increased capital expenditures in recent years with the bulk
of increased depreciation attributable to Boyles.
OTHER (INCOME) EXPENSE
1995 1994 1993
% of % of % of
$(000) Sales $(000) Sales $(000) Sales
Interest $634 2.5% $502 1.9% $435 1.7%
Consent
solicitation --- --- --- --- 1,076 4.2%
Other --- --- 95 0.4% (1) ---
Total $634 2.5% $597 2.3% $1,510 5.9%
1995 COMPARED WITH 1994
Interest expense increased to $634,000 in 1995, up $132,000 from 1994 due
to increased borrowings primarily used in operating the discontinued Kinpak
subsidiary.
1994 COMPARED WITH 1993
Interest expense increased to $502,000 in 1994, up $67,000 from 1993 due
to higher interest rates during the year. The prime rate at the beginning of
1994 was 6% and, after several increases during the year, ended 1994 at 8.5%.
Interest expense as a percentage of sales was 1.9% in 1994 and 1.7% in 1993.
Other expense consisted primarily of expenses associated with an early
retirement program offered to certain employees at Lake River and a provision
for environmental expenses attributable to Boyles' Philadelphia plant which was
sold approximately fifteen years ago. Environmental matters are further
discussed below.
INCOME TAXES
The Company's effective tax rates for 1995, 1994 and 1993 were 38.8%,
34.3% and 36.0%, respectively. The Company recorded an income tax benefit of
$446,000 in 1995 as a result of incurring a loss of $1,149,000 from continuing
operations. Income tax expenses for 1994 and 1993 were $527,000 and $430,000,
respectively.
EARNINGS FROM CONTINUING OPERATIONS
Due to the above factors, the Company had a loss from continuing
operations of $703,000 in 1995, down from earnings of $1,011,000 from
continuing operations in 1994. In 1995, Boyles' operating earnings increased
to $1,414,000, up from $1,305,000 in 1994. Lake River's 1995 operating
earnings were $174,000, down from $2,363,000 in 1994.
DISCONTINUED OPERATION
In August 1995, the Company adopted a plan to divest its Kinpak packaging
subsidiary and recorded a charge to discontinued operations of $1,525,000 in
the third quarter. With this charge, the Company wrote off certain inventories
and prepaid expenses of $260,000 and goodwill of $550,000; and, provided
$715,000 for estimated operating losses and losses on the disposal of fixed
assets and other expenses associated with final disposition of the Kinpak
subsidiary.
On January 5, 1996, the Company signed a letter of intent with a
subsidiary of Ocean Bio Chem, Inc., a Florida corporation for the sale of
substantially all of the assets and assumption of certain liabilities of
Kinpak. On February 8, 1996, the parties executed a definitive purchase
agreement and closed the transaction on February 27, 1996. The purchase price
was $1,840,000, which included the buyer's assumption of $990,000 of
indebtedness under First Mortgage Industrial Revenue Bonds and the balance paid
in cash at closing.
In 1995, Kinpak recorded a net loss from discontinued operations of
$1,176,000, which included operating losses of $307,000 through August 1995 and
a loss of $869,000 (including operating losses through February 27, 1996) on
disposal of the assets. Kinpak's sales were $6,083,000 in 1995. At December
31, 1995 the Company's consolidated balance sheet reflects Net Assets of
Discontinued Operations of $434,000 which will be realized upon recording the
sale of Kinpak and liquidation of retained assets and liabilities in 1996. The
Company has no further liabilities with respect to the operations of its Kinpak
subsidiary, except as guarantor of the facilities Lease Agreement with The
Industrial Development Board of The City of Montgomery ("the Lease"), dated
September 1, 1979, that has been assigned to Ocean Bio-Chem, and some possible
environmental remediation issues for which a portion of the cash proceeds has
been escrowed. Ocean Bio-Chem is required to make rent payments under the
Lease, and the full amount of such payments apply to retire the revenue bond
debt. At February 27, 1996, the balance remaining on the bonds was $990,000
which is payable in annual installments through September 1, 1999.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD
Effective January 1, 1993, the Company adopted, on a prospective basis,
Statement of Financial Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires, among other items, the separate recognition of
deferred tax assets and deferred tax liabilities, measured at current tax
rates, for the tax effect of temporary differences between the financial and
tax reporting bases of assets and liabilities, and net operating loss and tax
credit carryforwards for tax purposes. In the event it is "more likely than
not" that all or a portion of a deferred tax asset will not be realized, a
valuation allowance must be established.
In accordance with the provisions of SFAS 109, a deferred tax asset of
$1,802,000 was recorded in the first quarter of 1993 representing primarily the
estimated future tax benefits from utilization of the Company's net operating
loss and tax credit carryforwards. The operating losses related primarily to
hotel subsidiaries that were sold in 1991. Based upon its estimate of future
operating results (See Outlook For 1996), management believes that it is more
likely than not that the full value of these tax benefits will ultimately be
realized.
CASH FLOWS
OPERATING ACTIVITIES
In 1995, the Company's net cash provided by operating activities was
$89,000, compared with cash provided by operating activities of $2,702,000 in
1994. The reduction was due to the combination of lower earnings at Lake River
as a result of losing its largest customer and higher administrative expenses
at the corporate headquarters.
