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 March 31, 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 March 31, 1995.
Common Stock $ .10 Par Value . . . . . 3,746,410
<PAGE>
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 March 31, 1995 (unaudited), and
December 31, 1994 3
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1995 and 1994 (unaudited) 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1995 and 1994 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements for the three months ended
March 31, 1995 and 1994 (unaudited) 6
Item 2. Managements' Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
PART II. OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
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 March 31, 1995, and the related
condensed consolidated statements of operations and cash flows for the three-
month periods ended March 31, 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
May 8, 1995
Tulsa, Oklahoma
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAR 31 DEC 31
(Dollars in Thousands) 1995 1994
ASSETS UNAUDITED
CURRENT ASSETS
Cash $ 9 $ 32
Accounts receivable, less allowances 3,973 3,847
Inventories 3,127 3,301
Prepaid expenses 510 482
TOTAL CURRENT ASSETS 7,619 7,662
DEFERRED INCOME TAXES 1,643 1,356
OTHER ASSETS 818 740
PROPERTY, PLANT AND EQUIPMENT, AT COST 36,077 36,167
Less: Allowance for depreciation 25,140 24,971
TOTAL PROPERTY, PLANT & EQUIPMENT,
NET 10,937 11,196
TOTAL ASSETS $21,017 $20,954
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,610 $ 1,722
Other accrued liabilities 2,439 2,415
Current portion of long-term
obligations 764 764
TOTAL CURRENT LIABILITIES 4,813 4,901
LONG-TERM OBLIGATIONS 6,642 6,009
SHAREHOLDERS' EQUITY
Common stock 520 520
Additional paid-in capital 10,535 10,535
Retained earnings 4,487 4,969
Less: Treasury stock at cost (5,980) (5,980)
TOTAL SHAREHOLDERS' EQUITY 9,562 10,044
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $21,017 $20,954
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended
March 31
(Dollars in Thousands Except per Share Amounts)
1995 1994
SALES $ 7,754 $ 9,034
COSTS AND EXPENSES
Cost of sales 5,905 5,993
Selling, general & administrative 1,977 1,718
Depreciation 464 440
TOTAL COSTS AND EXPENSES 8,346 8,151
OPERATING EARNINGS NET (592) 883
OTHER EXPENSE
Interest expense 167 152
EARNINGS (LOSS) BEFORE INCOME TAXES (759) 731
INCOME TAX EXPENSE (BENEFIT) (277) 267
NET EARNINGS (LOSS) $ (482) $ 464
NET EARNINGS (LOSS) PER COMMON SHARE $ (0.13) $ 0.12
See notes to condensed consolidated financial statements.
<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended
March 31
(Dollars in Thousands) 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings (Loss) $ (482) $ 464
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation 464 440
Change in assets and liabilities:
Accounts receivable (126) (572)
Deferred tax asset (287) 255
Inventories and other 68 (141)
Accounts payable and other accrued
liabilities (88) 55
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES (451) 501
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (205) (401)
Discontinued operations 0 (22)
NET CASH USED FOR INVESTING
ACTIVITIES (205) (423)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term
obligations 3,453 2,730
Payments on long-term
obligations (2,820) (2,994)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 633 (264)
DECREASE IN CASH (23) (186)
CASH AT BEGINNING OF PERIOD 32 186
CASH AT END OF PERIOD $ 9 $ 0
See notes to condensed consolidated financial statements.<PAGE>
KINARK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 3,750,000 and 3,752,000 for the three months ended
March 31, 1995 and 1994 respectively, including the effect of stock
options, when applicable, using the treasury stock method.
NOTE 3. INVENTORIES
Inventories consist primarily of zinc, the principal raw material
used in galvanizing. Inventories consist of $2,655,000 raw
materials, $472,000 finished goods and $2,820,000 raw materials,
$481,000 finished goods at March 31, 1995 and December 31, 1994
respectively.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
FIRST QUARTER ANALYSIS
REVENUES
Quarter Ended 1995 1994
March 31 % of % of
$ (000) Sales $ (000) Sales
Boyles Galvanizing $ 4,083 52.7% $ 3,969 43.9%
Lake River Corporation 1,991 25.7% 2,750 30.5%
Kinpak, Inc. 1,680 21.7% 2,315 25.6%
Total $ 7,754 100.0% $ 9,034 100.0%
Consolidated sales for the first quarter of 1995 declined $1,280,000, or
14.2%, in comparison to the first quarter of 1994. Although sales increased
slightly at Boyles during the first quarter, sales were significantly lower at
both Lake River and Kinpak compared to sales during the first quarter in the
prior year. Boyles' sales increase was attributable to improved pricing with
the average selling price up 3.8% from 1994. Improved pricing at the Company's
high volume Texas plants was the primary cause of the higher average selling
price. Boyles' higher average selling price more than offset a small decline
in volume during the first quarter of 1995. Production totaled 16,910 tons
during the quarter, down 147 tons, or .9%, from first quarter 1994.