INVESTING ACTIVITIES
Investing activities include capital expenditures. In 1995, capital
expenditures were $1,055,000, down from $1,410,000 in 1994. Of the 1995
program, expenditures were authorized in approximately equal amounts between
the galvanizing and chemical storage operations. Significant capital
expenditures in 1995 included the following: BOYLES - galvanizing equipment
$166,000, material handling equipment $128,000, building and facilities
improvements $62,000; LAKE RIVER - tank renovation $151,000, material handling
equipment $142,000, building and facilities improvements $158,000.
FINANCING ACTIVITIES
In 1995, the Company increased its borrowing under the revolving credit
facility to partially compensate for the reduction in cash flow from
operations. Net cash required from financing activities totaled $964,000 in
1995, after meeting scheduled payments of $444,000 on the term loan and
$210,000 on industrial revenue bonds. Effective with the disposal of the
assets of Kinpak in February 1996, the revenue bond obligation of $990,000
remaining for the years 1996 through 1999 was assigned to the buyer. The
Company remains as the guarantor of the facilities lease underlying the revenue
bonds, as discussed in the Discontinued Operation sections of Management's
Discussion and the Notes To Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net loss had a negative impact on liquidity in 1995. In
order to offset the reduced cash flow from operations, borrowings were
increased $1,158,000 to $2,893,000 on the $4,250,000 revolving credit facility,
and capital expenditures were reduced. Further, the Company expects to require
additional borrowings in the first quarter of 1996 for seasonal operating
expenses. Management believes that after the first quarter of 1996, cash
generated by operating activities will provide sufficient funds for on-going
working capital and operating cash requirements.
The acquisition of 68.9% of the common stock (including 1.7% acquired on
March 29, 1996) of Rogers Galvanizing Company in the first quarter of 1996 was
funded with cash proceeds from a private placement of the Company's common
stock. The Company plans to raise additional financing to offer to purchase
the remaining Rogers shares through a rights offering to existing shareholders,
in the second quarter of 1996. The net proceeds from the offering will be used
to acquire the remaining Rogers' shares, pay related fees and expenses and for
general corporate purposes. There can be no assurance, however, that the
Company will be able to raise such additional financing or to acquire all of
the remaining Rogers' shares. Following completion of the acquisition of
Rogers, management intends to negotiate a restructuring of the Company's
current bank credit facilities.
FINANCIAL CONDITION
Shareholders equity declined to $8,165,000, or $2.18 per share, at
December 31, 1995 due to the net loss incurred in 1995. The Company's debt to
net worth ratio of 1.3 was up slightly from 1.1 a year ago and the current
ratio improved to 1.7, up from 1.6 at December 31, 1994.
ENVIRONMENTAL MATTERS
The Company's facilities are subject to extensive environmental
legislation and regulations affecting their operations and the discharge of
wastes. The cost of compliance with such regulations during 1995 approximated
$513,000 with the disposal of waste acids generated by Boyles in the
galvanizing process representing the major expenditure in this area. Due to
the increasing cost of waste disposal and decreasing availability of approved
disposal methods, alternative waste acid recycling methods have been evaluated
over recent years. While it appears that the technology for an economically
feasible system is available, no proven system for the recycling of
hydrochloric acid utilized by Boyles is currently on the market. The Company
initially planned to install a prototype system at one galvanizing plant in
1994, but postponed this expenditure due to the cost and experimental nature of
the system under consideration. Hydrochloric acid recycling systems will be
further evaluated as new systems become available. Future capital expenditures
in this area are expected to increase, however, such expenditures should
significantly reduce waste acid disposal expense.
Environmentally related expenditures at Lake River and Kinpak represented
a relatively small percentage of the Company's total cost in this area. The
majority of waste disposal costs at Lake River are incurred on behalf of
customers and are reimbursable. Lake River does not take title to the
chemicals stored, blended, or bagged in its facilities and thus is responsible
only for the proper handling of these materials while under its care, custody,
and control. Kinpak has been a zero discharge facility and produces no
hazardous wastes. As described above, Kinark has escrowed proceeds from the
sale of Kinpak's assets for some possible environmental remediation.
Boyles received notice on October 21, 1994 from the United States
Environmental Protection Agency ("EPA") that it was a potentially responsible
party in connection with an investigation and removal action at a former Boyles
site in Philadelphia, Pennsylvania. Boyles sold the property in 1981, and a
subsequent owner placed fill dirt on the property. An EPA initial
investigation indicated the presence of lead contamination on the site. During
1995, Boyles entered into negotiations with the EPA and received an informal
indication that the EPA does not consider Boyles to be the source of the lead
in the soil. The EPA has concluded its investigation with no finding of other
contamination for which Boyles would be considered liable. In 1995, Boyles
participated in the final clean-up of this site and received notification from
the EPA that it had demonstrated to the satisfaction of the EPA that all
requirements relating to the performance of the Response Action Plan had been
completed. Clean-up of this site consisted primarily of soil removal at a cost
of approximately $85,000 to Boyles.
The Company is committed to complying with all federal, state and local
environmental laws and regulations and using its best management practices to
anticipate and satisfy future requirements. As is typical in the galvanizing
and chemicals businesses, Boyles and Lake River will have additional
environmental compliance costs associated with past, present, and future
operations. Management has committed resources to discovering and eliminating
environmental issues as they arise. Because of the frequent changes in
environmental technology, laws and regulations management cannot reasonably
attempt to quantify the Company's potential costs in this area. However, such
costs are expected to increase above their current levels as discussed above.
OUTLOOK FOR 1996
Based on the present situations at Boyles and Lake River, management is
confident that the Company is in a position to realize an improved operating
performance in 1996. Lake River expects to achieve profit growth through the
continued shifting of its sales mix into specialty chemicals drumming and
warehousing. Boyles is benefiting from increased volume and higher pricing
which is expected to generate improved profit margins. Kinark's recently
announced acquisition of a controlling interest in Rogers Galvanizing Company
creates the largest independent galvanizing company in North America. By
combining these companies under one group, Kinark can take full advantage of
the growth opportunities in the highly fragmented galvanizing industry.
Kinark's expanded network to eleven galvanizing plants represents a doubling of
capacity over 1995, and increased market share. Increased market share should
provide for versatility of service, optimization of production, price
leadership and improved profitability.
On February 5, 1996, the Company closed its acquisition of 51.2% of the
common stock of Rogers Galvanizing Company ("Rogers") from the Trust Company of
Oklahoma as the Trustee for two private trusts, pursuant to a Stock Purchase
Agreement dated as of August 3, 1994. On February 16, 1996 and March 29, 1996,
the Company exercised options to purchase additional common shares from certain
minority stockholders and increased its ownership of Rogers to 68.9%. The
Company also has purchase options for, or has offered to purchase, the
remaining 31.1% of Rogers stock which it intends to close in 1996. The
acquisition of Rogers will approximately double the Company's galvanizing
operations.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which establishes accounting standards for such
assets, including intangible assets.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 establishes a
fair value method and disclosure standards for stock-based employee
compensation arrangements, such as stock purchase plans and stock options. As
allowed by SFAS No. 123, the Company will continue to follow the provisions of
Accounting Principles Board Opinion No. 25 for such stock based compensation
arrangements and disclose the pro forma effects of applying SFAS No. 123 for
1995 and 1996 on the 1996 financial statements.
Management believes that adoption of SFAS No. 121 and No. 123 in the 1996
financial statements will not have a material impact on the Company's
consolidated financial position or results of operations.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KINARK CORPORATION:
We have audited the accompanying consolidated balance sheets of Kinark
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Kinark Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As discussed in the Income Taxes footnote to the consolidated financial
statements, in 1993 the Company changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109.
As discussed in the Acquisition of Rogers Galvanizing Company ("Rogers")
footnote to the consolidated financial statements, the Company acquired 67.2%
of Rogers common stock in cash purchase transactions in February 1996. The
financing for this acquisition was provided through a private placement of the
Company's common stock in January 1996, as discussed in the Private Placement
footnote.
/s/ Deloitte & Touche, LLP
Deloitte & Touche LLP
Tulsa, Oklahoma
February 27, 1996 (except as to the second
paragraph of the Long-Term Debt footnote,
for which the date is April 1, 1996)
CONSOLIDATED BALANCE SHEETS
December 31
(Dollars in Thousands) 1995 1994
ASSETS
Current Assets
Cash $30 $32
Accounts receivable, less allowances
of $162 in 1995 and $77 in 1994 3,508 3,847
Inventories 2,615 3,301
Prepaid expenses 566 482
Net assets of discontinued operation 434 ---
Total Current Assets 7,153 7,662
Deferred Income Taxes, Net 2,070 1,356
Other Assets 145 740
Property, Plant and Equipment, at Cost
Land 483 692
Chemical facilities and equipment 18,051 23,846
Galvanizing plants and equipment 11,730 11,516
Other 191 113
30,455 36,167
Less: Allowance for depreciation 21,448 24,971
Total Property, Plant & Equipment, Net 9,007 11,196
TOTAL ASSETS $18,375 $20,954
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable and bank overdraft $1,593 $1,722
Other accrued liabilities 2,057 2,415
Current portion of long-term obligations 628 764
Total Current Liabilities 4,278 4,901
Long-Term Obligations 5,932 6,009
Commitments and Contingencies
Shareholders' Equity
Common stock, $.10 par value, 12,000,000
shares authorized: 5,200,562
shares issued 520 520
Additional paid-in capital 10,531 10,535
Retained earnings 3,090 4,969
Less: Treasury stock at cost: 1995 - 1,453,064
shares; 1994 - 1,454,152 shares (5,976) (5,980)
Total Shareholders' Equity 8,165 10,044
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $18,375 $20,954
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
(Dollars in Thousands Except per Share) 1995 1994 1993
Sales $25,246 $26,223 $25,542
Costs and Expenses
Cost of sales 20,524 18,999 17,731
Selling, general & administrative 3,766 3,619 3,802
Depreciation 1,471 1,469 1,304
25,761 24,087 22,837
Operating Earnings (Loss) (515) 2,136 2,705
Other (Income) Expense
Interest expense 634 503 435
Consent solicitation ---- ---- 1,076
Other ---- 95 (1)
634 598 1,510
Earnings (Loss) from continuing operations before
income taxes and cumulative effect of
change in accounting method (1,149) 1,538 1,195
Income Tax Expense (Benefit) (446) 527 430
Earnings (Loss) from continuing operations before
cumulative effect of change in
accounting method (703) 1,011 765
Earnings (Loss) from Discontinued Operation:
Earnings (Loss) from discontinued