First quarter sales at Lake River declined $759,000, or 27.6%, compared to
the first quarter of 1994. As expected, the loss of Lake River's largest
customer during the fourth quarter of 1994 led to reduced sales at this
subsidiary. Revenues from Lake River's terminal operations declined 67.5% from
the first quarter of 1994 due to this customer loss. Warehousing revenues
increased 32.5% to partially offset the loss in terminal revenues.
Kinpak experienced a decline in first quarter revenues of $635,000, or
27.4%, with revenues down from 1994 on each product line. The largest decline
occurred in windshield washer fluid sales which were down because of a
reduction in the number of distribution centers served by Kinpak. Household
cleaning product sales also declined on reduced distribution in comparison to
the first quarter of 1994 and fewer products within this product line.
Antifreeze revenues declined due to a 35% reduction in volume reflecting a more
normal winter season in 1995 compared to the very harsh winter experienced in
the eastern region during the first quarter of 1994.
The Company expects second quarter revenues to continue the first quarter
trend at Boyles and Lake River with Boyles exceeding 1994 revenues and Lake
River trailing last year due to the loss of a major customer. Kinpak sales are
expected to improve in the second quarter as antifreeze volume begins to
increase and household cleaning product sales grow with higher sales
demonstration staffing levels.
COSTS AND EXPENSES
Quarter Ended 1995 1994
March 31 % of % of
$ (000) Sales $ (000) Sales
Cost of sales $5,905 76.1% $5,993 66.3%
Selling, general &
administrative 1,977 25.5% 1,718 19.0%
Depreciation 464 6.0% 440 4.9%
Total $8,346 107.6% $8,151 90.2%
As a percentage of sales, cost of sales increased 9.8% during the first
quarter of 1995 in comparison to 1994. The cost of sales percentage increased
at each subsidiary during the first quarter. Lake River experienced the
largest increase due to the reduced volume resulting from the customer loss
previously discussed. Cost of sales at Kinpak increased compared to last year
due primarily to material cost increases with methanol and corrugated paper
reflecting the greatest increases. Antifreeze cost also increased as a
percentage of sales due to a new contract under which Kinpak provides more of
the materials utilized in packaging antifreeze at a relatively small margin.
Boyles cost of sales also increased due to higher zinc costs in the first
quarter of 1995.
Selling, general and administrative ("S, G & A") expenses for the first
quarter of 1995 increased $259,000 from the prior year's first quarter. The
majority of this increase was attributable to reorganization expenses the
Company recorded in connection with the planned consolidation of certain
administrative offices. S, G & A expenses also increased at Kinpak due to
increased demonstration sales expenses. Sales demonstration costs were up due
to increased staffing in 1995 compared to the prior year. Depreciation expense
increased $24,000 during the first quarter of 1995, up slightly from 1994.
OTHER EXPENSE
Interest expense for the first quarter of 1995 was up $15,000 compared to
the comparable period in 1994. Due to higher interest rates in 1995 and higher
borrowings, the Company expects interest expense to remain above last year's
level.
INCOME TAXES
The Company recorded an income tax benefit of $277,000 for the first
quarter of 1995 as compared to tax expense of $267,000 in 1994. The current
year's tax benefit resulted from the Company's pretax loss. Income tax expense
(benefit) includes current and deferred federal income tax recorded at current
rates and state income tax provisions for various Company operations.
EARNINGS
Due to the reduced sales, lower gross margin, and increased S, G & A
expenses during the first quarter of 1995, the Company recorded a net loss of
$(482,000), or $(.13) per share, down from net earnings of $464,000, $.12 per
share, in first quarter 1994. <PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's loss during the first quarter of 1995 resulted in a $451,000
net use of cash for operating activities. During the comparable period in
1994, net cash provided by operating activities totaled $501,000.
Cash used for investing activities declined in 1995 totaling $205,000 for
the first quarter, a reduction of $218,000 from 1994's first quarter. 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 quarter, resulting in cash
provided by financing activities of $633,000. Outstanding borrowings on the
Company's $4,250,000 revolving line of credit totaled $2,496,000 at March 31,
1995.
<PAGE>
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
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Not applicable.
b) Reports on Form 8-K
Not applicable.<PAGE>
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: May 12, 1995
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