operation (net of income taxes) (307) (601) 15
Loss from disposal of discontinued
operation (net of income taxes) (869) ---- ----
(1,176) (601) 15
Cumulative effect of change in
accounting method ---- ---- 1,802
Net Earnings (Loss) $(1,879) $410 $2,582
Net Earnings (Loss) Per Common Share:
Earnings (loss) from continuing operations
before cumulative effect of change in
accounting method $(.19) $.27 $.20
Discontinued operation (.31) (.16) ----
Cumulative effect of change in
accounting method ---- ---- .48
Net Earnings (Loss) Per Common Share $(.50) $.11 $.68
Weighted Average Shares Outstanding 3,747,134 3,751,979 3,754,854
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Common Additional
Shares Stock ($.10Paid-in Retained Treasury
OutstandingPar Value)Capital Earnings Stock Total
January 1, 1993 3,746,425 $520 $10,535 $1,977 $(5,980) $7,052
Net Earnings ---- ---- ---- 2,582 ---- 2,582
December 31, 1993 3,746,425 520 10,535 4,559 (5,980) 9,634
Treasury stock
purchased (15) ---- ---- ---- ---- ---- ----
Net Earnings ---- ---- ---- 410 ---- 410
December 31, 1994 3,746,410 520 10,535 4,969 (5,980) 10,044
Treasury stock
issued 1,088 ---- (4) ---- 4 ----
Net Loss ---- ---- ---- (1,879) ---- (1,879)
December 31, 1995 3,747,498 $520 $10,531 $3,090 $(5,976) $8,165
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
(Dollars in Thousands) 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $(1,879) $410 $2,582
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Loss (Gain) from discontinued operation 1,176 601 (15)
Cumulative effect of change in accounting
method ---- ---- (1,802)
Depreciation 1,471 1,469 1,304
Deferred income taxes (763) 412 443
Change in assets and liabilities:
Accounts receivable (286) 205 351
Inventories and other (79) (111) 327
Accounts payable and other accrued
liabilities 16 1,068 (578)
Net Cash Provided by (Used for)
Continuing Operations (344) 4,054 2,612
Net Cash Provided by (Used for)
Discontinued Operation 433 (1,352) (497)
NET CASH PROVIDED BY OPERATING ACTIVITIES 89 2,702 2,115
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,055) (1,410) (2,459)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term obligations 14,462 12,969 13,512
Payments on long-term obligations (13,498) (14,415) (13,159)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 964 (1,446) 353
DECREASE IN CASH (2) (154) (9)
CASH AT BEGINNING OF PERIOD 32 186 177
CASH AT END OF PERIOD $30 $32 $186
SUPPLEMENTAL DISCLOSURES
Interest paid $634 $503 $435
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1994, and 1993
DESCRIPTION OF BUSINESS
Kinark Corporation (the Company) is engaged in galvanizing and chemical
storage and distribution. In the galvanizing segment, Boyles Galvanizing
Company provides metals corrosion protection with six regionally located
galvanizing plants. Kinark operates chemical storage facilities through Lake
River Corporation in Chicago. The Company grants credit to its customers on
terms standard for these industries. The Company's largest customer accounted
for 4.7%, 13.2% and 15.4% of consolidated sales for the years 1995, 1994 and
1993, respectively.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries Boyles
Galvanizing Company, Lake River Corporation, Kinpak, Inc., (a discontinued
subsidiary) and Camelot Inn - Little Rock, Inc. (a discontinued subsidiary
whose assets were sold in 1991). All intercompany transactions are eliminated
in consolidation.
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 and
disclosure of contingent assets and liabilities at the balance sheet dates and
the reported amounts of revenues and expenses for each of the years. Actual
results will be determined based on the outcome of future events and could
differ from the estimates.
INVENTORIES. Inventories consist primarily of zinc, the principal raw
material used in galvanizing. All inventories are stated at the lower of cost
or market with zinc valued on a last-in-first-out (LIFO) basis. Other
inventories are valued primarily on an average cost basis. Inventories consist
of the following:
(Dollars in Thousands) 1995 1994
Raw Material - LIFO $2,374 $2,433
Other Raw Materials 241 387
Finished Goods --- 481
$2,615 $3,301
The approximate replacement cost of raw material valued on a LIFO basis
was $2,085,000 and $2,328,000 at December 31, 1995 and 1994 respectively.
REVENUE RECOGNITION. Galvanizing revenues are recognized as services are
performed. Chemical storage and distribution revenues are generally recognized
over the terms of the lease for storage contracts and as services are performed
for distribution and other miscellaneous services.
DEPRECIATION AND AMORTIZATION. Plant and equipment, including assets
under capital leases, are depreciated on the straight-line basis over their
estimated useful lives, generally at rates of 2% to 6% for buildings and 10% to
20% for equipment, furnishings, and fixtures.
SELF-INSURANCE. The Company is self-insured for workers' compensation and
certain health care claims for its active employees. The Company carries
excess workers' compensation insurance covering claims exceeding $50,000 per
occurrence. The reserves for workers' compensation benefits and health care
claims represent estimates for reported claims and for claims incurred but
not reported. Such estimates are generally based on actuarially determined
estimates of the expected values; however, the actual results may vary from
these values since the evaluation of losses is inherently subjective and
susceptible to significant changing factors.
EARNINGS (LOSS) PER COMMON SHARE. Earnings (loss) per common share are
calculated using the weighted average number of shares outstanding including
the effect of stock options, when applicable, using the treasury stock method.
INCOME TAXES. For financial statement purposes, income taxes are
calculated according to Statement of Financial Standards ("SFAS") No. 109,
"Accounting for Income Taxes". The cumulative effect of adopting SFAS No. 109
was to increase 1993 earnings by $1,802,000 which represented primarily the
future tax benefits to be realized from utilization of net operating loss
carryforwards for which management believes realization is more likely than
not.
LONG-TERM OBLIGATIONS
December 31
(Dollars in Thousands) 1995 1994
Revolving line of credit $2,893 $1,735
Term loan 3,297 3,741
Capital leases 370 1,297
6,560 6,773
Less current portion 628 764
$5,932 $6,009
LONG-TERM DEBT. During 1995 the Company operated under a bank credit
agreement which provided a $4,250,000 maximum revolving line of credit, and a
term loan, both of which expire in March 1996. Amounts borrowed on the
revolver and on the term loan bore interest at 1% over prime during 1995, and
1/2% and 3/4% over prime during 1994, resulting in an effective rate of 9 1/4%
on both the revolving line of credit and the term loan at December 31, 1995
and 9% and 9 1/4%, respectively, at December 31, 1994. The revolver could be
paid down without penalty, or additional funds could be borrowed up to the
revolver limits. The term loan payments were based on a ten year amortization
schedule with equal monthly payments of principal and interest. Substantially
all of the Company's accounts receivable, as well as the inventories and fixed
assets of Boyles Galvanizing Company were pledged as collateral under the
agreement. The bank credit agreement placed certain restrictions on capital
expenditures, amount of debt, and pledging of assets. In addition, the
agreement required the Company to maintain a specified minimum net worth. The
Company was in compliance with all such provisions of the credit agreement at
December 31, 1995.
On April 1, 1996, the Company's bank credit agreement was extended through
April 1997, on substantially the same terms as described above.
Aggregate maturities of long-term debt, exclusive of capital lease
obligations, for each of the five years following 1995 are $488,000,
$5,702,000, $0, $0, and $0, after giving effect to the April 1, 1996 renewal of
the bank credit agreement.
CAPITAL LEASES. Capital leases with an aggregate maturity of $370,000
consist of computers and material handling equipment used in the subsidiary
operations.
As discussed in the Discontinued Operation note, on February 27, 1996,
the Company sold substantially all of the assets of its Kinpak subsidiary and
the buyer assumed the capital lease for the plant facility which was financed
by a $3,000,000 industrial revenue bond issue. Lease payments equal bond
principal and interest at a fixed rate of interest which averages 6 7/8 %
annually. The Company remains contingently liable on the capital lease which
requires principal payments aggregating $990,000 through 1999. This contingent
liability is not included in the schedule of Long-Term Obligations.
COMMITMENTS
The Company leases land, office, warehouse facilities and certain
equipment under noncancellable operating leases. The leases generally provide
for renewal options and periodic rate increases based on specified economic
indicators and are typically renewed in the normal course of business. Rent
expense was $1,288,000 in 1995, $1,186,000 in 1994, and $1,211,000 in 1993.
Minimum annual rental commitments at December 31, 1995 are as follows:
Capital Operating
(Dollars in Thousands) Leases Leases
1996 $167 $1,481
1997 109 624
1998 72 10
1999 38 10
2000 53 8
$439 $2,133
Less: Portion representing interest 69
Net capitalized lease obligation $370
CONTINGENCIES & ENVIRONMENTAL
Various litigation arising in the ordinary course of business is pending
against the Company. Further, the Company will have additional environmental
compliance costs associated with past, present, and future operations in the
galvanizing and chemicals businesses. The Company is committed to complying
with the environmental legislation and regulations affecting its operations.
Due to the uncertainties associated with future environmental technologies,
regulatory interpretations, and prospective legislative activity management
cannot reasonably attempt to quantify potential costs in this area.
The Company expenses or capitalizes, where appropriate, environmental
expenditures that relate to current operations as they are incurred. Such
expenditures are expensed when they are attributable to past operations and are
not expected to contribute to current or future revenue generation. The
Company records liabilities when remediation or other environmental assessment
or clean-up efforts are probable and the cost can be reasonably estimated.
Boyles was named as a potentially responsible party in October, 1994 by
the United States Environmental Protection Agency ("EPA") in connection with an
investigation and removal action at a former Boyles site in Philadelphia,
Pennsylvania sold in 1981. During 1995, Boyles participated in the clean-up of
this site which consisted primarily of soil removal at a cost of approximately
$85,000. In 1995, the EPA notified Boyles that it had complied with all
requirements relating to clean-up of the Philadelphia site.
Management believes that resolution of the Company's litigation and
environmental matters should not materially affect the Company's consolidated
financial position. Should future developments cause the Company to record an
additional liability for environmental evaluation or clean up, the recording of
such a liability could have a material impact on the results of operations for
the period involved.
INCOME TAXES
The provision (benefit) for income taxes consists of the following:
December 31,
(Dollars in Thousands) 1995 1994 1993
Current $(125) $304 $7
Deferred (321) 223 423
Income tax expense (benefit) $(446) $527 $430
The reconciliation of income taxes at the federal statutory rate to the
Company's effective tax rate is as follows:
Taxes at statutory rate $(391) $523 $406
State tax net of federal benefit (15) (8) ---
Other (40) 12 24
Taxes at effective tax rate $(446) $527 $430
At December 31, 1995, the Company has approximately $5,309,000 of net
operating loss carryforwards available to offset future taxable income.
Investment tax credits of $157,000 and alternative minimum tax credit
carryforwards of $65,000 are also available as carryforwards to future years.
The net operating loss carryforwards expire in varying amounts during the years
2002 through 2010 and the investment tax credits expire in 1999.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's net deferred tax asset consist of
the following:
December 31,
(Dollars in Thousands) 1995 1994
Deferred tax liabilities:
Differences between book and
tax basis of property $304 $327
Other state income tax 7 15
Deferred tax liability 311 342
Deferred tax assets:
Alternative Minimum Tax Credit 65 191
Reserves not currently deductible 232 243
Operating loss carryforwards 1,856 1,016
Tax credit carryforwards 157 157
Other 71 91
Deferred tax asset 2,381 1,698
Net deferred tax asset $2,070 $1,356
Substantially all of the Company's operating loss carryforwards arose from
losses incurred by hotel operations which were sold in 1991. Management
believes that future operating income of the Company will more likely than not
be sufficient to realize the net deferred tax asset.
STOCK OPTION PLANS
At December 31, 1995 and 1994, 335,000 shares of the Company's common
stock were reserved for issuance under the terms of the stock option plans for
key employees. The plans generally provide options to purchase Company stock
at fair market value as of the date the option is granted. Options generally
become exercisable in installments specified by the applicable plan and must be
exercised within ten years of the grant date.
Number
Under Option of Shares Option Price
Balance at January 1, 1993 272,250 $3.19 to $5.56
Granted 5,000 $4.31
Expired (5,000) $4.44
Canceled (200,000) $5.56
Balance at December 31, 1993 72,250 $3.19 to $4.75
Granted 34,500 $4.50
Canceled (1,500) $4.50
Balance at December 31, 1994 105,250 $3.19 to $4.75
Granted 32,613 $3.00 to $3.88
Expired (5,500) $4.50
Canceled (31,113) $3.06 to $4.50
Balance at December 31, 1995 101,250 $3.00 to $4.75
At December 31, 1995, 1994, and 1993, options for 76,125, 68,000 and
66,250 shares, respectively were exercisable.
DISCONTINUED OPERATIONS
During August 1995, the Company finalized a formal plan to discontinue the
operations of its Kinpak subsidiary, which exclusively and entirely comprised
the Company's chemical packaging business. Substantially all of the assets of
Kinpak were subsequently sold on February 27, 1996 for $1,840,000 consisting of
$850,000 cash and the assumption of the capital lease on its plant facilities
which was financed by a $3,000,000 industrial revenue bond issue. The
$1,264,000 loss on disposal (before income taxes of $395,000) includes $460,000
of operating losses incurred during the third and fourth quarter of 1995 and
the period through February 27, 1996, the closing date, and a $804,000 loss on
the sale of assets. The loss above differs from the prior estimated loss of
$1,525,000 recorded during the third quarter of 1995. Revenues from Kinpak
were $6,346,236 (including revenues of $263,110 for the period through the
closing date), $8,559,000 and $5,358,000 for the years ended December 31, 1995,
1994 and 1993, respectively. The income tax expense (benefit) on the
operating results of Kinpak are ($176,000), ($346,000), and $24,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
Kinark remains as the guarantor on the capital lease assigned to the
buyer, which requires payments aggregating $990,000 through 1999.
EMPLOYEE BENEFIT PLANS
Substantially all of the Company's employees are covered by a thrift plan,
except for union employees of Lake River Corporation who are covered by a
defined benefit pension plan. Company contributions to these benefit plans are
as follows:
Year Ended December 31
(Dollars in Thousands) 1995 1994 1993
Pension Plan $42 $53 $88
Thrift Plan 204 260 267
$246 $313 $355
Pension plan assets consist of group annuity insurance contracts. Thrift
plan assets consist of short-term investments, intermediate bonds, and listed
stock. Pension costs are funded in accordance with the Employee Retirement
Income Security Act of
1974 (ERISA). The funded status of the Company's defined benefit pension plan
is as follows:
December 31
(Dollars in Thousands) 1995 1994 1993
Accumulated benefit obligation
Vested $1,023 $916 $1,083
Nonvested 25 5 11
Total $1,048 $921 $1,094
Projected benefit obligation $1,087 $962 $1,104
Less fair value of plan assets (572) (551) (659)
Unfunded projected benefit
obligation 515 411 445
Unrecognized net transition
obligation (347) (256) (331)
Pension liability recognized
in the consolidated
balance sheet $168 $155 $114
Applicable rates used in determining the actuarial value of the projected
benefit are as follows:
1995 1994 1993
Discount rate* 7.5% 8.0% 7.0%
Rate of increase in future
compensation levels* 6.0% 6.0% 5.0%
Expected long-term rate of
return on plan assets 7.5% 8.5% 8.0%
*Used in determining the actuarial value of the projected benefit.
The periodic net pension cost of the Company's defined benefit pension
plan included the following:
Year Ended December 31
(Dollars in Thousands) 1995 1994 1993
Service cost benefits earned
during the period $27 $27 $33
Interest cost on projected
benefit obligations 70 84 65
Expected return on assets (41) (53) (48)
Amortization of unrecognized
net transition obligations 8 8 8
Amortization of prior service cost 7 7 4
Amortization of loss 3 9 6
Net periodic pension cost $74 $83 $68
NORTHBRIDGE CONSENT SOLICITATION
During 1993, Northbridge Holdings, Inc. ("Northbridge"), together with
certain other stockholders of the Company, solicited stockholder consent to
increase the number of the Company's directors and to elect their nominees to
the newly created positions (the "Consent Solicitation"). The Company's board
of directors opposed the Consent Solicitation and solicited revocations of
consent. The Consent Solicitation was settled under the terms of a Memorandum
of Understanding entered into by the Company, Northbridge, Altair Corporation,
and certain other parties as approved by the Court of Chancery of the State of
Delaware in and for Newcastle County. Subsequent to this settlement, two of
Northbridge's officers became members of the Company's board of directors.
The Company recorded Consent Solicitation expenses of $1,076,000 during
1993, including the reimbursement of Northbridge consent-related expenses of
$578,000. Additional Consent Solicitation expenses incurred by the Company
consisted primarily of legal fees, proxy solicitation fees, and printing and
distribution costs.
RECOVERY OF SHORT-SWING TRADING PROFITS
During 1995, the Company received approximately $5,000 from a stockholder
representing profits on the sale of its Company stock in violation of certain
trading rules under the Securities Exchange Act of 1934. This amount was
recorded as other income rather than a capital transaction based on the
immaterial amount involved.
PRIVATE PLACEMENT
In January 1996, the Company sold approximately 2.28 million shares of its
common stock in a private placement at a price of $2.50 per share. Proceeds
from this sale of stock were used to fund the acquisition of Rogers Galvanizing
Company (see Acquisition of Rogers Galvanizing Company).
ACQUISITION OF ROGERS GALVANIZING COMPANY
On February 5, 1996, the Company acquired 51.2% of the outstanding common
stock of Rogers Galvanizing Company ("Rogers"), and assumed control of the
Board of Directors. Rogers is a galvanizing company located in Oklahoma. The
acquisition will be accounted for using the purchase method of accounting. The
purchase price of the common stock was $4.3 million in cash paid to two Trusts
that held the common stock. Under the purchase agreement with the Trusts, the
Company agreed to offer to purchase the remaining outstanding shares of common
stock of Rogers from its minority stockholders for cash at a price per share
equivalent to that paid to the Trusts. On February 16, 1996, pursuant to five
separate option agreements, the Company acquired an additional 16% of the
outstanding common stock of Rogers. The purchase price of this common stock
was $1.3 million in cash.
The following unaudited pro forma results of operations assume the
acquisition of 67.2% of Rogers common stock occurred as of January 1, 1994.
Weighted average common shares used to compute net earnings (loss) per share
include the 2.28 million shares issued in the Private Placement.
Year Ended December 31
(Dollars in Thousands) 1995 1994
Sales $42,860 $38,848
Earnings from continuing
operations $544 $1,873
Loss from discontinued
operation, net of taxes $(1,176) $(601)
Net Earnings (Losses) $(632) $1,272
Net Earnings (Losses) per common
share $(.10) $.21
The pro forma results include the operating results of Rogers for its
fiscal year ended September 30. The pro forma amounts include an adjustment to
reflect the amortization of the excess of cost over fair value of net assets
acquired in the Rogers acquisition using a straight-line method over 25 years.
The Company has not completed its determination of the fair value of Rogers'
assets and liabilities, but does not believe that the historical amounts of
Rogers' assets and liabilities differ materially from fair value.
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Rogers acquisition been
consummated as of January 1, 1994, nor are they necessarily indicative of
future operating results.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For the year ended December 31, 1995, SFAS No. 107 "Disclosures about Fair
Value of Financial Instruments" requires disclosure regarding the fair value of
financial instruments for which it is practical to estimate that value. The
carrying value of financial instruments included in current assets and
liabilities approximates fair value. The fair value of the Company's long-term
debt is estimated to approximate carrying value based on the borrowing rates
currently available to the Company for bank loans with similar terms and
average maturities.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which establishes accounting standards for such
assets.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 123 establishes a
fair value method and disclosure standards for stock-based employee
compensation arrangements, such as stock purchase plans and stock options. As
allowed by SFAS No. 123, the Company will continue to follow the provisions of
Accounting Principles Board Opinion No. 25 for such stock based compensation
arrangements and disclose the pro forma effects of applying SFAS No. 123 for
1995 and 1996 on the 1996 financial statements.
Management believes that adoption of SFAS No. 121 and No. 123 in the 1996
financial statements will not have a material impact on the Company's
consolidated financial position or results of operations.
SEGMENTS OF BUSINESS
Year Ended December 31
(Dollars in Thousands) 1995 1994 1993
Sales
Galvanizing $16,984 $15,476 $14,935
Chemical storage and distribution 8,262 10,747 10,607
$25,246 $26,223 $25,542
Operating Earnings
Galvanizing $1,414 $1,305 $1,857
Chemical storage and distribution 174 2,363 2,658
1,588 3,668 4,515
Interest expense (634) (503) (435)
Consent solicitation ---- ---- (1,076)
Other ---- (95) ----
Corporate headquarters expense (2,103) (1,532) (1,809)
(1,149) 1,538 1,195
Income Tax Expense (Benefit) (446) 527 430
Earnings (Loss) from Continuing Operations
before cumulative effect of change
in accounting method $(703) $1,011 $765
December 31
(Dollars in Thousands) 1995 1994 1993
Identifiable Assets
Galvanizing $11,790 $12,079 $11,843
Chemical storage 3,555 3,604 3,547
Chemical packaging ---- 3,681 3,304
Net assets of discontinued operations 434 ---- ----
General corporate 2,596 1,590 2,237
$18,375 $20,954 $20,931
Capital Expenditures
Galvanizing $544 $678 $1,660
Chemical storage 461 712 770
General corporate 50 20 29
$1,055 $1,410 $2,459
Depreciation Expense
Galvanizing $879 $866 $736
Chemical storage 558 573 539
General corporate 34 30 29
$1,471 $1,469 $1,304
Quarterly Results (Unaudited)
Quarterly Results of Operations for the Years Ended December 31, 1995 and 1994
Were:
1995
(Dollars in Thousands Except per Share)Mar 31Jun 30 Sep 30 Dec 31 Total
Sales $6,074 $6,696 $6,201 $6,275 $25,246
Gross Profit $1,115 $1,022 $1,570 $1,015 $4,722
EARNINGS (LOSS) FROM
Continuing operations (270) (242) 25 (216) (703)
Discontinued operations (212) (20) (1,036) 92 (1,176)
NET EARNINGS (LOSS) $(482) $(262) $(1,011) $(124) $(1,879)
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations (.07) (.06) .01 (.07) (.19)
Discontinued operations (.06) (.01) (.28) .04 (.31)
NET EARNINGS (LOSS) PER COMMON
SHARE $(.13) $(.07) $(.27) $(.03) $(.50)
1994
(Dollars in Thousands Except per Share)Mar 31Jun 30 Sep 30 Dec 31 Total
SALES $6,719 $6,618 $6,830 $6,056 $26,223
GROSS PROFIT $1,878 $2,006 $2,069 $1,272 $7,225
EARNINGS (LOSS) FROM
Continuing operations 299 348 387 (23) 1,011
Discontinued operations 165 (65) (545) (156) (601)
NET EARNINGS (LOSS) $464 $283 $(158) $(179) $410
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations .08 .10 .10 (.01) .27
Discontinued operations .04 (.02) (.14) (.04) (.16)
NET EARNINGS (LOSS) PER COMMON SHARE $.12 $.08 $(.04) $(.05) $.11
SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company (dollars
in thousands, except for per share data):
For The Year Ended Dec. 31, 1995 1994 1993 1992 1991*
Sales $25,246 $26,223 $25,542 $26,388 $29,369
Earnings (Losses) from continuing
operations before cumulative
effect of change in accounting
method $(703) $1,011 $765 $1,819 $3,942
Earnings (Losses) per common share
from continuing operations
before cumulative effect of
change in accounting method $(0.19) $0.27 $0.20 $0.49 $1.06
Weighted average shares
outstanding** 3,747,134 3,751,979 3,754,854 3,748,469 3,704,822
At December 31, 1995 1994 1993 1992 1991*
Working Capital $2,875 $2,761 $3,961 $4,028 $2,000
Current Ratio 1.7 1.6 2.1 2.1 1.4
Total Assets $18,375 $20,954 $20,931 $18,402 $16,841
Capital Expenditures $1,055 $1,410 $2,459 $3,186 $2,311
Depreciation $1,471 $1,469 $1,304 $1,238 $1,305
Long-Term Obligations $5,932 $6,009 $7,720 $7,548 $6,417
Shareholders' Equity $8,165 $10,044 $9,634 $7,052 $5,119
Per Share $2.18 $2.68 $2.57 $1.88 $1.41
Common Shares Outstanding3,747,498 3,746,410 3,746,425 3,746,425 3,622,950
* The Company changed its method of valuing certain inventory from the
first-in first-out (FIFO) method to the last-in first-out (LIFO) method in
1991. This change increased 1991 net earnings by $300,000 or $.08 per
share.
** Weighted average shares outstanding include the dilutive effect of stock
options, if applicable.
EXHIBIT INDEX
Exhibit
No. Description Page
3.1 Restated Certificate of Incorporation of Kinark Corporation, as
amended by Certificate of Amendment of Restated Certificate of
Incorporation dated May 19, 1987 and Certificate of Amendment of
Restated Certificate of Incorporation dated July 30, 1993. This
information is incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
3.2 Amended and Restated Bylaws of Kinark Corporation. This
information is incorporated by reference to Exhibit 3.2 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995.
10.1 Employment Continuity Letter Agreement dated May 14, 1982,
by and between Kinark Corporation and Paul R. Chastain. This
information is incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.2 Revolving Credit and Term Loan Agreement dated as of
March 24, 1992, as amended on October 16, 1992;
March 31, 1993; March 31, 1994; March 31, 1995;
and April 1, 1996 by and between Bank of Oklahoma, N.A.
and Kinark Corporation and subsidiaries. This information
is incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
10.3 Consulting Agreement dated July 1, 1993, by and between Kinark
Corporation and Harry D. Jones. This agreement is incorporated
by reference to Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1993.
21. Subsidiaries of the Registrant. *
23. Independent Auditors' Consent.
24.01 Power of attorney from Richard C. Butler. *
24.02 Power of attorney from Michael T. Crimmins. *
24.03 Power of attorney from Ronald J. Evans. *
24.04 Power of attorney from Harry D. Jones. *
24.05 Power of attorney from Mark E. Walker. *
27. Amended Financial Data Schedule.
*Previously filed.